1.

What are the three categories of income and loss as discussed in the passive loss rules?

Group of answer choices

A) Active (or Ordinary), Material, and Passive

B) Active (or Ordinary), Portfolio, and Passive

C) Investment, Non Investment, and Passive

D) At Risk, Passive, and Capital

2. How is Passive Income different from Ordinary/Active Income? Choose the best answer.

Group of answer choices

A) Passive Income lacks material participation.

B) Ordinary income relates to the operation of a business, regardless of the taxpayers level of participation.

C) Passive income only relates to investment income such as interest or dividends.

D) Passive income is subject to a 15% income tax rate and is preferred.

3.

Which best describes the main limitation applied to passive losses?

(assume not the year of disposition of the activity)

Group of answer choices

A) Passive losses are subject only to an At Risk limit similar to Ordinary losses.

B) Passive losses are never deductible and must be forgone.

C) Passive losses are only deductible against passive income plus an additional $3,000 of income from any other category.

D) Passive losses are only deductible against passive income.

4. Nathan owns Activity A, which produces income, and Activity B, which produces passive losses. From a tax planning perspective, Nathan will be better off if Activity A is passive.

Group of answer choices

True

False

5.

Joyce, an attorney, earns $100,000 from her law practice in the current year. In addition, she receives $35,000 in dividends and interest during the year. Further, she incurs a loss of $35,000 from an investment in a passive activity. What is Joyces AGI for the year after considering the passive investment?

Group of answer choices

A) $100,000

B) $135,000

C) $170,000

D) $125,000

6.

The special passive loss rules available to real estate activities allow the deduction of all or part of real estate rental losses against active or portfolio income, even though the activity otherwise is defined as a passive activity. The special rules are available in two situations:

Which best describes the special passive loss treatment is available to real estate activities?

Group of answer choices

	Losses from real estate rental activities are NOT treated as passive losses for certain qualifying real estate professionals.
	Qualifying individuals may deduct up to $25,000 of losses from real estate rental activities against active and portfolio income. The potential annual $25,000 deduction is reduced by 50 percent of the taxpayers AGI in excess of $100,000.

	Losses from real estate rental activities are treated as passive losses for certain qualifying real estate professionals.
	Qualifying individuals may deduct up to $25,000 of losses from real estate rental activities against active and portfolio income. The potential annual $25,000 deduction is reduced by 50 percent of the taxpayers AGI in excess of $100,000.

	Losses from real estate rental activities are treated as passive losses for certain qualifying real estate professionals.
	Qualifying individuals may deduct up to $50,000 of losses from real estate rental activities against active and portfolio income. The potential annual $50,000 deduction is reduced by 50 percent of the taxpayers AGI in excess of $150,000.

7. Without regard to their involvement in the management of the rental property, individual taxpayers may deduct up to $25,000 of rental real estate losses against other income, provided their income does not exceed certain limits and provided they own the proper percentage of the asset. .

Group of answer choices

True

False

8. Ned has active modified adjusted gross income before passive losses of $170,000. He has a loss of $15,000 on rental property he actively manages. How much of the loss is he allowed to take against his other income?

Group of answer choices

A) None

B) $10,000

C) $15,000

D) $5,000

9. Paul owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year. He has AGI of $150,000 from an active business. He may not deduct any of the loss.

Group of answer choices

True

False

10. Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

Group of answer choices

A) $0.

B) $10,000.

C) $25,000.

D) $26,000.

E) None of the above.

11. Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses.

Group of answer choices

True

False

12. A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

Group of answer choices

True

False

13. To qualify under the passive activity rental real estate exception, the taxpayer must (1) own at least 15 percent of the property and (2) participate in the process of making management decisions.

Group of answer choices

True

False

14. The rental real estate exception favors:

Group of answer choices

A) upper income taxpayers (AGI greater than $150,000).

B) middle income taxpayers (AGI greater than $80,000 and less than $150,000).

C) lower income taxpayers (AGI less than $80,000) and middle income taxpayers (AGI greater than $80,000 and less than $150,000).

D) lower income taxpayers (AGI less than $80,000).

E) middle income taxpayers (AGI greater than $80,000 and less than $150,000) and upper income taxpayers (AGI greater than $150,000).

15. Harvey rents his second home. During 20X8, Harvey reported a net loss of $35,000 from the rental. If Harvey is an active participant in the rental and his AGI is $80,000, how much of the loss can he deduct against ordinary income in 20X8?

Group of answer choices

A) $25,000

B) $0

C) $5,000

D) $35,000