Question 1

Which of the following is a passive activity?

Accepted Answer

A) A limited partnership interest. 
B) Rental real estate activities where the owner is a real estate professional and works 800 hours per year. 
C) A trade or business in which the taxpayer materially participates. 
D) All of these. 
A) A limited partnership interest. 
B) Rental real estate activities where the owner is a real estate professional and works 800 hours per year. 
C) A trade or business in which the taxpayer materially participates. 
D) All of these.

Question 2

Beverly works for a large publicly traded company and regularly receives incentive stock options as bonuses.In the current year,Beverly exercises options to purchase 1,000 shares at $48 per share when the market value is $72 per share.What is Beverly's AMT adjustment from the exercise of the options?

Accepted Answer

A) $24,000. 
B) $48,000. 
C) $72,000. 
D) None of these. 
A) $24,000. 
B) $48,000. 
C) $72,000. 
D) None of these.

Question 3

Clio's hot dog stand is only open during lunch on weekdays.In total,Clio,who is the sole owner and operator,worked 450 hours at the hot dog stand during the year.Clio is not considered a material participant with respect to the hot dog stand business.

Accepted Answer

A) True 
 B)False

Question 4

The at-risk amount is increased each tax year by:

Accepted Answer

A) Income items. 
B) The basis of assets contributed. 
C) The share of debt the investor is liable to repay. 
D) All of the above. 
A) Income items. 
B) The basis of assets contributed. 
C) The share of debt the investor is liable to repay. 
D) All of the above.

Question 5

Elijah owns an apartment complex that he actively manages.Elijah paid $300,000 cash for the apartment complex three years ago.During 2017,the rental activity generated a loss of $30,000.How much of the loss can Elijah deduct in 2017 in both of the following independent cases?
a.Elijah has $80,000 of AGI (salary)before considering the loss generated by the apartment building.
b.Elijah has $120,000 of AGI (salary)before considering the loss generated by the apartment building.

Accepted Answer

a.Since Elijah owns at least 10% of the

Question 6

For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?

Accepted Answer

A) The completed contract method. 
B) The percentage-of-completion method. 
C) The installment method. 
D) None of these. 
A) The completed contract method. 
B) The percentage-of-completion method. 
C) The installment method. 
D) None of these.

Question 7

Most real estate debt meets the requirements of qualified nonrecourse financing.

Accepted Answer

A) True 
 B)False

Question 8

Joshua purchased business furniture and fixtures (7-year property)for $40,000 in May 2014.On July 15,2017,Joshua sold the furniture and fixtures for $30,000.During his years of ownership,he had taken $27,504 of depreciation for regular tax purposes.AMT depreciation for that period was $17,276.What is the 2017 AMT adjustment required as a result of the sale of the assets?

Accepted Answer

A) $0. 
B) $7,276. 
C) $10,228. 
D) $17,504. 
A) $0. 
B) $7,276. 
C) $10,228. 
D) $17,504.

Question 9

In 2015,Mary invested $200,000 in a business that is not a passive activity.During 2016,her share of the business loss is $140,000.In 2017,her share of the business loss is $100,000.How much can Mary deduct in 2016 and 2017?

Accepted Answer

Mary can deduct $140,000 in 20

Question 10

What form must a taxpayer file if he or she is at-risk in an activity?

Accepted Answer

A) Form 6198. 
B) Form 4797. 
C) Form 8582. 
D) Form 1040,Schedule D. 
A) Form 6198. 
B) Form 4797. 
C) Form 8582. 
D) Form 1040,Schedule D.

Question 11

Alice is an attorney and earned $175,000 from her practice in the current year.Alice also owns three passive activities.The activities had the following income and losses: $\begin{array} { l l } 
\text { Partrnership A } & \$ 40,000 \
\text { Partnership B } & \$ ( 32,000 ) \
\text { Partnership C } & \$ ( 24,000 )
\end{array}$ What is Alice's adjusted gross income for the current year?

Accepted Answer

A) $119,000. 
B) $159,000. 
C) $175,000. 
D) $215,000. 
A) $119,000. 
B) $159,000. 
C) $175,000. 
D) $215,000.

Question 12

Terence and Alfred each invested $10,000 cash in T&A General Partnership and each received a 50% interest in the partnership.The partnership borrowed $100,000 in full recourse debt.
a.Assume that the $100,000 was borrowed from a bank.What are the amounts Terence and Alfred have at-risk with respect to their partnership interests?
b.Assume that the $100,000 was borrowed from Alfred.What are the amounts Terence and Alfred have at-risk with respect to their partnership interests?

Accepted Answer

a.The at-risk amounts for Terence and Al

Question 13

Ferris owns an interest in,but does not materially participate in,an activity.He has $30,000 at-risk.The business produced a loss in the current year and Ferris's share of the loss is $45,000.Assuming Ferris has no passive income,how much of the $45,000 loss will be deductible by Ferris?

Accepted Answer

A) $0. 
B) $30,000. 
C) $45,000. 
D) Cannot be determined. 
A) $0. 
B) $30,000. 
C) $45,000. 
D) Cannot be determined.

Question 14

Bailey owns a 20% interest in a partnership (not involved in real estate)in which his at-risk amount was $25,000 at the beginning of the year.During the year,Bailey receives a distribution of $20,000 from the partnership.The partnership produces an $80,000 loss during the year.If you ignore the passive loss rules,Bailey's deductible loss for the year is:

Accepted Answer

A) $5,000. 
B) $20,000. 
C) $25,000. 
D) $80,000. 
A) $5,000. 
B) $20,000. 
C) $25,000. 
D) $80,000.

