MULTIPLE CHOICE PROBLEM: NOTE - I ALREADY HAD ANSWER TO THIS BUT I DO NOT HOW IT WAS CALCULATED, SO PLEASE PROVIDE ME THE SOLUTION.

1. Smith bought a rental property in Year 1 for $100,000. In Year 1, Smith's Adjusted Gross Income (AGI) was $125,000 and Smith sustained a $30,000 lass on the property. In Year 2, Smith's AGI was $175,000 and Smith sustained a $20,000 loss on the property. In Year 3, Smith sold the property for $155,000.

What amount of gain or lass must Smith report on Smith's Year 3 tax return as a result of the sale?

Assume Smith actively participated in the rental activity in all three years, but is not considered a real estate professional for tax purposes.

a. $17,500 gain

b. $22,500 gain

c. $0 (no gain or loss)

d. $20,000 gain

2. Patel bought a rental property in Year 1 for $150,000. In Year 1, Patel's Adjusted Gross Income (AGI) was $100,000 and Patel sustained a $15,000 lass on the property. In Year 2, Patel's AGI was $140,000 and Patel sustained a $10,000 lass on the property. In Year 3, Patel sold the property for $175,000.

What amount of gain or lass must Patel report on Patel's Year 3 tax return as a result of the sale? Assume Patel did not actively participate in the rental activity in any of the three years.

a. $25,000

b. $5,000

c. $0 (no income or loss)

d. $20,000

3. The following chart applies to Bettelli, an investor who owns two rental activities, Property A and Property B, and has no other involvement in passive activities.

	Property	Income (Loss)
Year 1	A	($12,000)
	B	5,000
Year 2	A	(6,000)
	B	1,000

Bettelli met the requirements for active participation in Year 1 but not in Year 2. Bettelli's AGI in Year 1 was $140,000; in Year 2, $180,000. In Year 3, Bettelli sells Property A for a $15,000 gain.

How much of the gain must Bettelli report on Bettelli's Year 3 tax return?

a. $0

b. $3,000

c. $8,000

d. $13,000

4. In 20X4 Albert, Berry, and Collins formed ABC Partnership. Collins, a limited partner, contributed $20,000 in cash to the partnership and also pledged $10,000 of personal property' as collateral to meet any partnership debts that may arise. ABC Partnership loss is $50,000.

How' much of the lass is deductible by Collins under the at risk rules?

a. $0

b. $10,000

c. $20,000

d. $30,000

Answer and Explanation:

1. The correct answer for the said problem is answer choice a.$17,500 gain.

2. The correct answer for the said problem is answer choice b. $0 (no income or loss). No income or loss must be recognized

3. The correct answer for the said problem is answer choice c.8,000.

4. The correct answer for the said problem is answer choice d. $30,000.