REG 1 Module 4

Question 1

True or False: You can offset your passive income with interest and dividends.

Answer 1

False

Question 2

True or False: Interest in an S Corporation is passive income.

Answer 2

True

Question 3

How do you treat excess passive loss?

Answer 3

Carry forward an unlimited time until unlimited. Maintains character of long term or short term.

Question 4

When is a taxpayer deemed a material participant in the activity and what conditions does he have to meet?

Answer 4

Real Estate Professionals:

The rental activity is then not consider passive and the taxpayer can FULLY deduct losses from the rental activities against other income if:

• More than 50% of the taxpayer’s personal services during the year ate preformed in the property
• Preforms more than 750 hours of services in real property business

Question 5

What is the EXCEPTION to passive activity loss rule?

Answer 5

Mom and Pop Exception

Real Estate Professionals

Question 6

Explain the Mom and Pop exception.

Answer 6

Taxpayer may deduct up to $25,000/ year of net passive loss if the individual is actively participating/managing and owns at least 10% of the rental activity.
- Reduced by 50% of the excess of the taxpayer’s AGI over $100,000. Eliminated completely when AGI reaches $150,000

Question 7

True or False: A corporation and a individual taxpayer are allowed to take a net loss.

Answer 7

False- A corporation can’t

Question 8

True or False: Any losses excess of the at-risk amount are suspended and are deductible in the year in which the activity is dissed on in full.

Answer 8

False - carried forward without expiration and are deductible against income in the future years from that activity

Question 9

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

Answer 9

Personal Service corporations

Question 10

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

Answer 10

Rental real estate activity