Chapter 8

32) Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct? A) $0 B) $10,000 C) $20,000 D) $25,000

$0

14) Hope sustained a $3,600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope's AGI for the year is $25,000 and she does not have insurance coverage. Hope's deductible casualty loss is A) $1,700. B) $1,800. C) $4,200. D) $4,300.

$1,700.

9) Nicole has a weekend home on Pecan Island that she purchased in 2013 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount is A) $0. B) $10,000. C) $120,000. D) $140,000.

$120,000

18) In February 2016, Amelia's home, which originally cost $150,000, is damaged by a windstorm. Amelia had refinanced the home shortly before the storm, and it was appraised at $200,000. After the storm, the home appraised at $120,000. Amelia has received no insurance reimbursement by December 31, but expects to recover 90 percent of the loss. In the subsequent year, the insurance company pays Amelia $50,000. Amelia's AGI is $85,000 in 2016, and her 2017 AGI is $80,000. Amelia suffers no other casualty losses in either year. Amelia may deduct A) $7,900 in 2016. B) $22,000 in 2017. C) $13,900 in 2017. D) $14,000 in 2017.

$14,000 in 2017.

11) Lena owns a restaurant which was damaged by a tornado. The following assets were partially destroyed: Basis Reduction in FMV Insurance Payment Building $150,000 $200,000 $100,000 Equipment $30,000 $20,000 $10,000 Lena has AGI of $50,000. What is the amount of Lena's deductible casualty loss? A) $54,900 B) $60,000 C) $70,000 D) $180,000

$180,000

10) A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss? A) $5,900 B) $12,000 C) $13,900 D) $20,000

$20,000

34) Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in the current year. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income? A) $21,000 B) $24,000 C) $25,000 D) $45,000

$21,000

33) Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss is A) $0. B) $13,500. C) $25,000. D) $27,000.

$25,000.

11) In October 2016, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2017. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report A) $0 income in both years. B) $30,000 income in 2016 and a bad debt deduction of $30,000 in 2017. C) $30,000 income in 2016 and a STCL of $30,000 in 2017 limited to $3,000 after netting. D) $30,000 income in 2016 and then must amend last year's return to show $0 income when advised of the bankruptcy.

$30,000 income in 2016 and a bad debt deduction of $30,000 in 2017.

12) Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss? A) $293,900 B) $300,000 C) $793,900 D) $800,000

$300,000

9) Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has A) a $50,000 ordinary loss and $70,000 LTCL. B) a $50,000 STCL and a $70,000 LTCL. C) a $100,000 ordinary loss and a $20,000 LTCL. D) a $100,000 LTCL and a $20,000 ordinary loss.

$50,000 ordinary loss and $70,000 LTCL.

10) Before consideration of stock sales, Rex has generated $150,000 of AGI this year due to salary, interest income and dividends. Rex is a single taxpayer. He plans to sell his shares of Trisco Inc., a qualifying small business corporation under Sec. 1244, realizing a $110,000 loss. Due to the sale of the stock, he will reduce his AGI by A) $3,000. B) $110,000. C) $50,000. D) $53,000.

$53,000.

7) Kayla reported the following amounts in her 2016 tax return: Interest income $ 6,000 Loss from sole proprietorship (20,000) AGI (14,000) Standard deduction (6,300) Personal exemption (4,050) ($24,350) Kayla has generated an NOL of A) $0. B) ($24,350). C) ($14,000). D) ($20,000).

(20,000)

19) Jana reports the following income and loss: Salary $ 120,000 Income from activity A 60,000 Loss from activity B ( 30,000) Loss from activity C ( 70,000) Activities A, B, and C are all passive activities. Based on this information, Jana will recognize A) adjusted gross income of $80,000. B) salary of $120,000 and deductible net losses of $40,000. C) salary of $120,000, passive income of $60,000, and passive loss carryovers of $100,000. D) salary of $120,000 and net passive losses of $40,000 that will be carried over.

) salary of $120,000 and net passive losses of $40,000 that will be carried over.

24) Mara owns an activity with suspended passive losses from prior years of $13,000. In the current year, Mara becomes a material participant in the activity. This year the activity generates $6,000 of income. The net effect of this activity on Mara's current year AGI is a(n) A) increase of $6,000. B) decrease of $13,000. C) 0. D) decrease of $7,000.

0

9) Taj operates a sole proprietorship, maintaining the business records under the cash-basis method of accounting. Taj performs services for a client and sends the client a bill for $12,000. Six months later, before payment is received by Taj, the client files bankruptcy, with no assets available for unsecured creditors such as Taj. Taj will deduct A) $12,000 ordinary loss. B) $3,000 long-term capital loss. C) $3,000 short-term capital loss. D) $0.

