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Exam 13: At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

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Question 31

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Bailey owns a 20% interest in a partnership (not involved in real estate) in which his at-risk amount was $25,000 at the beginning of the year.During the year,Bailey receives a distribution of $20,000 from the partnership.The partnership produces an $80,000 loss during the year.If you ignore the passive loss rules,Bailey's deductible loss for the year is:

A) $5,000.
B) $20,000.
C) $25,000.
D) $80,000.

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Question 32

Multiple Choice

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When determining whether a limited partnership loss is deductible,a taxpayer must first:

A) Apply only the passive activity loss rules.
B) Apply only the at-risk rules.
C) Apply the passive activity loss rules and then the at-risk rules.
D) Apply the at-risk rules and then the passive activity loss rules.

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Question 33

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Antonio reported the following itemized deductions on his 2017 tax return.His AGI for 2017 was $95,000.The mortgage interest is all qualified mortgage interest to purchase his personal residence.For AMT,compute his total adjustment for itemized deductions. $\begin{array}{lr}\text {Medical expenses (before 10.0 \% of AGI floor) }&\$8,500\\\text { State income taxes}&\$6,500\\\text {Home mortgage interest }&\$14,500\\\text {Charitable contributions }&\$3,500\\\text { Miscellaneous itemized deductions (before } 2 \% \text { of AGI floor) }&\$2,800\end{array}$

Tax preference items can be either positive or negative.

Ferris owns an interest in,but does not materially participate in,an activity.He has $30,000 at-risk.The business produced a loss in the current year and Ferris's share of the loss is $45,000.Assuming Ferris has no passive income,how much of the $45,000 loss will be deductible by Ferris?

The at-risk amount is increased each tax year by:

Clio's hot dog stand is only open during lunch on weekdays.In total,Clio,who is the sole owner and operator,worked 450 hours at the hot dog stand during the year.Clio is not considered a material participant with respect to the hot dog stand business.

What form must a taxpayer file if he or she is at-risk in an activity?

The Tara Partnership (not involved in real estate)generated income of $75,000 during the year.Since the partnership is involved in an activity that is subject to the at-risk rules,all of Tara's partners must file Form 6198 with their individual income tax returns.

Joshua purchased business furniture and fixtures (7-year property) for $40,000 in May 2014.On July 15,2017,Joshua sold the furniture and fixtures for $30,000.During his years of ownership,he had taken $27,504 of depreciation for regular tax purposes.AMT depreciation for that period was $17,276.What is the 2017 AMT adjustment required as a result of the sale of the assets?

"Active participation" is a much more difficult standard to meet than "material participation."

Terence and Alfred each invested $10,000 cash in T&A General Partnership and each received a 50% interest in the partnership.The partnership borrowed $100,000 in full recourse debt. a.Assume that the $100,000 was borrowed from a bank.What are the amounts Terence and Alfred have at-risk with respect to their partnership interests? b.Assume that the $100,000 was borrowed from Alfred.What are the amounts Terence and Alfred have at-risk with respect to their partnership interests?

Elijah owns an apartment complex that he actively manages.Elijah paid $300,000 cash for the apartment complex three years ago.During 2017,the rental activity generated a loss of $30,000.How much of the loss can Elijah deduct in 2017 in both of the following independent cases? a.Elijah has $80,000 of AGI (salary)before considering the loss generated by the apartment building. b.Elijah has $120,000 of AGI (salary)before considering the loss generated by the apartment building.

Beverly works for a large publicly traded company and regularly receives incentive stock options as bonuses.In the current year,Beverly exercises options to purchase 1,000 shares at $48 per share when the market value is $72 per share.What is Beverly's AMT adjustment from the exercise of the options?

Most real estate debt meets the requirements of qualified nonrecourse financing.

Spencer has an ownership interest in three passive activities.In the current tax year,the activities had the following income and losses: $\begin{array}{ll}\text { Partnership A } & \$ 20,000 \\\text { Partnership B } & \$(16,000) \\\text { Partnership C } & \$(12,000) \end{array}$ How much in passive losses can Spencer deduct?

For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?

Alice is an attorney and earned $175,000 from her practice in the current year.Alice also owns three passive activities.The activities had the following income and losses: $\begin{array} { l l } \text { Partrnership A } & \$ 40,000 \\\text { Partnership B } & \$ ( 32,000 ) \\\text { Partnership C } & \$ ( 24,000 ) \end{array}$ What is Alice's adjusted gross income for the current year?

In 2015,Mary invested $200,000 in a business that is not a passive activity.During 2016,her share of the business loss is $140,000.In 2017,her share of the business loss is $100,000.How much can Mary deduct in 2016 and 2017?

Which of the following is a passive activity?