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    Passive Activities and Alternative Minimum Tax

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    1. Rob sells his interest in a passive activity for $120,000. Determine the tax effect of the sale based on each of the following independent facts:

    A. Adjusted basis in this investment is $42,000. Losses from prior years that were not deductible due to the passive loss restrictions total $48,000.

    B. Adjusted basis in this investment is $90,000. Losses from prior years that were not deductible due to the passive loss restrictions total $48,000 and suspended credits total $12,00.

    C. Adjusted basis in this investment is $90,000. Losses from prior years that were not deductible due to the passive loss restrictions total $48,000.

    2. Prior to the effect of the tax credits, Angie's regular income tax liability is $200,000 and her tentative AMT is $195,000. Angie has the following credits:

    Child Tax Credit $1,000
    Adoption Expenses Credit 5,000

    Calculate Angie's Tax Liability after credits.
    a. $190,000
    b. $200,000
    c. $194,000
    d. $195,000
    e. None of the above

    3. Ted, who is single, owns a personal residence in the city. He also owns a condo near the ocean. He uses the condo as a vacation home. In March, 2000 he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile. During 2007, he paid the following amounts of interest:

    ?on his personal residence $15,500
    ?on the condo 6,200
    ?on the home equity loan 4,800
    ?on credit card obligations 1,700

    What amount, if any, must Ted recognize as an AMT adjustment in 2000?

    a. $0
    b. $4,800
    c. $6,200
    d. $11,000
    e. None of the above

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    Solution Preview

    1. Rob
    a. . Rob sells his interest in a passive activity for $120,000. Determine the tax effect of the sale based on each of the following independent facts:

    A. Adjusted basis in this investment is $42,000. Losses from prior years that were not deductible due to the passive loss restrictions total $48,000.
    The process is to subtract the amount realized from the adjusted basis and disallowed losses due to the passive activity rules.
    Sale Price $ 120,000

    - Adjusted Basis $42,000
    -Losses not allowed $48,000

    ***Gain of $30,000 Long Term Capital Gain which can be used to offset prior passive losses.

    B. Adjusted basis in this investment is $90,000. Losses from prior years that were not deductible due to the passive loss
    restrictions total $48,000 and suspended ...

    Solution Summary

    This solution contains questions and answers covering passive activities and adjustments concerning the Alternative Minimum Tax.

    $2.19

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