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

Question 1

A loss must first be allowed under the passive activity loss rules and then must pass through the at-risk rules in order to ultimately be deducted on the tax return.

Answer 1

False

Question 2

The general rule concerning passive losses is that passive activity losses can only be deducted to the extent of passive and portfolio income.

Answer 2

False

Question 3

Libby owns and operates Mountain View Inn,a bed and breakfast.Libby's inn is not considered a passive activity.

Answer 3

True

Question 4

If a taxpayer disposes of a passive activity in a taxable transaction,suspended passive losses from past years can be used to offset salary and portfolio income.

Question 5

The term "passive activity" includes any activity for the production of income in which the taxpayer does not materially participate.

Question 6

If a limited partner materially participates in the trade or business of a limited partnership,the passive loss rules still apply.

Question 7

The passive activity loss rules require income/loss items to be separated into two categories: active income/loss and passive income/loss.

Question 8

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

Question 9

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

Question 10

Tax preference items can be either positive or negative.

Question 11

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.

Question 12

A taxpayer's share of nonrecourse debt is considered an amount at-risk.

Question 13

The initial amount considered at-risk is the cash plus the adjusted basis of property contributed to the activity plus certain borrowed amounts.

Question 14

Jon is in the car rental business.Most of his customers rent cars on a daily basis.Jon's car rental business is considered a passive activity since rental activities are always treated as passive activities.

Question 15

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.

Question 16

An equipment leasing activity is not subject to the at-risk rules.

Question 17

The AMT tax rate for individuals is 20%.

Question 18

Two equal partners involved in a passive activity with identical passive losses from that activity may be allowed to deduct different amounts of the losses on their own tax returns.

Question 19

Adjustments to AMTI can be either positive or negative.

Question 20

To be considered a material participant in an activity,a taxpayer must meet all of the seven tests prescribed in the regulations.

Question 21

Every taxpayer who calculates depreciation on his or her tax return will have a depreciation adjustment for AMT purposes.

Question 22

Claudia invested $50,000 cash in the C&S General Partnership and received a 20% interest.The partnership borrowed $200,000 of full recourse debt from a local bank.Assuming that Claudia is personally liable for $40,000 if the partnership defaults on the loan,what is Claudia's at-risk amount before considering any partnership income or loss?

A)$50,000.
B)$40,000.
C)$0.
D)$90,000.

Question 23

Which of the following increases the taxpayer's at-risk amount?

A)A taxpayer's share of recourse liabilities.
B)Both a taxpayer's share of recourse liabilities and a taxpayer's share of qualified nonrecourse liabilities.
C)A taxpayer's share of qualified nonrecourse liabilities.
D)A taxpayer's share of nonrecourse liabilities.

Question 24

Gifts to charity are not allowed for AMT purposes.

Question 25

The term "active participation" is used to determine:

A)Whether a taxpayer is a material participant.
B)Whether an activity is considered passive.
C)Whether a taxpayer is eligible for the $25,000 rental offset.
D)None of these.

Question 26

Which of the following is a passive activity?

A)Rental real estate activities where the owner is a real estate professional and works 800 hours per year.
B)A limited partnership interest.
C)A trade or business in which the taxpayer materially participates.
D)All of these.

Question 27

Which of the following decreases a taxpayer's at-risk amount?

A)Cash distributions.
B)Income items.
C)Cash contributions.
D)Increases in liabilities.

Question 28

Itemized deductions are allowed in their entirety for AMT purposes.

Question 29

The standard deduction is added back as a positive adjustment to AMTI.

Question 30

Baxter invested $50,000 in an activity in 2012.At the beginning of 2014,Baxter's at-risk amount was $10,000.Baxter's share of losses from the activity were as follows: Year GainLoss)
2014 $25,000 )
2015 10,000
2016 10,000
If you ignore the passive loss rules,how much income/loss will Baxter have from the activity in 2016?

A)$5,000.
B)$15,000.
C)$10,000.
D)$0.

Question 31

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: What is Alice's adjusted gross income for the current year?

A)$175,000.
B)$215,000.
C)$159,000.
D)$119,000.

Question 32

Rene owns four small businesses.Rene spends the following number of hours this year working in those businesses: Business A,105 hours; Business B,130 hours; Business C,120 hours; Business D,99 hours.Which of the following statements is correct?

A)Businesses A,B,C,and D are all significant participation activities.
B)Businesses A,B,and C are material participation activities.
C)Businesses A,B,and C are significant participation activities.
D)Both businesses A,B,and C are material participation activities and businesses A,B,and C are significant participation activities are correct.

