ACCT Ch 12-15

Les has an ownership interest in three passive activities. In the current year, the activities had the following losses: Partnership A: ($5,000) Partnership B: ($3,400) Partnership C: ($2,500) Assuming Les is at-risk for each of the loss activities, what is the total amount of loss Les can deduct?

$0

Nathan received 500 shares of incentive stock with an option to purchase at $15 per share. The shares were trading at $10 per share when Nathan was hired. Nathan exercises the option when the shares are trading for $18 per share. For regular tax purposes, what should Nathan report as income from this transaction?

$0

Rory contributed property with an adjusted basis of $10,000 to ABC Partnership in return for a 2% limited partnership interest. ABC provided Rory with the following information on Rory's K-1 regarding her partnership interest for the year: Interest Income - $200 Dividend income - $800 Capital gain - $1,000 Ordinary business loss - $14,000 If ABC has no liabilities, what is Rory's ending at-risk amount for the year?

$0 Beg. at-risk 10,000 + int. inc. 200 + div. inc. 800 + cap. gain 1000 = 12,000 - 12,000 = 0. Rory's loss is disallowed because of the at-risk rules.

In order to build a new road, the city of Oxford annexed 20 acres of Michael's farmland with an FMV of $30,000 and basis of $18,000. In return, Michael received 50 acres of similar land, which was appraised at $45,000. In this involuntary conversion, what gain or loss should Michael recognize, and what is his basis in the new land?

$0 gain and $18,000 basis.

Marcus purchased Vinnie and Marie's personal residence for $225,000 cash and the assumption of their $100,000 mortgage. Vinnie and Marie bought the house six years ago for $275,000 and have used it as a primary residence. What amount of gain should Vinnie and Marie recognize on the sale of their personal residence?

$0.

Zeke's Zipline Adventures sold 6 acres of land used in the business. The sales price was $12,000 and the adjusted basis of the land was $9,000. Zeke will receive a down payment of $4,000 at the time of sale and the remaining $8,000 early next year. How much gain will Zeke recognize in the current year?

$1,000 3,000/12,000 = 25%; $4,000 x .25 = $1,000.

Nathan received 500 shares of incentive stock with an option to purchase at $15 per share. The shares were trading at $10 per share when Nathan was hired. Nathan exercises the option when the shares are trading for $18 per share. For AMT purposes, what should Nathan report as income from this transaction?

$1,500 (18 - 15) = 3 x 500 = $1,500.

Nathan received 500 shares of incentive stock with an option to purchase at $15 per share. The shares were trading at $10 per share when Nathan was hired. Nathan exercises the option when the shares are trading for $18 per share. For AMT purposes, what AMT adjustment should Nathan report from the exercise of these shares?

$1,500 Market value: 500 x 18 = 9,000 cost of stock: 500 x 15 = 7,500 9,000 - 7,500 = 1,500.

Rory contributed property with an adjusted basis of $20,000 to ABC Partnership in return for a 2% limited partnership interest. ABC provided Rory with the following information on Rory's K-1 regarding her partnership interest for the year: Interest Income - $200 Dividend income - $800 Capital gain - $1,000 Ordinary business loss - $12,000 If ABC has no liabilities, what is Rory's ending at-risk amount for the year?

$10,000 Beg. at-risk 20,000 + int. inc. 200 + div. inc. 800 + cap. gain 1000 = 22,000 - 12,000 = 10,000.

Gretel exchanges a warehouse with an adjusted basis of $150,000 and an FMV of $160,000 for a mini-storage building with an FMV of $100,000 and $60,000 cash. What are the recognized gain or loss and the basis of the mini-storage building?

$10,000 gain and $100,000 basis.

Basil has $130,000 AGI (before any rental loss). He also owns several rental properties in which he actively participates. The rental properties produced a $30,000 loss in the current year. How much, if any, of the rental loss can Basil deduct in the current year?

$10,000.

Myer owns a 20% interest in a partnership (not involved in real estate) in which his at-risk amount was $50,000 at the beginning of the year. During the year, he receives a $40,000 distribution from the partnership. The partnership produces a $160,000 loss during the year. What is Myer's deductible loss for the year (ignore passive loss rules)?

