Week 3 Homework Assignment

Week 3. Assignments Chapter 7 7.
Differentiate between the following: active income, passive income, and portfolio income. Briefly, what is “material participation”? Why is the determination of whether a taxpayer materially participates important? 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 to 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? 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: 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? In each of the following independent cases determine the number of charitable contributions allowed the individual before consideration of any percentage limitations.

a. Charlie Chubbs contributed an item of inventory from his sole proprietorship to a public charity for its use. The fair market value of the asset was $800 and his basis was $600.
b. Durwood Dodson contributed some shares of common stock that he had held long-term to a private charity. The basis of the stock was $8,000 and it had a fair market value of $7,000.
c. Esther Ensign contributed tangible personal property that she had held long-term to a public charity. The asset had a fair market value of $10,000 and a basis of $6,000. The charity intended to sell the asset and use the proceeds for charitable purposes.