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Alternative Miniumum Tax, Passive Activities, and Basis

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Question 1
All of a corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.
True
False

Question 2
In calculating the adjusted basis of property, the basis is reduced by the lesser of the cost recovery allowed or allowable.
Question 2 answers
True
False

Question 3
Property received as a gift can be sold by a donee and result in neither recognized gain nor loss.
True
False

Question 4
The basis of property acquired in a wash sale is its cost plus the loss recognized on the wash sale.
True
False

Question 5
Property that has been converted from personal use to business or income-producing use will be dual basis property if the adjusted basis exceeds the fair market value at the date of conversion.
Question 5 answers
True
False

Question 6
In 2008, Ray incurs $60,000 of mining exploration expenditures, and deducts the entire amount for regular income tax purposes. Which of the following statements is incorrect?
a. For AMT purposes, Ray will have a positive adjustment of $54,000 in 2008.
b. Ray will have a negative AMT adjustment of $6,000 in 2013.
c. Over a 10-year period, positive and negative adjustments will net to zero.
d. The AMT adjustment for mining exploration expenditures cannot be avoided if the
taxpayer elects to write the expenditures off over a 10-year period.
e. All of the above are correct.

Question 7
In 2008, Fred has a $75,000 loss on a passive activity for regular income tax purposes. For AMT purposes, his loss is $65,000. The amount of the AMT adjustment resulting from the passive activity loss is: a. $0.
b. $10,000 negative adjustment.
c. $10,000 positive adjustment.
d. $65,000.
e. None of the above.

Question 8
Erin owns a mineral property that had a basis of $10,000 at the beginning of the year. The property qualifies for a 15% depletion rate. Gross income from the property was $120,000 and net income before the percentage depletion deduction was $50,000. What is Erin's tax preference for excess depletion?
a. $8,000
b. $10,000.
c. $18,000.
d. $0.
e. None of the above.

Question 9
Sara is single, has no dependents and does not itemize, provides you with the following information:
Short-term capital loss $ 5,000
Long-term capital gain 25,000
Municipal bond interest received on private activity bonds
acquired in 2003 9,000
Dividends from General Motors 1,500
Excess of FMV over cost of incentive stock options (the rights
became freely transferable in the current year) 35,000

What is the amount of Sara's tax preference items and AMT adjustments for the current year?
a. $9,000.
b. $44,000.
c. $49,350.
d. $52,950.
e. None of the above.

Question 10
Alice owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000. Real estate taxes are $4,500 per calendar year and are payable on December 31. On April 1, 2008, Alice sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000. What is the amount realized?
a. $685,000.
b. $686,119.
c. $860,000.
d. $861,119.
e. None of the above.

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Solution Summary

This solution in question and answer format contains principles used in determining basis, some Passive Rules, and Alternative Minimum Tax.

Solution Preview

Guidance for answering these questions was from West Federal Taxation Individual Income Tax 2007 by Hoffman, Smith , Willis and 1040 Quickfinder 2008 Tax year by Thompson Reuters

Question 1
All of a corporation's AMT is available for carryover as a minimum tax credit
regardless of whether the adjustments and preferences originate from timing
differences or AMT exclusions.
True Yes, true is the correct answer.
False

Question 2
In calculating the adjusted basis of property, the basis is reduced by the lesser of the cost recovery allowed or allowable.
Question 2 answers
True
False, it is the Greater of the allowed or allowable making false the correct answer.

Question 3
Property received as a gift can be sold by a donee and result in neither recognized gain nor loss.
True, this is correct when the amount realized is between the basis for and the basis for loss.
False

Question 4
The basis of property acquired in a wash sale is its cost plus the loss recognized on the wash sale.
True
False, this is tricky, but this is the correct answer. The basis of property acquired in a wash sale is the cost of the property plus the UN-recognized loss.

Question 5
Property ...

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