$10,000.

Eri has AGI (before any rental loss) of $125,750. She also owns a rental house in Golden, Colorado in which she actively participates. The rental property produces a $15,250 loss in the current year. Eri has no other rental or passive activities. How much of the rental loss is deductible, if any, in the current year?

$12,125 ($125,750 AGI - $100,000 threshold) x 50% = $12,875. $25,000 - $12,875 = $12,125.

Abel, Bob, and Carol form ABC Partnership. Abel contributed $10,000 for a 10% interest, Bob contributed $40,000 for a 40% interest, and Carol contributed $50,000 for a 50% interest. ABC borrowed $30,000 of recourse debt from the bank and this was personally signed by all three partners. What is Abel's at-risk amount?

$13,000 $10,000 + (10% x 30,000) = $13,000.

Carol invests $15,000 in a sports and outdoor shop for a 15% share in the business. The 90% owner is Bob, who contributes $25,000 and personally borrows $65,000 from the bank to put in the business. Carol does not work in the business and is not liable for any of the debt. What is Carol's at-risk amount, if any?

$15,000

In 2018, Kirsten invested $20,000 for a 10% partnership interest (not a passive activity). The partnership has losses of $150,000 in 2018 and $250,000 in 2019. Kirsten's share of the partnership's losses is $15,000 in 2018 and $25,000 in 2019. How much of the losses from the partnership can Kirsten deduct?

$15,000 in 2018 and $5,000 in 2019.

Eri has AGI (before any rental loss) of $65,750. She also owns a rental house in Golden, Colorado in which she actively participates. The rental property produces a $15,250 loss in the current year. Eri has no other rental or passive activities. How much of the rental loss is deductible, if any, in the current year?

$15,250

Paul reported the following itemized deductions on his 2018 tax return. His AGI for 2018 was $65,000. The mortgage interest is all qualified mortgage interest to purchase his personal residence. For AMT, compute his total adjustment for itemized deductions.

$3,600.

A tornado destroyed a barn on Jim's farm. Jim's adjusted basis in the barn was $25,000 at the time of the storm. He received insurance proceeds of $30,000 which was the fair market value of the barn. How much will Jim need to invest in a new barn in order to defer the $5,000 gain?

$30,000

Nathaniel has AGI (before any rental loss) of $65,000. He also owns several rental properties in which he actively participates. The rental properties produced a $30,000 loss in the current year. Nathaniel also has $5,000 of income from a limited partnership interest. How much, if any, of the rental loss can he deduct in the current year?

$30,000.

Daniel, who is single, purchased a house on May 15, 1995, for $115,000. During the years he owned the house, he installed a swimming pool at a cost of $24,000 and replaced the driveway at a cost of $12,000. On April 28, 2018, Daniel sold the house for $470,000. He paid a realtor commission of $28,000 and legal fees of $1,000 connected with the sale of the house. What is Daniel's recognized gain on the sale of the house?

$40,000.

On July 1, 2018, Andrea sold land held for investment to Taylor. Andrea's land had a $300,000 basis and was subject to a $150,000 mortgage. Under the contractual agreement, Taylor will pay Andrea $85,000 on the date of the sale, will assume the mortgage, and will give Andrea a note for $375,000 (plus interest at the federal rate) due the following year. What is the contract price in the year of sale?

$460,000.

Les has an ownership interest in three passive activities. In the current year, the activities had the following income and losses: Partnership A: $5,000 Partnership B: ($3,400) Partnership C: ($2,500) Assuming Les is at-risk for each of the loss activities, what is the total amount of loss Les can deduct?

$5,000

Abel, Bob, and Carol form ABC Partnership. Abel contributed $10,000 for a 10% interest, Bob contributed $40,000 for a 40% interest, and Carol contributed $50,000 for a 50% interest. ABC borrowed $30,000 of recourse debt from the bank and this was personally signed by all three partners. What is Bob's at-risk amount?

$52,000 $40,000 + (40% x 30,000) = $52,000.

