Complete the partnership interest problem that requires you to apply research and knowledge of the rules and laws associated with at-risk or passive activity losses, as well as the individ
Complete the partnership interest problem that requires you to apply research and knowledge of the rules and laws associated with at-risk or passive activity losses, as well as the individual alternative minimum tax (AMT).
Note: The assessments in this course are presented in a sequence and must be completed in order. Do not complete Assessment 6 until you have submitted and received faculty feedback for Assessment 5.
Introduction
Tax regulations are in a state of constant change. Being able to locate and correctly interpret and apply the information to a problem is a highly valued skill.
Note: The assessments in this course are presented in a sequence and must be completed in order. Do not complete Assessment 6 until you have submitted and received faculty feedback for Assessment 5.
Preparation
Tax regulations are in a state of constant change. Being able to locate, correctly interpret, and apply the information to a problem is a highly valued skill. Consider each problem and research the applicable tax regulations to answer the questions.
Instructions
For this assessment, complete the following:
- Download Assessment 6 Problems [DOCX].
- Using the primary source of IRS.gov and the IRS Interactive Tax Assistant and Tax Trails, locate and interpret regulations and publications that relate to each problem.
- Record your answers to the problems in a Word document.
- Provide an explanation for each answer, including any related calculations and evidence.
- Include the following criteria from the scoring guide in your responses.
- Calculate the initial basis, allowed losses, and ending at-risk amounts.
- Explain how to treat a loss on a federal income tax return.
- Calculate what can be deducted on a final income tax return.
- Calculate the loss disallowed by at-risk rules and how much of the loss is disallowed by passive loss rules.
- Explain the tax effect in a specified scenario for the last year and the current year.
- Calculate itemized deductions for AMT purposes and identify the amount of the AMT adjustment.
- Submit the Word document containing your answers to the problems and the explanations for your answers.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
- Competency 1: Analyze the background of the federal income tax system.
- Explain the tax effect in a specified scenario for the last year and the current year.
- Competency 2: Analyze the basics of individual income tax return preparation.
- Calculate the initial basis, allowed losses, and ending at-risk amounts.
- Explain how to treat a loss on a federal income tax return.
- Calculate what can be deducted on a final income tax return.
- Calculate the loss disallowed by at-risk rules and how much of the loss is disallowed by the passive loss rules.
- Calculate itemized deductions for AMT purposes and identify the amount of the AMT adjustment.
Assessment 6 Problems: Applying the IRS Code
In a Word document, provide complete answers with explanations to the problems below.
Problem 1
In 2021, Matthew contributed equipment with an adjusted basis of $40,000 and an FMV of $36,000 to Construction Limited Partnership (CLP) in return for a 3% limited partnership interest. Matthew’s share of CLP income and losses for the year were as follows:
Interest $1,000
Dividends 600
Capital gains 1,800
Ordinary loss (8,650)
CLP had no liabilities.
What are Matthew’s initial basis, allowed losses, and ending at-risk amount?
Problem 2
During the current year, Ben worked 1,500 hours as a tax consultant and 500 hours as a real estate agent. His one other employee (his wife) worked 350 hours in the real estate business. Ben earned $60,000 as a tax consultant, and together the couple lost $18,000 in the real estate business.
How should Ben treat the loss on his federal income tax return?
Problem 3
Chrystal died owning an interest in a passive activity property. The property had an adjusted basis of $270,000, a fair market value of $284,000, and suspended losses of $25,000.
What can be deducted on her final income tax return?
Problem 4
Howard has a $76,000 loss from an investment in a partnership in which he does not participate. His basis in the interest is $70,000.
a. How much of the loss is disallowed by the at-risk rules?
b. How much of the loss is disallowed by the passive loss rules?
Problem 5
Roberta gave her daughter a passive activity last year that had an adjusted basis of $37,500. The activity had suspended losses of $17,500 and a fair market value of $60,000. In the current year, her daughter realized an income of $9,000 from the passive activity.
What is the tax effect on Roberta and her daughter last year and in the current year?
Problem 6
Charles had the following itemized deductions in 2021:
State income taxes $3,000
Charitable contributions 4,900
Mortgage interest (personal residence) 14,000
Medical expenses [$8,000-(7.5% ×$75,000)] 2,375
a. What are Charles’ itemized deductions for AMT purposes?
b. What is the amount of the AMT adjustment?
Answer:
AMT
Regular Tax
Adjustment
State Income
Taxes
Charitable
Contributions
Mortgage Interest
Medical Expenses
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