ACCT 553 WEEK 3 HOMEWORK SOLUTION
ACCT553
Week 3 Homework - Solutions
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Chapter 7
1. In your "own" words, please describe what a "Suspended Loss" is, how it is generated and when it is becomes deductible. (5 pts)
Suspended losses are created when losses from passive activities exceed income from passive activities in a tax year. Those excess losses are "suspended" (i.e. disallowed and carried forward to a future date). Those losses can be deducted against future income from passive activities and can be deducted in their entirely when the activity that created the suspended loss is disposed of in a fully taxable disposition. ¶7215
2. Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate. (5 pts).
Active Participation, as opposed to material participation, need not be regular, continuous and substantial. Active participation can include making some management decisions (approving tenants, approving repairs and capital expenditures, etc.) If a taxpayer qualifies as an Active Participant in his/her Rental Real Estate Activities then s/he has the potential to avoid the passive loss limitations and deduct up to $25,000 of losses from such activities against other nonpassive income. This treatment is limited to taxpayers with MAGI of $100,000 or less. ¶7281
Chapter 8
3. Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses will she be able to deduct? (5 pts)
Medical expenses are deductible to the extent they exceed 10% of AGI. Macy's AGI is $45,000, so her medical expense "floor" is $4,500 ($45,000 X .10). Therefore her deductible medical expenses are $3,856 ($8,356 - $4,500). ¶8065
4. Heather & Terry have a
Week 3 Homework - Solutions
_________________________________________________________
Chapter 7
1. In your "own" words, please describe what a "Suspended Loss" is, how it is generated and when it is becomes deductible. (5 pts)
Suspended losses are created when losses from passive activities exceed income from passive activities in a tax year. Those excess losses are "suspended" (i.e. disallowed and carried forward to a future date). Those losses can be deducted against future income from passive activities and can be deducted in their entirely when the activity that created the suspended loss is disposed of in a fully taxable disposition. ¶7215
2. Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate. (5 pts).
Active Participation, as opposed to material participation, need not be regular, continuous and substantial. Active participation can include making some management decisions (approving tenants, approving repairs and capital expenditures, etc.) If a taxpayer qualifies as an Active Participant in his/her Rental Real Estate Activities then s/he has the potential to avoid the passive loss limitations and deduct up to $25,000 of losses from such activities against other nonpassive income. This treatment is limited to taxpayers with MAGI of $100,000 or less. ¶7281
Chapter 8
3. Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses will she be able to deduct? (5 pts)
Medical expenses are deductible to the extent they exceed 10% of AGI. Macy's AGI is $45,000, so her medical expense "floor" is $4,500 ($45,000 X .10). Therefore her deductible medical expenses are $3,856 ($8,356 - $4,500). ¶8065
4. Heather & Terry have a