After computing all tax preferences and AMT adjustments, Phillip and his wife Carmin have AMTI of $1,210,000. If Phillip and Carmin file a joint tax return, what exemption amount can they claim for AMT for 2018?

$56,900.

Danny, Eve, and Fred formed DEF partnership by investing $25,000 each for equal interests in the partnership. DEF borrowed $100,000 to purchase a building and used the building as collateral, but the individual partners were not required to be personally liable for the loan. What is Danny's at-risk amount?

$58,333 $25,000 + (1/3 x $100,000).

Carol's AMT base is $240,000. Of this amount, $35,000 represents long-term capital gain income from investments. Carol is in the 28% marginal tax bracket for regular tax. Calculate the tentative tax resulting from AMT calculations.

$58,894 240,000 - 35,000 capital gains (to be taxed at capital rates) = 205,000 (205,000 x .28) -3756 + (35,000 x .15) = $58,894

Jessica purchased 100 shares of qualified small business stock (Sec. 1202 stock) for $95,000 a few years ago and is eligible for a 50% exclusion. She sold the stock in the current year for $112,000. What adjustment, if any, should Jessica report for AMT purposes?

$595 112,000 - 95,000 = $17,000 x 50% = $8,500 exclusion x 7% = $595 AMT adjustment

Abel, Bob, and Carol form ABC Partnership. Abel contributed $10,000 for a 10% interest, Bob contributed $40,000 for a 40% interest, and Carol contributed $50,000 for a 50% interest. ABC borrowed $30,000 of recourse debt from the bank and this was personally signed by all three partners. What is Carol's at-risk amount?

$65,000 $50,000 + (50% x 30,000) = $65,000.

Carol invests $15,000 in a sports and outdoor shop for a 15% share in the business. The 85% owner is Bob, who contributes $20,000 and personally borrows $65,000 from the bank to put in the business. Carol does not work in the business and is not liable for any of the debt. What is Bob's at-risk amount, if any?

$85,000

Jessica purchased 100 shares of qualified small business stock (Sec. 1202 stock) for $95,000 a few years ago and is eligible for a 75% exclusion. She sold the stock in the current year for $112,000. What adjustment, if any, should Jessica report for AMT purposes?

$892.50 112,000 - 95,000 = $17,000 x 75% = $12,750 exclusion x 7% = $892.50 AMT adjustment

Nathan received 500 shares of incentive stock with an option to purchase at $15 per share. The shares were trading at $10 per share when Nathan was hired. Nathan exercises the option when the shares are trading for $18 per share. Nathan sells the shares a few years later for $24 per share. For AMT purposes, what AMT adjustment should Nathan report from the sale of these shares?

($1,500) RT: AR $12,000 ($24 x 500) - basis $7,500 ($15 x $500) = $4,500. AMT: AR $12,000 - basis $9,000 = 3,000. AMT adj: 3,000 - 4,500 = ($1,500).

CHAPTER 12

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CHAPTER 13

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Sandy sold 2 acres of land to her daughter, Tara. Sandy's basis in the land was $800 and she sold the land for $500. After owning the land for a year, Tara sold it to an unrelated party for $700. Tara's recognized gain on the land is $___.

0

Cindy's Ceramics engaged in a like-kind exchange that resulted in a $3,000 gain. In addition to the like-kind property received in the transaction, Cindy also received $1,000 cash. Cindy will have to recognize $___ of her realized gain.

1,000

Will's Whitewater Rafting sold 3 acres of land used in the business. The sales price was $6,000 and the adjusted basis of the land was $4,200. Will receives a down payment of $4,000 at the time of sale and the remaining $2,000 early next year. The realized gain on the sale is $___. Will's recognized gain for the current year is $___ and the gain recognized next year will be $___.

1,800 1,200 600

Julie transferred a building with an adjusted basis of $240,000 for another building with a fair market value of $350,000. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $___. The recognized gain on the exchange was $___. Julie's adjusted basis in the building received is $___.

110,000 0 240,000

Julie transferred a building with an adjusted basis of $240,000 for another building with a fair market value of $350,000 and $25,000 in cash. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $___. The recognized gain on the exchange was $___. Julie's adjusted basis in the building received is $___.

