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Passive Activity Losses, Federal Taxation, at risk, PSC

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Which of the following decreases a taxpayer's at-risk amount?
a. Cash and the adjusted basis of property contributed to the activity.
b. Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity.
c. Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing.
d. Taxpayer's share of the activity's income.
e. None of the above.

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In 2007, Pearl invests $80,000 for a 10% partnership interest in an activity in which she is a material participant. The partnership reports losses of $500,000 in 2007 and $450,000 in 2008. Pearl's share of the
partnership's losses is $50,000 in 2007 and $45,000 in 2008. How much of the losses can Pearl deduct?
a. $50,000 in 2007 and $30,000 in 2008.
b. $50,000 in 2007 and $45,000 in 2008.
c. $0 in 2007 and $0 in 2008.
d. $50,000 in 2007 and $0 in 2008.
e. None of the above.

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Nora acquired passive activity A several years ago that until 2006 was profitable. However, the activity produced losses of $100,000 in 2006 and $50,000 in 2007. Nora had passive income from activity B of $40,000 in 2006 and $0 in 2007. How much loss is suspended from activity A in each year?
a. $60,000 in 2006 and $50,000 in 2007.
b. $100,000 in 2006 and $50,000 in 2007.
c. $0 in 2006 and $0 in 2007.
d. None of the above.

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Samantha sells a passive activity (adjusted basis of $50,000) for $90,000. Suspended losses attributable to this property total $30,000. The realized gain and the taxable gain are:
a. $40,000 realized gain; $70,000 taxable gain.
b. $10,000 realized gain; $10,000 taxable gain.
c. $40,000 realized gain; $0 taxable gain.
d. $40,000 realized gain; $10,000 taxable gain.
e. None of the above.

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In the current year, Crow Corporation, a closely held C corporation that is not a personal service corporation, has $100,000 of passive losses, $80,000 of active business income, and $20,000 of portfolio income. How
much of the passive loss may Crow deduct in the current year?
a. $0
b. $20,000.
c. $80,000.
d. $100,000.
e. None of the above.

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In the current year, Spring Corporation, a closely held personal service corporation, has $120,000 of passive losses, $70,000 of active business income, and $50,000 of portfolio income. How much of the passive loss
may Spring deduct in the current year?
a. $120,000.
b. $70,000.
c. $50,000.
d. $0.
e. None of the above.

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Solution Summary

There are five advanced problems, and the solutions are explained for better understanding of the concepts including calculations as needed.

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Which of the following decreases a taxpayer's at-risk amount?
a. Cash and the adjusted basis of property contributed to the activity.
b. Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity.
c. Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing.
d. Taxpayer's share of the activity's income.
e. None of the above.

All of the above add to risk because they are all increases in the amount at risk; therefore, e. is the correct response.

In 2007, Pearl invests $80,000 for a 10% partnership interest in an activity in which she is a material participant. The partnership reports losses of $500,000 in 2007 and $450,000 in 2008. Pearl's share of the
partnership's losses is $50,000 in 2007 and $45,000 in 2008. How much of the losses can Pearl deduct?
a. $50,000 in 2007 and $30,000 in 2008.
b. $50,000 in 2007 and $45,000 in 2008.
c. $0 in 2007 and $0 in 2008.
d. $50,000 in 2007 and $0 in 2008. ...

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