CHAPTER 11
In the current year, Rich has a $40,000 loss from a business he owns. His at-risk amount at the end of the year, prior to considering the current year loss, is $24,000. He will be allowed to deduct the $40,000 loss this year if he is a material participant in the businessCorrect Answer: False
Judy owns a 20% interest in a partnership in which her at-risk amount was $35,000 at the beginning of the year. The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year. Her at-risk amount at the end of the year is $53,000 Correct Answer: True
Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive loss of $44,000. The activity was sold at a loss and Kelly has no other passive activities. The suspended loss is not deductibleCorrect Answer: False
During the year, Bear Company incurs a $25,000 loss on a passive activity, has active income of $17,000, and portfolio income of $12,000. If Bear is a personal service corporation, it may deduct all of the $25,000 passive loss.Correct Answer: False
Nathan owns Activity A, which produces income each year. He also owns Activity B, which produces passive losses each year. From a tax planning perspective, Nathan will be better off if Activity A is passive.Correct Answer: True
Joe participates 95 hours in an activity, while an employee participates 5 hours. Joe has materially participated in the activity.Correct Answer: True
The Essay on Suspended Loss
1. In your “own” words, please describe what a “Suspended Loss” is, how it is generated and when it is becomes deductible. (5 pts) A suspended loss is a capital loss that is suspended until future years because it exceeds passive income limitations for the current year. They are generated if a loss occurs for an activity one year, the loss exceeds passive income limitations ...
Joyce owns an activity (not real estate) in which she participates for 100 hours a year; her husband participates for 450 hours. Joyce qualifies as a material participant. Correct Answer: True
In the current year, Abby has AGI of $95,000 and a $40,000 loss from a real estate rental activity in which she is a 15% owner. If she is an active participant, she can deduct $25,000 of the loss Correct Answer: True
CHAPTER 13
Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property’s adjusted basis at the date of disposition. Correct Answer: True
If the buyer assumes the seller’s liability on the property acquired, the seller’s amount realized is decreased by the amount of the liability assumed. Correct Answer: False
Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property’s adjusted basis whereas capital expenditures are added to the original basis. Correct Answer: True
A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale or exchange of a personal use asset is not recognized. Correct answer – true
When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he may choose which lot of stock is deemed to be sold. Correct Answer: False Property received as a gift can be sold by a donee and result in neither recognized gain nor loss. Correct Answer: True
The basis for depreciation on gift property that is depreciable by the donee, is the donor’s adjusted basis of the property at the date of the gift. Correct Answer: True
Property that has been converted from personal use to business use will be dual basis property (a different basis for determining gain vs. loss) if the adjusted basis exceeds the fair market value at the date of conversion.
Correct Answer: True
A class of depreciable tangible personal property can be exchanged for another class of depreciable tangible personal property and qualify as like-kind propertyCorrect Answer: False
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CHAPTER 14
A university professor writes a mystery novel and publishes it at his own expense. Several years later, a national publishing company buys the copyright to the book for $345,000. The professor has no tax basis for the copyright. The professor has a long-term capital gain of $345,000. Correct Answer: False
Real property subdivided for resale into lots, even if no substantial physical improvements have been made to the property, always causes the gain from sale of the lots to be treated as ordinary income. Correct Answer: False
Original issue discount is amortized over the life of the bond. Correct Answer: True
As a general rule, the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is a capital asset in the hands of the option holder. Correct – True
The only things that the grantee of an option may do with the option are exercise it or let it expire. Correct Answer: False
To compute the holding period, start counting on the day the property was acquired and include the day of sale or exchange.Correct Answer: False
A §1231 asset is usually also a capital asset. Correct Answer: False
Section 1231 property includes certain purchased intangible assets (such as
patents and goodwill) that are eligible for amortization and held for more than one year. Correct Answer: True
Nonrecaptured § 1231 losses from the seven prior tax years may cause current year net § 1231 gain to be treated as ordinary income.Correct Answer: False
The Code contains two major depreciation recapture provisions—§§ 1245 and 1250. Correct: True
For § 1245 recapture to apply, accelerated depreciation must have been taken on the property = False
Section 1231 lookback losses may convert some or all of potential unrecaptured § 1245 or § 1250 gain into ordinary income. Correct Answer: True
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