135,000 25,000 240,000

Mario transferred land with an adjusted basis of $14,000 for similar land with a fair market value of $16,000. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $___. The recognized gain on the exchange was $___. Mario's adjusted basis in the land received is $___.

2,000 0 14,000

Sandy sold 2 acres of land to her daughter, Tara. Sandy's basis in the land was $800 and she sold the land for $500. After owning the land for a year, Tara sold it to an unrelated party for $1,000. Tara's recognized gain on the land is $___.

200

If a taxpayer is an active participant in a rental activity, she may be allowed to deduct up to $___ in rental losses against other types of income.

25,000

The AMT is calculated by multiplying the first $187,800 of the AMT base by ___% and multiplying the AMT base in excess of $187,800 by ___%.

26% 28%

Cindy's Ceramics engaged in a like-kind exchange that resulted in a $3,000 gain. In addition to the like-kind property received in the transaction, Cindy also received $5,000 cash. Cindy will have to recognize $___ of her realized gain.

3,000

Which of the following situations does not qualify as an involuntary conversion?

A building was sold to pay off a court judgment

Which of the following sales transactions is eligible for recognizing the gain under the installment method (assuming the terms of the sale meet the definition of an installment sale)?

A sale of land

Which of the following statements is true regarding the tests for material participation in a trade or business activity?

A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.

The operating loss from a passive activity can not generally be used to offset which category of income?

Active and portfolio income

What is the minimum level of participation required in order for a taxpayer to be able to deduct up to $25,000 in rental losses against other types of income?

Active participation

Which of the following choices is not correct regarding boot?

Boot received will trigger the recognition of a loss in a like-kind exchange.

Which of the following statements is correct when referring to boot? (Check all that apply.)

Boot refers to any property involved in the exchange that is not-like-kind property. If a seller assumes the liability of a buyer in an exchange, the amount of the liability is considered to be boot.

Which of the following statements is correct concerning the property involved in a like-kind exchange?

Both the property transferred and the property received must be used in a trade or business or held for investment.

Which of the following amounts is not added back to regular taxable income to arrive at alternative minimum taxable income?

Capital losses

Kyla owns a convenience store with an adjusted basis of $215,000 that was destroyed by a flood on August 15, 2018. Kyla received a check for $275,000 from her insurance company on January 10, 2019, compensating her for the damage to her store. What is the latest date on which Kyla can buy replacement property to avoid recognition of any realized gain?

December 31, 2022.

Which of the following types of property are ineligible for like-kind treatment? (Check all that apply.)

Equipment used in a trade or business Stocks and bonds held for investment Inventory held for resale Land held outside the U.S. Partnership interests

True or false: A loss on a sale to a related party can only be recognized if the fair market value of the asset on the date of the sale can be objectively ascertained.

False

True or false: The exchange of personal use property will qualify as a like-kind exchange if the property received will be used in a similar manner as the property transferred.

False

True or false: The loss on the sale of a personal residence is classified as a deductible capital loss.

False

Which of the following are NOT tax preference items? (select all that apply)

Gain/loss on business property subject to depreciation Depreciation on personal property placed in service after 1998 Incentive stock option gain/loss adjustment

Choose the deductions that reduce both regular taxable income and AMTI. (Check all that apply.)

Gambling losses Casualty and theft losses Charitable contributions Home equity interest - loan used to improve the house

Eric exchanged land used in his business with Geoff for another lot of land. Eric exchanged the land with a $75,000 FMV and $45,000 basis along with $15,000 cash. Geoff's basis in his land is $60,000, and the FMV is $90,000. Which of the following statements is correct?

Geoff must recognize a gain of $15,000 on the exchange.

Choose the deductions that reduce both regular taxable income and AMTI. (Check all that apply.)

Home mortgage interest Casualty losses Charitable contributions

Sylvester, an accountant, owns a mail-order business in which he participates. He has one employee who works part-time in the business. Which of the following statements is not correct?

If Sylvester participates for 495 hours and the employee participates for 520 hours during the year, Sylvester qualifies as a material participant.

Which of the following statements is incorrect when referring to installment sales?

