R1: Loss Limitations for Individuals

Question 1

Passive income losses can be used to offset which type of income

Answer 1

Rental income, because rental income is always considered passive income

Question 2

Suspended passive activity losses

Answer 2

Can be carried forward indefinitely

Question 3

Tax treatment of net losses in excess of at-risk amount

Answer 3

Any losses in excess of “at-risk” amount are suspended and carried forward without expiration and deductible against income in the future

Question 4

The term active participation for a passive activity loss is relevant in relation to

Answer 4

Rental real estate activities

Question 5

The rule limiting the allowability of passive activity losses and credits applies to

Answer 5

Personal service corporations

Question 6

Allocation of suspended passive activity losses

Answer 6

Activity X = Passive loss amount for Activity X x total passive losses = % to allocate x Net income/loss from passive activities

Question 7

Treatment of PAL losses in the year of disposal

Answer 7

The loss can be deducted in full, including previously suspended losses, in the year of disposal
Can offset ANY type of income: ordinary, portfolio and passive

Question 8

The at-risk rules apply to whom?

Answer 8

Shareholders/partners rather than the entities

Question 9

Mom and Pop rule

Answer 9

Taxpayers who own rental property and materially participate in the rental can deduct up to $25,000 in rental losses

Question 10

Phase-out of Mom and Pop rule

Answer 10

Credit reduced by 50% of the amount by which the taxpayer’s AGI exceeds $100,000. The credit completely phases out after $150,000