Reference no: EM131637518

Questions: 1. Karen: Karen Black is an M.D. with a full-time practice, from which she earns a salary of nearly $300,000 a year.

Discuss the tax consequences of each of the following activities. From an income tax standpoint only, are any of the investments appropriate in reducing Karen's income tax liability?

1. investment in an oil and gas working interest

2. a real estate limited partnership producing losses

3. a historic rehabilitation limited partnership producing passive losses and credits

2. Kathy: At the time of her death, Kathy owned an interest in a limited partnership that had an adjusted basis of $27,000, and a fair market value of $55,000. She has suspended losses of $61,000 from the partnership.
What is the amount, if any, of suspended losses that may be deducted on Kathy's final return?

3. Reggie: Reggie has an active participation rental real estate activity. In 2016, he had losses of $28,000 from the active participation real estate, and his AGI was $140,000. He was allowed to deduct $5,000 of the losses against other income. The remaining $23,000 loss carried forward into 2017. In 2017, Reggie has an AGI of $88,000, and only $13,000 of current losses from his real estate rental activity.
What amount of loss may Reggie deduct in 2017?

4. Gwen and Nick: In the current year, Gwen works 1,600 hours as a college professor and 300 hours in a real estate development business that she and her husband, Nick, own. She also works 410 hours in a real estate rental activity that is jointly owned by her and her husband.
Nick works 260 hours in the real estate development business, and 200 hours in the real estate rental activity. Gwen earns $85,000 as a college professor, she and Nick lost $12,000 in the real estate development business, and lost $27,000 in the real estate rental activity.
How are these losses treated, and why?

5. John and Jena: John Young is the lead partner in a local accounting firm whose practice consists of tax consulting and compliance. The firm also serves clients by providing write-up and payroll processing services. As his firm has grown, John has developed various ways to build its business prospects.

John and his wife, Jena, created JJ Partnership to purchase an office building where John moved his practice. Because the building is larger than the practice currently needs, space is rented to other tax practitioners. In addition to providing office space, the partnership offers professional and administrative services on an exclusive basis to the tenants. These services include secretarial support, telephone answering service, tax professionals available for special projects, access to an on-line tax research library, computer hardware technology, and miscellaneous administrative support. JJ Partnership considers its primary activity to be providing professional and administrative services to its tenants rather than being a lessor.

Because of the attractiveness of the services offered to its tenants, the building is fully leased. In the first year, Jena works full-time at the partnership, and John commits about 550 hours to its affairs. For the first year, the partnership incurs a tax loss of $60,000.

Without considering the impact of the loss, John and Jena's AGI is $175,000. What advice would you provide on the deductibility of the $60,000 loss for federal income tax purposes?