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

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Question 31

True/False

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

A) True
B) False

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Question 32

Multiple Choice

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

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

E) B) and C)
F) A) and D)

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Question 33

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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?

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

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:

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

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?

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

Jacob is single with no dependents. During 2015, 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.

In 2011, 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 2015, what amount of income or loss will Lindsay report from this activity?

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?

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

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

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

In 2015, 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 2015, 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, 2015?

The AMT tax rate for individuals is 20%.

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.

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

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.

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