Assignment Week 3 - activity as a material participant and...

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7. Active income is income derived from the direct efforts of the individual, such as wages, salaries, commissions, tips, etc. Passive income is income from passive activities, such as income from the operation of a limited partnership in which an investor is a limited partner. Portfolio income is income from stocks, bonds, annuities, and royalties not derived in the ordinary course of a business. Dividends, interest, and the sale of stocks, bonds, etc., are portfolio income items. 13. Material participation is the involvement of a taxpayer in the operations of an activity on a regular, continuous, and substantial basis. The determination of material participation is important because it may establish whether an activity will be characterized as a passive activity or a nonpassive activity. 46. Because Mary Beth does not meet the criteria of (1) devoting more than half of her time to the rental
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Unformatted text preview: activity as a material participant and (2) participating in the rental activity for more than 750 hours, the loss will be treated as passive. She may deduct the loss only against passive income. If Mary Beth had qualifi ed as an active participant (i.e., made management decisions regarding rental fees,etc.), she might have been able to deduct up to $25,000 of the loss against nonpassive income. 40. a. $600Ordinary income property given to a charity is limited to basis. b. $7,000The general rule is that when property is given to private charities, the fair market value is used. c. $6,000Since the asset is to be sold, it has unrelated use and the fair market value must be reduced by the gain....
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