If there is a loss on an installment sale, the loss is recognized pro rata as the seller receives the installment payments.

Which of the following exchanges qualifies as like-kind property?

Investment land for land used as a business parking lot.

Which of the following statements are correct? (Check all that apply.)

Long-term capital gains may cause taxpayers to incur AMT as it increases AMTI which may lower the exemption amount, thus exposing more income to AMT. The tax rate on long-term capital gains is the same for taxpayers paying regular tax as it is for taxpayers subject to AMT.

Which of the following statements best describes the treatment of medical expenses for alternative minimum taxable income?

Medical expenses are deductible for AMTI, subject to a 10% of AGI floor for all taxpayers regardless of age.

Eri has AGI (before any rental loss) of $155,750. She also owns a rental house in Golden, Colorado in which she actively participates. The rental property produces a $15,250 loss in the current year. Eri has no other rental or passive activities. How much of the rental loss is deductible, if any, in the current year?

No loss is allowed,

Which of the following liabilities do not affect the at-risk amount of the partners based on ownership percentage?

Nonrecourse

How can a taxpayer defer a gain on an involuntary conversion?

Reinvest all of the proceeds from the involuntary conversion into replacement property

Which of the following activities do not qualify for an exception to the passive activity rules? (Check all that apply.)

Rental income from parking at gas station parking lot during local sporting events Rental income from a single rental home

Which of the following activities qualify for an exception to the passive activity rules? (Check all that apply.)

Rental of long-term hotel rooms Rental income from dvd and blu-ray videos

Which of the following are tax preference items? (select all that apply)

Sec. 1202 exclusion Tax exempt interest on private activity bonds

Which of the following apply to qualified nonrecourse financing? (Check all that apply.)

Taxpayer's at-risk amount is affected. The debt is not convertible. Taxpayer borrowed it with respect to real property.

Denis and Debbie sold their primary residence for $240,000. They had paid $255,000 four years earlier. How will this transaction be treated for tax purposes?

The $15,000 loss is NOT deductible because it results from the sale of a personal use asset.

When an installment sale involves Section 1245 depreciation recapture, how is the gain recognized?

The portion of gain due to recapture is recognized immediately. Any remaining Section 1231 gain can be recognized on the installment method.

Which of the following choices is incorrect regarding replacement property involved in involuntary conversions?

The property must be used in a trade or business or held for investment to qualify as replacement property.

When a taxpayer engages in a qualified like-kind exchange, how is the gain or loss on the exchange treated?

The recognition of the gain or loss is deferred and taxed in a subsequent transaction.

Which of the following statements is incorrect concerning the ownership and use tests used to qualify for the exclusion of a gain on the sale of a personal residence?

The exclusion of the gain on the sale of a personal residence can only be used once every five years.

Daniel is single and was given a house by his parents several years ago.He has used the home as his personal residence since it was given to him. Daniel's basis in the home was only $65,000. Due to the expansion of the city, he was able to sell the house for $320,000. How will this transaction be treated for tax purposes?

The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain.

Which of the following characteristics of a wash sale are correct?

The loss generated by a wash sale is NOT deductible. The unrecognized loss is added to the basis of the newly acquired stock.

When an involuntary conversion results in a loss, how is the loss treated for tax purposes?

The loss is deducted immediately as a casualty loss.

Which of the following statements is correct with regard to the medical expense deduction?

The same amount of medical expenses that is deductible for regular tax purposes is deductible for AMT.

When is the standard deduction not added back to regular taxable income to arrive at alternative minimum taxable income?

The standard deduction is not added back when the taxpayer deducted itemized deductions rather than the standard deduction.

Which one of the following situations is not likely to cause a taxpayer to become subject to the alternative minimum tax?

The taxpayer donates large amounts to charity.

When boot is received in an otherwise like-kind exchange, what is the effect on a realized gain?

The taxpayer's recognized gain will be the lesser of the realized gain or the boot received.

True or false: Inventory held for resale and most financial instruments, such as stocks and bonds, are ineligible for like-kind treatment.

True

True or false: The AMT exemption amount phases out for higher income taxpayers resulting in a higher alternative minimum tax base for those individuals.

