Question

1. On January 1, Year 1, W invested $15,000 cash and contributed property with an adjusted basis of $5,000 and a fair market value of $20,000 in exchange for a 10% interest in a limited partnership. One general partner has a 50% interest. In Year 1, the partnership purchased an apartment building to rent. The purchase was financed through a nonrecourse nonconvertible debt of $160,000 to a bank. The partnership made only interest payments on the bank loan for 10 years. The partnership incurred a loss of $120,000 in Year 1 and a loss of $300,000 in Year 2. Assuming W deducted his full share of the Year 1 loss in Year 1, how much can he deduct in Year 2? Ignore any passive loss rules.

• A.$23,000
• B.$8,000
• C.$24,000
• D.$30,000

Scott received $50,000 in wages in the current year. He also had a $30,000 loss from a rental real estate activity in which he materially participated. Scott worked in the real estate activity for a total of 1,000 hours, which was 60% of his total workload for the year. How much of the $30,000 loss can Scott deduct in the current year?

• A.$20,000
• B.$18,000
• C.$30,000
• D.$0

Which of the following is passive income?

• A.Fees earned for managing a passive activity.
• B.Gain on sale of property held for investment.
• C.Interest earned on accounts receivable that arose in the ordinary course of a business selling equipment.
• D.Income from an interest in a limited partnership owned by a limited partner.

thank you so much

Answer 1

1) Given w invested $15,000 cash and contributed property with adjusted basis of $5000 and FMV of $20,000 for 10% of interest in limited partnership. Given the loss for the year 1 is $120,000 and year 2 is $300,000.

The loss from partnership deductible by W = Total Loss for the year * % of interest in the partnership

= 300,000 * 10%

= $30,000

So W can deduct a loss of $30,000 for year 2.

Hence option D $30,000 is correct.

2) Scott received $50,000 in wages.

He also had a $30,000 loss from a rental real estate activity in which he materially participated.

Scott had actively participated in real estate and has a loss of $30,000 which can be deducted against his active income of wages $50,000. The reamining amount can be deducted in the current year Maximum of $25,000. If there is any excess amount of loss can be forwarded to the next year.

So the amount to be deducted by scott for the year = $50,000 - $30,000 = $20,000

The total of $20,000 can be dudected by scott as it is less than the limit of @25,000.

So, option A $20,000 is correct.

3) Passive Income: Passive income is the income which is earned through active participation in the activity. Passive losses from such passive income cannot be deducted.

A.Fees earned for managing a passive activity.

Option A is Correct, as the fees is earned through passive activity which is not actively or materially participated.

B.Gain on sale of property held for investment.

The option B is incorrect because the gain on sale of property is through the normal course of business

C.Interest earned on accounts receivable that arose in the ordinary course of a business selling equipment.

The option C is incorrect as interest earned on accounts receivable is through the ordinary course of business.

D.Income from an interest in a limited partnership owned by a limited partner.

Option D is incorrect dividend earned in alimited partnership owned by the limited partner is not apassive income as the partner isactively involved in the partnership