Wes' at-risk amount in a passive activity is $25,000 at the beginning of the current year. His current loss from the activity is $35,000, and he has no passive activity income. At the end of the current year, which of the following statements is incorrect?
- Wes has a loss of $25,000 suspended under the passive loss rules.
- Wes has an at-risk amount in the activity of $0.
- Wes has a loss of $10,000 suspended under the at-risk rules.
- Wes has a loss of $35,000 suspended under the passive loss rules.
2. The installment method applies when a payment will be received after the tax year of the sale:
- by an investor who sold real estate at a gain.
- by an investor who sold real estate at a loss.
- by an appliance dealer who sold inventory.
- by an investor who sold IBM Corporation common stock.
- None of the above
3. Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in 2 years. The note bore interest of 11% when the applicable federal rate was 7%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000.
- Hal can elect to treat the $36,000 as a recovery of capital.
- Hal must recognize $70,000 gain in the year of sale.
- Hal must recognize $60,000 gain in the year of sale.
- Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale.
- None of the above
4. Juan, NOT a dealer in real property, sold land that he owned with an adjusted basis of $400,000 that was encumbered by a mortgage for $200,000. The terms of the sale required the buyer to pay Juan $150,000 on the date of the sale. The buyer assumed Juan's mortgage and gave Juan a note for $450,000 (plus interest at the federal rate) due in the following year. What is the gross profit percentage?
- 400/800 = 50%
- 400/600 = 66.67%
- 600/800 = 75%
- 400/450 = 88.89%
- None of the above