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Passive Activities and Alternative Minimum Tax

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

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.

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