0

16) Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations? A) $1,400 B) $1,500 C) $6,900 D) $7,000

1,400

18) What are some factors which indicate that a debt may be worthless?

1. Bankruptcy of the debtor. 2. Death or disappearance of the debtor. 3. Repeated unsuccessful attempts at collection.

25) What is or are the standards that must be present to warrant a casualty loss deduction?

1. The loss must arise in an identifiable event 2. The event is sudden or unexpected or unusual

13) Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of A) $10,000. B) $3,000. C) $7,000. D) 0.

10,000

13) Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. Its value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations is A) $135,000. B) $144,900. C) $164,900. D) $165,000.

144,900.

23) Lewis died during the current year. Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000. Suspended losses of $15,000 were attributable to the property. How much of the suspended loss is deductible on Lewis's final income tax return? A) $0 B) $2,000 C) $13,000 D) $15,000

2,000

31) Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year? A) $10,000 B) $20,000 C) $25,000 D) $30,000

20,000

26) Jorge owns activity X which produced a $20,000 passive loss last year. Jorge's only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge's wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year? A) $0 B) $3,000 C) $4,000 D) $18,000

4,000

17) A flood damaged an auto owned by Mr. and Mrs. South on June 15 of this year. The car was only used for personal purposes. Fair market value before the flood $18,500 Fair market value after the flood 2,000 Cost basis 20,000 Insurance proceeds 13,000 Adjusted gross income for this year 25,000 Business use of auto 0 Based on these facts, what is the amount of the South's casualty loss deduction after limitations for this year? A) $900 B) $1,000 C) $4,400 D) $4,500

900

22) Nancy reports the following income and loss in the current year. Salary $ 60,000 Income from activity A 18,000 Loss from activity B ( 9,000) Loss from activity C ( 13,000) All three activities are passive activities with respect to Nancy. Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy's AGI as a result of these transactions? A) $50,000 B) $55,000 C) $64,000 D) $71,000

50000

19) This summer, Rick's home (which has a basis of $80,000) is damaged by a tornado. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is $50,000 and his next year's AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year of A) $ 8,900. B) $ 9,900. C) $15,000. D) $35,000.

8900

8) All of the following losses are deductible except A) decline in value of securities. B) total worthlessness of securities. C) abandonment of business property. D) destruction of personal use property by fire, storm, or casualty.

A) decline in value of securities.

13) Businesses can recognize a loss on abandoned property. What types of factors would indicate that property had been abandoned? Answer: 1. Worthlessness of the property 2. The property is not worth placing into a serviceable condition 3. If it is depreciable property, taxpayer must physically abandon property.

Answer: 1. Worthlessness of the property 2. The property is not worth placing into a serviceable condition 3. If it is depreciable property, taxpayer must physically abandon property.

29) Tom and Shawn own all of the outstanding stock of Brady Corporation (a retail store operated as a C corporation). This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports A) net income of $42,000. B) interest income of $22,000 and a passive loss carryover of $8,000. C) business income of $20,000 and a passive loss carryover of $6,000. D) business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

B) interest income of $22,000 and a passive loss carryover of $8,000.

28) An individual is considered to materially participate in an activity if any of the following tests are met with the exception of A) the individual participates in the activity for more than 500 hours during the year. B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. C) the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. D) the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year.

12) Martha, an accrual-method taxpayer, has an accounting practice. In 2015, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2016, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is A) Martha deducts a nonbusiness bad debt in 2016. B) Martha deducts a business bad debt in 2016. C) David deducts a business bad debt in 2016. D) David deducts a nonbusiness bad debt in 2016.

C) David deducts a business bad debt in 2016.

20) Juanita, who is single, is in an automobile accident in 2016 and her car sustains $6,200 in damages. Juanita does not expect to recover any of the loss from her insurance company. Juanita's 2016 AGI is $31,000, and she deducts a $3,000 loss on her 2016 tax return. Her other itemized deductions in 2016 exceed $12,000. In 2017, Juanita's insurance company reimburses her $2,800. Juanita's 2017 AGI is $28,000. As a result, Juanita must A) amend 2016 to show a $200 loss. B) do nothing and simply keep the $2,800. C) do nothing to the 2016 return but report $2,800 of income on her 2017 return. D) amend the 2016 return to show $0 loss and file her 2017 return to show a $200 loss.