True

Nancy owns her sewing business that she operates out of her home. She only works on weekends and spent a total of 350 hours working during the year. She has no employees. Does Nancy materially participate in the business?

Yes

The ___ ___ tax was implemented to make sure that taxpayers who were generating income pay some income tax, rather than disproportionately benefiting from tax advantaged items.

alternative minimum

A taxpayer is subject to the ___ ___ ___ when the tax on its base is higher than his regular tax liability.

alternative minimum tax

Losses resulting from involuntary conversions are deductible immediately as ___ ___.

casualty losses

The alternative minimum tax base more accurately reflects ___ income than the regular income tax base. This base ensures that the taxpayer pays some level of income tax, despite the disproportionate use of tax preference items to reduce regular taxable income.

economic

To help ensure that low-income taxpayers are not required to pay the alternative minimum tax, AMTI is reduced by a(n) ___ amount to determine the alternative minimum tax base.

exemption

The amount of gain on an installment sale recognized each year is calculated by multiplying the ___ ___ ___ by the installment payment received.

gross profit percentage

If a taxpayer is unable to meet the two-year requirement for the ownership and use tests due to ___ circumstances, he can exclude a percentage of the gain based on the time he owned and used the home.

hardship

Taxpayers selling property for cash must ______ on the sale. Taxpayers exchanging property for assets other than cash must ______ realized on the exchange if it qualifies as a like-kind exchange.

immediately recognize the gain or loss; defer the gain or loss

Tax preference items are more specific and affect taxpayers in certain industries. Typically, tax preference items only result in ___ to ATMI.

increases

A(n) ___ ___ is any sale of property where the seller receives at least one payment in a taxable year subsequent to the year of disposition of the property.

installment sale

When a buyer makes a down payment in the year of sale and then agrees to pay the remainder of the sale proceeds over a period of time, the arrangement is referred to as a(n) ___ ___.

installment sale

A(n) ___ ___ ___ results in taxpayers being able to trade assets and defer the recognition of the gain or loss to a future period in a subsequent transaction.

like-kind exchange

If a taxpayer sells property to a related party, any ___ resulting from the transaction is not recognized for tax purposes.

loss

In order for a taxpayer to be able to deduct the loss on a business activity in which she is an owner, she must demonstrate that she ___ ___ in the conduct of the business. If she does not, the activity is considered to be a(n) ___ ___.

materially participate passive activity

Liabilities that no person is personally liable for are ___ debts.

nonrecourse

Investment interest expense that was NOT deductible for regular taxable income WILL be deductible for AMTI, to the extent it was attributable to interest income that was ___ ___ for regular tax purposes.

not taxable

Passive activity losses may only offset ___ income, but not active or ___ income.

passive portfolio

When a taxpayer does not materially participate in the business activities of a trade or business (including rental activities) in which he is a partial owner, any loss that flows through to the taxpayer is subject to the ___ ___ loss rules.

passive activity

A taxpayer's income or loss for the year is classified into one of three categories: ___ (may have more than one word) income/loss, ___ income/loss, and ___ (may have more than one word) income/loss.

passive activity portfolio active business

Taxpayers are personally liable for ___ liabilities.

recourse

For both personal and real property, qualified ___ property for an involuntary conversion must be similar and related in service or use to the property that was involuntarily converted.

replacement

Gains on the sale of marketable securities and inventory, or any gain that is due to _______________ is ineligible for recognition under the installment method.

section 1245 recapture

In a direct conversion, where a taxpayer defers the recognition of gain on the exchange of property, the adjusted basis in the property received is equal to the ___ ___ of the property involuntarily converted.

tax basis

In a direct conversion, if a taxpayer defers the recognized gain on the exchange of property, the adjusted basis in the property received is equal to the

taxpayer's basis in the property involuntarily converted.

To qualify for the exclusion on the sale of a personal residence, the taxpayer must have owned and used the property as his/her principal residence for a total of ___ or more years during the ___-year period ending on the date of sale.

two five

A(n) ___ ___ occurs when an investor sells or trades stock or securities at a loss and within 30 days either before or after the day of sale buys substantially identical stocks or securities.

wash sales