Question

7. After the passive activity rules have been applied, the at-risk rules must then be considered.

a. True

b. False

8. The rules for meeting the material participation test for real estate activities are more strict than the rules for meeting the material participation test for other (non-real estate) types of activities.

a. True

b. False

9. The netting of passive losses against passive income is done on Schedule E (Form 1040), Supplemental Income Schedule.

a. True

b. False

10. If the taxpayer participates in a rental real estate activity for 800 hours during the year, the taxpayer will be considered to be a material participant in the activity.

a. True

b. False

Answer 1

7. Answer = B False

reason : the at risk rules must be considered before applying passive activity rules.

8. Answer = A True

9. Answer = B False

reason : The netting of passive losses against passive income is done on Form 8582 passive activity loss limitations

10. Answer = A True

reason : Material participation means (one of the seven prescribed conditions) = if you work 500 hours or more in the activity during the year. However, according to the IRS, the rental of real estate is considered as passive activity even if you have materially participated in the activity unless you materially participated in a rental activity as a real estate professional. To qualify as a real estate professional,

1. >50% of the work you perform in trades or businesses during the taxable year must be in real property activity in which you materially participate and
2. you must work more than 750 hours a year in these trades/businesses.