C) do nothing to the 2016 return but report $2,800 of income on her 2017 return.

9) The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of A) cash received by Matt. B) mortgage on the property that is assumed by Caitlin. C) mortgage on the property paid off by Matt prior to the sale. D) the FMV of any other property received by Matt in the transaction.

C) mortgage on the property paid off by Matt prior to the sale.

20) Jana reports the following income and loss: Salary $ 120,000 Income from activity A 60,000 Loss from activity B ( 30,000) Loss from activity C ( 70,000) Activities A, B, and C are all passive activities. Based on this information, Jana has the following suspended losses: A) Activity B Activity C $30,000 $70,000 B) Activity B Activity C $0 $0 C) Activity B Activity C $18,000 $42,000 D) Activity B 12000 Activity C 28000

D) Activity B 12000 Activity C 28000

10) In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael's gain or loss on the sale is A) $4,000 gain. B) $1,000 loss. C) $36,000 loss. D) $41,000 loss.

D) $41,000 loss.

27) Which of the following is not generally classified as a passive activity? A) an activity in which the taxpayer does not materially participate B) a limited partnership interest C) rental real estate D) a business in which the taxpayer owns an interest and works 1,000 hours a year

D) a business in which the taxpayer owns an interest and works 1,000 hours a year

5) An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income? A) capital losses B) personal and dependency exemptions C) nonbusiness deductions in excess of nonbusiness income D) all of the above

D) all of the above

30) A taxpayer's rental activities will be considered a trade or business, rather than a passive activity, if A) the taxpayer performs more than 750 hours of work during the year managing the rental properties B) the taxpayer performs more than 500 hours of work during the year managing the rental properties. C) more than half of the taxpayers personal services performed in all business activities during the year are spent managing the rental properties. D) conditions A and C, but not B, are satisfied.

D) conditions A and C, but not B, are satisfied.

21) Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity? A) increase of $2,000 B) no net change C) decrease of $4,000 D) decrease of $11,000

D) decrease of $11,000

25) Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of activity X's income is $13,000. Charlie's salary this year is $70,000. As a result, this year Charlie must A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

2) A taxpayer has generated a net operating loss in the current year and is weighing whether to carryback the NOL or elect to carryforward the NOL. The factors to consider in making this decision include all of the following except A) marginal tax rates in the relevant years. B) tax credits available in the carryback years. C) time value of money. D) refundable tax credits expected in future years.

D) refundable tax credits expected in future years.

33 Copyright © 2017 Pearson Education, Inc. 14) In 2015 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2016 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is A) Grace deducts a business bad debt of $12,000 in 2016. B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2016. C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2016 and carries $9,000 over to subsequent years. D) Grace deducts a business bad debt of $3,000 in 2016 and carries $9,000 over to subsequent years.

Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2016 and carries $9,000 over to subsequent years.

15) In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. Asset Reduction in FMV Adjusted Basis Insurance Holding Period X $8,000 $2,000 $7,000 2 years Y 3,000 5,000 2,000 10 months Z 2,500 1,300 1,000 8 months As a result of these losses and insurance recoveries, Marcus must report A) a net gain of $3,700. B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.

11) Lucia owns 100 shares of Cronco Inc. which she purchased on December 1 of last year for $10,000. The stock is not Sec. 1244 stock. On July 1 of the current year, Lucia receives notice from the bankruptcy court that Conco Inc. has been liquidated, and there are no assets remaining for shareholders. As a result, Lucia will have A) a short-term capital loss of $10,000. B) a long-term capital loss of $10,000. C) an ordinary loss of D) no loss allowed

a long-term capital loss of $10,000.

7) All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of A) the stock must be owned by an individual or a partnership. B) the stock must have been issued by a domestic corporation. C) the stock must have been issued for cash or property other than stock or securities. D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

a single taxpayer may deduct, as ordinary losses, up to a maximum of

15) Frank loaned Emma $5,000 in 2014 with the agreement that the loan would be repaid in three years. In 2015, Emma filed for bankruptcy and based on available information from the bankruptcy court, it was estimated that Frank could expect to receive $.65 on the dollar. In 2016, final settlement was made and Frank received $600. a. Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2015? b. Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2016? c. Assuming instead that the loan is a nonbusiness bad debt, what is the amount of and the nature of Frank's deduction in 2015 and 2016?

a. 2015 deduction—$1,750 ordinary loss ((1.00 - .65 = .35 expected loss rate) × $5,000 loan)) b. 2016 loss—$2,650 ordinary loss ($5,000 loan - $1,750 prior year deduction - $600 recovery) c. In 2015, the loss is partially worthless, so no deduction is allowed until settlement has occurred. In 2016, the $4,400 short-term capital loss ($5,000 loan - $600 recovery) will be netted against other capital gains and losses. If there are no other capital gains and losses, the loss is limited to the $3,000 current deduction.

