Chapter 11 Questions Flashcards
A taxpayer with $20,000 in passive losses and $20,000 in passive income may deduct 100% of his passive losses this year.
True. Passive losses may be deducted up to passive income.
Passive loss limitations do not apply to a material participant in a real estate business.
True. Material participants do not experience passive income or losses.
Active participants in a rental activity may only deduct 25% of their passive losses against other income.
False. Active participants in a rental activity may only deduct $25,000 of passive losses against other income.
Excess business loss rules limit taxpayer’s deductible business losses to 80% of their business income each year.
False. Excess businesses loss rules limit deductible losses to $500K (MFJ) or $250K (single). Any excess business losses are carried forward and may be used to offset up to 80% of next year’s business income.
A taxpayer (AGI $60,000) remodeled and furnished her basement for use as a rental unit (at a cost of $15,000). She acts as the landlord, and rented the unit for the last 3 months of the year at $1,000 a month. How much of her expenses can she deduct from her gross income this year?
$3,000. She can only deduct her costs against her income, which is $1,000 * 3 = $3,000. She is a material participant in this rental business and therefore not subject to any passive loss limitations.
A single taxpayer has a business with $400,000 income and $300,000 in losses. How much can be deducted as a business loss this year? How much, if any, is carried forward?
$250,000 can de deducted this year and $50,000 is carried forward. The $50,000 is an excess business loss that may offset up to 80% of next year’s business income.
