Acc 553 Week 3

502 Words3 Pages
7-7. Differentiate between the following: active income, passive income, and portfolio income. Answer: Active income is derived from activities a person actively generates such as wages and tips. Passive income is from those activities that a person does for a limited time or not at all such as income from a partnership. Portfolio Income is derived from investing activities such stocks, bonds, and interest earned. 7-13. Briefly, what is "material participation"? Why is the determination of whether a taxpayer materially participates important? Answer: Material participation is a means in which how a type of income is passive or active. This is important because losses from passive income can only be deducted from passive income. 7-46 Mary Beth is a CPA, devoting 3,000 hours per year to her practice. She also owns an office building in which she rents out space to tenants. She devotes none of her time to the management of the office building. She has a property management firm make all management decisions for her. During 2012, she incurred a loss, for tax purposes, of $30,000 on the office building. How must Mary Beth treat this loss on her 2012 tax return? Answer: Because Mary Beth does not devote more than 750 hours to office management she has to treat the income as passive. This loss can only be applied to her passive income. 8-34 Mike and Sally Card file a joint return for the 2012 tax year. Their adjusted gross income is $65,000 and they incur the following interest expenses: Qualified Education Loans: 3500 Personal loans: 1000 Home Mortgage Loan: 4000 Loan for Stocks, Bonds, Securities: 15000 Investment income and related expenses amount to $7,000 and $500, respectively. What is Mike and Sally's interest deduction for the 2012 tax year? Answer: Total interest deduction = 13,000 Total Interest deduction = 6500 (7,000 - 500) the

More about Acc 553 Week 3

Open Document