Bus 225K Introductory Quiz no point value 1 When were the 469 passive activity loss limitation rules added to the IRC 2 What is a passive activity 3 Jacob owns a small hotel as a sole proprietor The average stay of guests is 3 nights Jacob works about 50 hours per week at the hotel Is this activity a passive activity for Jacob Why or why not 4 Carol a real estate developer completed an office building in February 2009 She was having trouble selling it so decided to rent it out while looking for a buyer In November 2009 Carol found a buyer and sold the building at a gain Is Carol s rental income for the 8 months of rental considered passive activity income 5 Henry operates a retail franchise as a sole proprietor He needs to borrow money to help cover business expenses during an economic downturn He obtains a loan from his bank for 80 000 a If the loan is secured by Henry s home how will the interest expense be categorized b If the loan is used to cover payroll and buy more inventory how will the interest expense be categorized 6 The Greens own a principal residence and a vacation home and plan to purchase a condominium that their daughter will live in while she is at college a If they borrow to buy the condo with the loan secured by the condo will the interest expense be deductible as home mortgage interest b If they take out an equity loan on their principal residence to buy the condo will that produce deductible home mortgage interest c If they pay cash for the condo and borrow money to pay for tuition would that produce deductible interest expense 7 Which of the following is likely to cause an individual to owe AMT a Having over 80 of their income taxed at the highest marginal rate b Exercising incentive stock options c Paying interest on a home equity loan d Having a passive activity e Living in California and making over 200 000 8 Which of the following might cause an individual to generate an NOL a Mortgage interest greater than his current year salary and interest income b A very large casualty loss c Stock losses greater than stock gains d An unprofitable Schedule C year