Samuel had the following inflows and outflows in the current year:

Salary - $40,000
Income distributed to him from trust fund of $250,000
investment income $4,000
Qualified student loan interest of $5,000
Investment expenses of $400
Investment interest expense of $5,000
Mortgage interest of $200,000. The loan on the personal residence is $2,000,000.

Which of the following statements is true?

A. The student loan interest is not deductible.

B. The mortgage interest is deductible in full.
C. The investment interest expense is deductible in full.
D. The income from the trust will not be taxable to Samuel.
Answer: A

Distributions of income from trust are taxed to the beneficiary. Therefore, he will be over the
phased out limitation for the student loan deduction. Investment interest expense is limited to
net investment income, which is $3,600 ($4,000 - $400). Personal residence interest deduction
is limited to the interest on the first $1,000,000 in home acquisition indebtedness.

Taylor has wages of $60,000. She has a 20% investment in rental real estate which she actively
participates. She has basis in the investment of $100,000. The investment allocated a loss of
the current year of $75,000. What is the suspended loss due to at-risk rules for the current
year?

A. $0
B. $25,000
C. $50,000
D. $75,000
Answer: A

Since she has $100,000 in basis and only a $75,000 loss there is not a suspended loss due to
at-risk rules. There is, however, a suspended loss due to passive income rules. The suspended
loss if $50,000 because she is allowed to take $25,000 of loss against ordinary income in the
current year because she is an active participant in a rental real estate activity and her income
is below the $100,000 threshold.