Question 15

Spencer has an ownership interest in three passive activities.In the current tax year,the activities had the following income and losses: $\begin{array}{ll}
\text { Partnership A } & \$ 20,000 \
\text { Partnership B } & \$(16,000) \
\text { Partnership C } & \$(12,000)
\end{array}$ How much in passive losses can Spencer deduct?

Accepted Answer

A) $0. 
B) $12,000. 
C) $16,000. 
D) $20,000. 
A) $0. 
B) $12,000. 
C) $16,000. 
D) $20,000.

Question 16

Antonio reported the following itemized deductions on his 2017 tax return.His AGI for 2017 was $95,000.The mortgage interest is all qualified mortgage interest to purchase his personal residence.For AMT,compute his total adjustment for itemized deductions.
 $\begin{array}{lr}
\text {Medical expenses (before $ 10.0 \% $ of AGI floor) }&\$8,500\
\text { State income taxes}&\$6,500\
\text {Home mortgage interest }&\$14,500\
\text {Charitable contributions }&\$3,500\
\text { Miscellaneous itemized deductions (before } 2 \% \text { of AGI floor) }&\$2,800
\end{array}$

Accepted Answer

Antonio's total AMT

Question 17

When determining whether a limited partnership loss is deductible,a taxpayer must first:

Accepted Answer

A) Apply only the passive activity loss rules. 
B) Apply only the at-risk rules. 
C) Apply the passive activity loss rules and then the at-risk rules. 
D) Apply the at-risk rules and then the passive activity loss rules. 
A) Apply only the passive activity loss rules. 
B) Apply only the at-risk rules. 
C) Apply the passive activity loss rules and then the at-risk rules. 
D) Apply the at-risk rules and then the passive activity loss rules.

Question 18

Tax preference items can be either positive or negative.

Accepted Answer

A) True 
 B)False

Question 19

The Tara Partnership (not involved in real estate)generated income of $75,000 during the year.Since the partnership is involved in an activity that is subject to the at-risk rules,all of Tara's partners must file Form 6198 with their individual income tax returns.

Accepted Answer

A) True 
 B)False

Question 20

"Active participation" is a much more difficult standard to meet than "material participation."

Accepted Answer

A) True 
 B)False

Which of the following is a passive activity?

Clio's hot dog stand is only open during lunch on weekdays.In total,Clio,who is the sole owner and operator,worked 450 hours at the hot dog stand during the year.Clio is not considered a material participant with respect to the hot dog stand business.

The at-risk amount is increased each tax year by:

For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?

Most real estate debt meets the requirements of qualified nonrecourse financing.

In 2015,Mary invested $200,000 in a business that is not a passive activity.During 2016,her share of the business loss is $140,000.In 2017,her share of the business loss is $100,000.How much can Mary deduct in 2016 and 2017?

What form must a taxpayer file if he or she is at-risk in an activity?

Ferris owns an interest in,but does not materially participate in,an activity.He has $30,000 at-risk.The business produced a loss in the current year and Ferris's share of the loss is $45,000.Assuming Ferris has no passive income,how much of the $45,000 loss will be deductible by Ferris?

When determining whether a limited partnership loss is deductible,a taxpayer must first:

Tax preference items can be either positive or negative.

The Tara Partnership (not involved in real estate)generated income of $75,000 during the year.Since the partnership is involved in an activity that is subject to the at-risk rules,all of Tara's partners must file Form 6198 with their individual income tax returns.

"Active participation" is a much more difficult standard to meet than "material participation."

Introduction to Taxation, the Income Tax Formula, and Form 1040EZ

Expanded Tax Formula, forms 1040A and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income Line 12 of Form 1040 and Schedule C

Capital Gains and Other Sales of Property Schedule D and Form 4797

Rental Property, Royalties, and Income From Flow- Through Entities Line 17, form 1040, and Schedule E

Tax Credits Form 1040,lines 48 Through 54 and Lines 66A Through 73

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities

Special Property Transactions

Partnership Taxation

Corporate Taxation

Filters

Exam 13: At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

Which of the following is a passive activity?

Clio's hot dog stand is only open during lunch on weekdays.In total,Clio,who is the sole owner and operator,worked 450 hours at the hot dog stand during the year.Clio is not considered a material participant with respect to the hot dog stand business.

The at-risk amount is increased each tax year by:

For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?

Most real estate debt meets the requirements of qualified nonrecourse financing.

In 2015,Mary invested $200,000 in a business that is not a passive activity.During 2016,her share of the business loss is $140,000.In 2017,her share of the business loss is $100,000.How much can Mary deduct in 2016 and 2017?

What form must a taxpayer file if he or she is at-risk in an activity?

Ferris owns an interest in,but does not materially participate in,an activity.He has $30,000 at-risk.The business produced a loss in the current year and Ferris's share of the loss is $45,000.Assuming Ferris has no passive income,how much of the $45,000 loss will be deductible by Ferris?

When determining whether a limited partnership loss is deductible,a taxpayer must first:

Tax preference items can be either positive or negative.

The Tara Partnership (not involved in real estate)generated income of $75,000 during the year.Since the partnership is involved in an activity that is subject to the at-risk rules,all of Tara's partners must file Form 6198 with their individual income tax returns.

"Active participation" is a much more difficult standard to meet than "material participation."

Introduction to Taxation, the Income Tax Formula, and Form 1040EZ

Expanded Tax Formula, forms 1040A and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income Line 12 of Form 1040 and Schedule C

Capital Gains and Other Sales of Property Schedule D and Form 4797

Rental Property, Royalties, and Income From Flow- Through Entities Line 17, form 1040, and Schedule E

Tax Credits Form 1040,lines 48 Through 54 and Lines 66A Through 73

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities

Special Property Transactions

Partnership Taxation

Corporate Taxation

Filters