35) Aretha has AGI of less than $100,000 and a 25% marginal tax rate. During the year, she reports a $36,000 loss from Activity A and a $24,000 loss from Activity B. Additionally, Activity A generates $8,000 of tax credits. Both activities A and B are passive real estate rental activities in which Anita actively participates and owns over 10% of each activity. a. How much loss can be recognized from each activity? b. What is the amount of Aretha's suspended loss from each activity? c. How much of the tax credits can be applied this year?

a. How much loss can be recognized from each activity?

4) Which of the following expenses or losses could create a net operating loss for an individual taxpayer? A) large losses on sales of investment assets B) an operating loss from a sole proprietorship C) large charitable contributions D) all of the above

an operating loss from a sole proprietorship

12) Atkon Corporation acquired 90% of the stock of Beta Corporation three years ago. Both corporations are located in the United States. Beta has been an energy drink producer, but unfortunately has suffered substantial losses due to government fines and lawsuits. All of its revenues had been from the sales of the energy drinks. Beta has now filed for bankruptcy and is closing the business with no assets remaining for shareholders. Atkon Corporation will recognize A) a long-term capital loss. B) a short-term capital loss. C) an ordinary loss. D) no gain or loss

an ordinary loss

6) Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

an ordinary loss

5) Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

capital loss

6) A taxpayer has low AGI this year, but unusually high itemized deductions. The one itemized deduction that is allowed to increase the NOL is A) state and local income and property taxes. B) home mortgage interest. C) medical expenses. D) casualty loss on personal-use assets.

casualty loss on personal-use assets.

21) Constance, who is single, is in an automobile accident in 2016, and her car sustains $6,200 in damages. Constance does not expect to recover any of the loss from her insurance company. Constance's 2016 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2017, Constance's insurance company reimburses her $2,800. Constance's 2017 AGI is $28,000. As a result, Constance must A) amend the 2017 return to show the $200 loss. B) do nothing and simply keep the $2,800. C) amend the 2016 return to show $0 loss and file her 2017 return to show $200 loss. D) do nothing to the 2016 return but report $2,800 of income on her 2017 return.

do nothing and simply keep the $2,800.

22) Daniel's cabin was destroyed in a massive tornado in 2016. After consideration of insurance, he has a loss of $15,000. The President of the United States has declared the area a disaster area. Daniel can deduct this loss in A) 2015. B) 2016. C) 2017. D) either 2015 or 2016.

either 2015 or 2016.

Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n) A) ordinary loss of $125,000. B) long-term capital loss of $125,000. C) long-term capital loss of $100,000 and ordinary loss of $25,000. D) ordinary loss of $100,000 and long-term capital loss of $25,000.

ordinary loss of $100,000 and long-term capital loss of $25,000.

10 Copyright © 2017 Pearson Education, Inc. 16) During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark A) reports AGI of $80,000. B) reports AGI of $90,000 with a $10,000 passive loss carryover. C) reports AGI of $90,000 with a $30,000 passive loss carryover. D) reports AGI of $110,000 with a $30,000 passive loss carryover.

reports AGI of $90,000 with a $10,000 passive loss carryover.

17) Joy reports the following income and loss: Salary $ 120,000 Income from activity A 60,000 Loss from activity B ( 35,000) Loss from activity C ( 55,000) Activities A, B, and C are all passive activities. Based on this information, Joy has A) adjusted gross income of $90,000. B) salary of $120,000 and deductible net losses of $30,000. C) salary of $120,000 and net passive losses of $30,000 that will be carried over. D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.

salary of $120,000 and net passive losses of $30,000 that will be carried over.

10) Last year, Abby loaned her friend, Pat, $10,000. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n) A) itemized deduction. B) ordinary loss. C) long-term capital loss. D) short-term capital loss.

short-term capital loss.

8) A taxpayer incurs a net operating loss in the current year. With respect to the application of the NOL, A) the taxpayer will carry back the NOL three years first, then carry forward any balance for five years. B) the taxpayer must carry forward the loss and has up to 20 years to use it. C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

8) Which of the following is most likely not considered a casualty? A) fire loss B) water damage caused by the bursting of a water heater C) death of a pine tree due to a two-day infestation of pine beetles D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof