Question 1

Passive activity losses, generally, can only be used to offset passive activity income. However, in certain circumstances, activities that would generally be considered a passive activity may not be subject to the passive activity loss rules. One exception is related to an individual that is not in the rental real estate business but has a rental real estate activity. This taxpayer is permitted to deduct against other income up to $25,000 of passive rental real estate activities. However, certain limitations apply.

What is/are the limitation(s) and how it will impact the taxpayer?

A client indicates that he may be over the AGI limit in the coming year as a result of a bonus and fears he will lose his deduction related to his loss on rental property activity. What happens to the losses incurred by his rental property activity if he is over the AGI limit?

What will the taxpayer need to do to deduct the losses that were previously not allowed?

Question 2

You have been hired as an accounting professor at a local community college. One of the lectures you need to write is on the topic of intangible assets. You want to be sure that your students don’t have as hard a time grasping the concept of intangible assets as you did.

What would be the key points of your lecture? What types of problems or examples would you present to your students? Support your response using examples.

Question 3

Companies can return retained earnings to investors or let it accumulate within the company. What are some circumstances / reasons for returning a portion of the retained earnings, and what are some circumstances / reasons for letting it accumulate? Relate your comments to how investors view such options.

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