Question 33

Generally,the gains and losses recognized for regular tax purposes are the same amount as the gains and losses recognized for AMT purposes.

Question 34

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

Question 35

How much,in rental losses,can an individual earning a salary of $125,000 per year offset against salary if he or she owns at least 10% of a rental activity and actively participates in the rental activity?

A)$12,500.
B)$25,000.
C)$0.
D)$2,500.

Question 36

There is no difference between regular tax depreciation and AMT depreciation on real property placed in service after 1998.

Question 37

Stuart owns a 20% interest in a partnership not involved in real estate)in which his at-risk amount was $18,000 at the beginning of the year.The partnership produces a $50,000 loss for the year.What is Stuart's at-risk amount at the end of the year?

A)$32,000).
B)$0.
C)$10,000.
D)$8,000.

Question 38

Paul invests $10,000 cash in an equipment leasing activity for a 15% ownership share in the business.The remaining 85% owner is Amanda.Amanda contributes $10,000 and personally borrows $75,000 that she also invests in the business.What are the at-risk amounts for Paul and Amanda?

A)Option A
B)Option B
C)Option C
D)Option D

Question 39

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

A)Form 8582.
B)Form 4797.
C)Form 1040,Schedule D.
D)Form 6198.

Question 40

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

A)The share of debt the investor is liable to repay.
B)Income items.
C)The basis of assets contributed.
D)All of the above.

Question 41

Randall invested $200,000 in Activity A and $100,000 in Activity B both passive)in 2002.At the beginning of 2016,Randall's at-risk amount was $20,000 in A and $15,000 in B.Activity A had a loss of $25,000 and Activity B had income of $30,000.What is the amount of income or loss recognized in 2016 from these activities?

A)$5,000 income.
B)$10,000 income.
C)$25,000 loss.
D)$0.

Question 42

Tax preference items for AMT:

A)Can only result in a positive addition to AMTI.
B)Do not affect the AMT calculation.
C)Can be positive or negative.
D)None of these.

Question 43

Jacob is single with no dependents.During 2016,Jacob has $110,000 of taxable income.He has $38,000 of positive AMT adjustments and $22,000 of tax preferences.Jacob does not itemize his deductions but takes the standard deduction.Calculate Jacob's AMTI.

A)$174,050.
B)$176,300.
C)$120,300.
D)$180,350.

Question 44

Denise's AGI is $145,000 before considering her single rental property.During the year,Denise had a rental loss of $13,000.What is Denise's AGI after considering the rental loss?

A)$145,000.
B)$142,500.
C)$122,500.
D)$132,000.

Question 45

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?

A)$0.
B)$45,000.
C)$30,000.
D)Cannot be determined.

Question 46

Spencer has an ownership interest in three passive activities.In the current tax year,the activities had the following income and losses: How much in passive losses can Spencer deduct?

A)$0.
B)$12,000.
C)$20,000.
D)$16,000.

Question 47

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

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

Question 48

Joshua purchased business furniture and fixtures 7-year property)for $40,000 in May 2013.On July 15,2016,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 2016 AMT adjustment required as a result of the sale of the assets?

A)$7,276.
B)$17,504.
C)$0.
D)$10,228.

Question 49

Jonathan is married,files a joint return,and has one child.During 2016,Jonathan has $85,000 of taxable income.He has $20,000 of positive AMT adjustments and $28,000 of tax preferences.Since Jonathan rents his home pays no mortgage interest)and lives in Florida has no state income tax),he does not itemize his deductions but takes the standard deduction.Calculate Jonathan's AMTI before exclusion amount).

A)$157,750.
B)$145,600.
C)$145,150.
D)$137,600.

Question 50

For AMT purposes,the standard deduction and personal exemptions are:

A)Allowed for AMT purposes.
B)Added as a positive AMT adjustment.
C)Reduced by half for AMT purposes.
D)Subtracted as a negative AMT adjustment.

Question 51

After computing all tax preferences and AMT adjustments,Peter has AMTI of $210,000 in 2016.If Peter is single,what exemption amount can he claim for AMT in 2016?

A)$0.
B)$31,325.
C)$83,800.
D)$53,900.

Question 52

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

A)The installment method.
B)The completed contract method.
C)The percentage-of-completion method.
D)None of these.

Question 53

Heather purchased furniture and fixtures 7-year property)for her retail shop for $50,000.What is the AMT depreciation adjustment required in 2016 if the property was purchased in May 2016,assuming no bonus depreciation was taken?

A)$1,790.
B)$7,145.
C)$0.
D)$5,355.

