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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

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