Multiple choice questions:
1. Which of the following increase(s) a taxpayer's at-risk amount?
a. Cash and the adjusted basis of property contributed to the activity.
b. Borrowed amounts used in the activity for which the taxpayer is personally liable.
c. Income from the activity.
d. All of the above.
2. Which of the following increases a taxpayer’s at-risk amount?
a. Cash distributions.
b. Property distributions.
c. Increased share of liabilities.
d. Loss items.
3. In 2014, Kirsten invested $20,000 for a 10% partnership interest (not a passive activity). The partnership has losses of $150,000 in 2014 and $250,000 in 2015. Kirsten’s share of the partnership’s losses is $15,000 in 2014 and $25,000 in 2015. How much of the losses from the partnership can Kirsten deduct?
a. $0 in 2014 and $0 in 2015.
b. $15,000 in 2014 and $5,000 in 2015.
c. $15,000 in 2014 and $25,000 in 2015.
d. $20,000 in 2014 and $0 in 2015.
4. Leonard invests $10,000 cash in an equipment-leasing activity for a 15% share in the business. The 85% owner is Rebecca, who contributes $10,000 and borrows $75,000 to put in the business. Only Rebecca is liable for repayment of the loan. The partnership incurs a loss of $125,000 during the year. What amount of the loss is deductible currently by Leonard and Rebecca (ignore passive activity loss rules)?
a. $0 by Leonard and $0 by Rebecca.
b. $10,000 by Leonard and $85,000 by Rebecca.
c. $18,750 by Leonard and $106,250 by Rebecca.
d. $21,250 by Leonard and $73,750 by Rebecca.
5. Myer owns a 20% interest in a partnership (not involved in real estate) in which his at-risk amount was $50,000 at the beginning of the year. During the year, he receives a $40,000 distribution from the partnership. The partnership produces a $160,000 loss during the year. What is Myer’s deductible loss for the year (ignore passive loss rules)?
a. $0.
b. $10,000.
c. $32,000.
d. $50,000.
6. Alcott invested $20,000 for a 25% interest in a partnership (not a passive activity) on January 1, 2014. The partnership borrowed $100,000 (with full recourse to the partners) on January 15, 2014, to cover short-term cash flow requirements. During the year, the partnership generated a$60,000 loss. By December 31, 2014, the partnership had paid off $20,000 of the loan. What is Alcott’s at-risk amount on January 1, 2015?
a. $20,000.
b. $25,000.
c. $40,000.
d. $45,000.
7. Agnes and Aunt Sue each invested $140,000 cash in the A&S Partnership and each received a 50% interest in the partnership. To finance her investment in the partnership, Agnes borrowed $60,000 on a full recourse basis from her partner, Aunt Sue. Which of the following is correct?
a. Agnes’s at-risk amount in her partnership interest is $80,000.
b. Aunt Sue’s at-risk amount in her partnership interest is $140,000.
c. Agnes’s at-risk amount in her partnership interest is $140,000.
d. Aunt Sue’s at-risk amount in her partnership interest is $80,000.
8. Which of the following would be considered a passive activity?
a. A limited partnership interest.
b. Most rental real estate activities.
c. A trade or business in which the taxpayer does not materially participate.
d. All of the above.
9. Sylvester, an accountant, owns a mail-order business in which he participates. He has one employee who works part-time in the business. Which of the following statements is incorrect?
a. If Sylvester participates for 600 hours and the employee participates for 1,000 hours during the year, Sylvester qualifies as a material participant.
b. If Sylvester participates for 120 hours and the employee participates for 125 hours during the year, Sylvester does not qualify as a material participant.
c. If Sylvester participates for 495 hours and the employee participates for 520 hours during the year, Sylvester qualifies as a material participant.
d. If Sylvester participates for 105 hours and the employee participates for 5 hours during the year, Sylvester probably qualifies as a material participant.
10. Janel owns five small businesses, each of which has its own manager and employees. Janel spends the following number of hours this year working in the various businesses: Business A, 130 hours; Business B, 160 hours; Business C, 110 hours; Business D, 120 hours; Business E, 100 hours. Which of the following statements is correct?
a. Businesses A, B, C, D, and E are all significant participation activities.
b. Businesses A, B, C, and D are all significant participation activities.
c. Janel is considered a material participant in Businesses A, B, C, and D.
d. Both band c are correct.