Question 54

Which of the following itemized deductions is not allowed for AMT?

A)Charitable contributions.
B)Medical expenses.
C)Miscellaneous deductions.
D)Depreciation.

Question 55

Cal reported the following itemized deductions on his 2016 tax return.His AGI for 2016 was $85,000.The mortgage interest is all qualified mortgage interest to purchase his personal residence.For AMT,compute his total itemized deductions.

A)$33,600.
B)$17,700.
C)$25,700.
D)$0.

Question 56

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?

A)$48,000.
B)$24,000.
C)$72,000.
D)None of these.

Question 57

AMT depreciation of personal property is calculated using which method?

A)Sum-of-the-years digits method.
B)Straight-line method.
C)200% declining balance method.
D)150% declining balance method.

Question 58

Catherine purchased furniture and fixtures 7-year property)for her shop for $80,000 in May.What AMT depreciation adjustment is required for the year?

A)$2,864.
B)$8,568.
C)$11,432.
D)$0.

Question 59

After computing all tax preferences and AMT adjustments,Adam and his wife Cindy have AMTI of $290,000.If Adam and Cindy file a joint tax return,what exemption amount can they claim for AMT for 2016?

A)$53,900.
B)$51,225.
C)$83,800.
D)$0.

Question 60

If a loss is disallowed under passive loss rules,the loss is:

A)Carried over indefinitely and deductible when passive income is generated.
B)Both carried over indefinitely and deductible when passive income is generated and carried over indefinitely and deductible when the activity is disposed of.
C)Carried over indefinitely and deductible when the activity is disposed of.
D)Lost forever.

Question 61

Baird has four passive activities.The following income and losses are generated in the current year.
How much of the $60,000 net passive loss can Baird deduct this year? Calculate the suspended losses by activity).

Question 62

Sarah is single with no dependents.During 2016,Sarah has $86,000 of taxable income.She has
$14,000 of positive AMT adjustments and $24,000 of tax preferences.Sarah does not itemize her deductions but takes the standard deduction.Calculate Sarah's AMTI.

Question 63

Antonio reported the following itemized deductions on his 2016 tax return.His AGI for 2016 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.

Question 64

Jordan purchased a warehouse for $600,000.$100,000 of the cost was properly allocated to the land.
a.If the property was purchased in April of 1998,what is the AMT depreciation adjustment required in 2016?
b.If the property was purchased in April of 2016,what is the AMT depreciation adjustment required in 2016?

Question 65

Elijah owns an apartment complex that he actively manages.Elijah paid $300,000 cash for the apartment complex three years ago.During 2016,the rental activity generated a loss of $30,000.How much of the loss can Elijah deduct in 2016 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.

Question 66

Identify factors that increase or decrease the at-risk amount.

Question 67

In 2016,Ethan contributes cash of $50,000 and property with a fair market value of $100,000 and basis of $20,000 in exchange for a 20% interest in the EFP Partnership.The partnership is not a passive activity.For 2016,his share of partnership items were an ordinary loss of $80,000,interest income of $2,000,dividends of $5,000,and capital gains of $4,000.How much of the current year loss is deductible by Ethan and what is Ethan's at-risk amount on December 31,2016?

Question 68

In 2012,Lindsay's at-risk amount was $50,000 at the beginning of the year.Lindsay's shares of income and losses from the activity were as follows ignore passive loss rules):
In 2016,what amount of income or loss will Lindsay report from this activity?

Question 69

In 2014,Mary invested $200,000 in a business that is not a passive activity.During 2015,her share of the business loss is $140,000.In 2016,her share of the business loss is $100,000.How much can Mary deduct in 2015 and 2016?

Question 70

Cory sells his entire interest in a rental property in which he actively participated at a gain of
$12,000.The activity has a current year loss of $4,800 and $16,000 in prior year suspended losses.During the year,Cory has $80,000 in salary.What is Cory's AGI for the year?

Question 71

In 2016,Nigel contributes cash of $10,000 in exchange for a 20% interest in the NDP Partnership.The partnership is not a passive activity.For 2016,the partnership had an ordinary loss of $80,000,interest income of $2,000,dividends of $5,000,and capital gains of $4,000.How much of the current year loss is deductible by Nigel and what is Nigel's at-risk amount on December 31,2016?

Question 72

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?

Question 73

Oliver has an $80,000 loss from an investment in a partnership in which he does not materially participate.He paid $60,000 for his interest.Oliver also has $10,000 of passive income from another limited partnership.How much of the loss,if any,is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?