Question

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this
property total $45,000. The total gain and the taxable gain are:

a.	$60,000 total gain; $105,000 taxable gain

b.	$10,000 total gain; $15,000 taxable gain

c.	$60,000 total gain; $0 taxable gain

d. $60,000 total gain; $15,000 taxable gain. Tess owns a building in which she rents apartments to tenants and operates a restaurant. Which of the following statements is incorrect? a. If 60% of Tess’s gross income is from apartment rentals and 40% is from the restaurant, the rental operation and the restaurant business must be treated as separate activities. b. If 95% of Tess’s gross income is from apartment rentals and 5% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is a rental activity. c. If 5% of Tess’s gross income is from apartment rentals and 95% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is not a rental activity. . d. If 98% of Tess’s gross income is from apartment rentals and 2% is from the restaurant, the rental operation and the restaurant business must be treated as a single activity that is not a rental activity Rick, a computer consultant, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business. a. If Rick participates for 500 hours and the employee participates for 620 hours during the year, Rick qualifies as a material participant. b. If Rick participates for 550 hours and the employee participates for 2,000 hours during the year, Rick qualifies as a material participant. c. If Rick participates for 120 hours and the employee participates for 120 hours during the year, Rick does not qualify as a material participant. d. If Rick participates for 95 hours and the employee participates for 5 hours during the year, Rick probably does not qualify as a material participant.

Answer 1

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this
property total $45,000. The total gain and the taxable gain are:
Sell price of passive activity	$105,000
Less: Adjusted Basis	$45,000
Total gain	$60,000
Less: Suspended losses	$45,000
Taxable gain	$15,000
d) $60000 total gain; $15000 taxable gain
Tess owns a building in which she rents apartments to tenants and operates a restaurant. Which of the following
statements is incorrect?
d) If 98% of Tess's income is from apartment rentals and 2% is from the restaurant, the rental operation and the
restaurant business must be treated as a single activity that is not a rental activity
Rental and nonrental operation are always treated as separate activities. But if an insignificant portion of gross income
is attributable to either rental or nonrental activity, both activities may be treated as single activity and the single activity
is one which has predominated portion of gross income. In this predominated portion is from rental activity, so single
activity should be rental activity.
Rick, a computer consultant, owns a separate business (not real estate) in which he participates. He has one
employee who works part-time in the business.
b) If Rick participate 550 hours and the employee participates for 2000 hours during the year, Rick qualifies as material
participant.
If you participate in the activity for more than 500 hours during the tax year, you qualify as material participant.