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Exam 6: Losses and Loss Limitations

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Question 31

True/False

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The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

A) True
B) False

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Question 32

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A bona fide debt cannot arise on a loan between father and son.

A) True
B) False

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Question 33

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Sandra acquired a passive activity three years ago.Until last year,the activity was profitable and her at-risk amount was $300,000.Last year,the activity produced a loss of $100,000,and in the current year,the loss is $50,000.Assuming Sandra has received no passive income in the current or prior years,her suspended passive loss from the activity is:

Rick,a computer consultant,owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000,suspended losses of $20,000,and a fair market value of $80,000) .No gift tax resulted from the transfer.

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

Chris receives a gift of a passive activity from his father whose basis was $60,000.Suspended losses related to the activity are $18,000.Chris will be allowed to offset the $18,000 suspended losses against future passive income.

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

On June 2,2014,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2015,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2016,final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2016?

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2014.His loss from the activity in 2014 is $80,000,and he had no passive activity income during the year.Art had $20,000 of passive income from the activity in 2015.Under the passive loss rules,Art's suspended loss at the end of 2015 is:

Al,who is single,has a gain of $40,000 on the sale of § 1244 stock (small business stock)and a loss of $80,000 on the sale of § 1244 stock.As a result,Al has a $40,000 ordinary loss.

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?

The current position of the IRS is that a personal casualty loss deduction is not allowed for losses resulting from termites.

A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

Leigh,who owns a 50% interest in a sporting goods store,was a material participant in the activity for the last fifteen years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However,she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Several years ago,John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000.Last year,John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year,John sold the remaining Red Corporation stock for $3,000.John has a $17,000 ($3,000 - $20,000)ordinary loss for the current year.