1. (TCO E) Which of the following is not a passive activity? Owning a business and not materially participating Having rental condos Owning a limited partnership interest in a real estate limited partnership Owning a working interest in oil and gas properties Solution Owning a working interest in oil and gas properties since working interest is excluded from passive activity.

1. 1. (TCO E) Zelda Zayer has been a widow for over 3 years and files a return as a single taxpayer.
Items of income received by Zelda in 2011 were as follows.
Interest on savings account with Bank of America: $50
Interest on state income tax refund: $25
Gambling winnings: $2,400
Dividends from mutual life insurance company on life insurance policy: $500
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the
premiums paid to the company.
(a) How much should Zelda include in her 2011 taxable income as interest?
(b) How much should Zelda report as dividend income for 2011?
(c) How much should Zelda include in taxable “Other Income” for her state lottery winnings?
Solution
A) Taxable income as interest = Interest on income tax refund i.e 25
B) Dividend Income = Dividend received from better auto co.i.e 875
C) Other Income for her state winning lotteries = Gambling winnings i.e 2400