1. Walter invested in a partnership in its first year where he qualified as a material participant. The partnership had a loss of $200,000 in its first year, where $40,000 was attributable to Walter's share. He invested $30,000 for a 20% interest in the partnership. All of the following statements are False EXCEPT:

A) Walter can deduct the $40,000 loss in the first year because he materially participated.
B)
The $40,000 loss is non-deductible due to passive loss rules.
C)
Walter can deduct $30,000 of the loss in the first year.
D) Walter must carry forward the $40,000 loss until the partnership is cash flow positive.

2. Julie has an active income of $120,000 and a portfolio income of $50,000 (AGI of $170,000). She owns 25% of an apartment building. The building generated $25,000 of losses this year. Which of the following is TRUE?

A) Julie cannot deduct the $25,000 loss.
B)
Julie can only deduct $6,250 of the loss against active income.
C)
Julie can deduct the full amount of the loss as ordinary income.
D) Julie can deduct her portion of the loss against portfolio income.

3. This year, Arnold purchased a publicly traded partnership that generated $25,000 of income to him for the current year. He purchased an interest in a non-publicly traded partnership that had a $10,000 passive loss 10 years ago. How much of the passive loss (if any) can be used to offset income this year?

A) $0
B)
$2,000
C)
$5,000
D) $10,000


4. Barbara invested $50,000 for a 20% interest in a passive activity in the current year. She has a salary of $150,000 and a portfolio income of $20,000. The passive activity had a $70,000 loss which was attributable to Barbara's share. How is her loss characterized?

A) $70,000 is suspended under the at-risk rules.
B)
$70,000 is suspended under the passive loss rules.
C)
$50,000 is suspended under the passive loss rules, and $20,000 is suspended under the at-risk rules.
D)
$50,000 is suspended under the at-risk rules, and $20,000 is suspended under the passive loss rules.


Answer Key

Related Articles
  1. Investing

    Active or Passive Investing? What's Best for You

    Be strategic about which of these investing strategies you follow (and when).
  2. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  3. Investing

    Why Your Passive Fund Is Crushing Active Managers

    A new study shows passive funds outperformed over 5, 10 and 15 years
  4. Personal Finance

    11 Tax Deductions You Can't Actually Write Off

    These are some of the most common tax write-offs that you can't really claim.
  5. Investing

    5 Common Misconceptions About Passive Investing

    Be aware of these 5 misconceptions about passive investing when deciding between passive and active.
  6. Investing

    Passively Managed Vs. Actively Managed Mutual Funds: Which is Better?

    Learn about the differences between actively and passively managed mutual funds, and for which types of investors each management style is best suited.
  7. Investing

    Ostrich Effect And Passive Investing

    Learn how to take a hands-off approach to your portfolio without sticking your head in the sand.
  8. Taxes

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
Frequently Asked Questions
  1. What are the costs and tax consequences for transferring my house title to my child?

    Title transfers negatively affect taxes and require appropriate paperwork, and costs vary by state.
  2. What is the formula for calculating the capital asset pricing model (CAPM) in Excel?

    Find out more about the capital asset pricing model (CAPM) and the formula for calculating it in Microsoft Excel.
  3. What's the Difference Between Alphabet's GOOG and GOOGL?

    Learn the difference between the GOOG and GOOGL stock ticker symbols for Alphabet (the company formerly known as Google).
  4. Does Netspend Accept Wire Transfers?

    Find out how Netspend cardholders can arrange for electronic transfers to add money to their Netspend prepaid debit cards ...
Trading Center