REG06

Question 1

Are short-term capital gains included in AGI?

Answer 1

Yes

Question 2

Are losses in excess of the at-risk amount suspended and carried forward without expiration and are deductible against income in future years from that activity?

Answer 2

Yes, the losses are carried forward without expiration and are deductible against income in future years from that activity.

Question 3

Is there a deduction allowed for standard deductions in the computation of AMTI?

Answer 3

No, standard deductions are added back to taxable income when calculating the AMT.

Question 4

How much can an active participant in rental real estate deduct up to for rental real estate losses?

Answer 4

Up to $25,000 per year. If MAGI > $100,000, the amount of the active real estate loss deduction is reduced for 50% of the excess of MAGI over $100,000.

Question 5

What are the exemption amounts for AMT?

Answer 5

MFJ = $109,400 / 25% phaseout = $1 million
S = $70,300  / 25% phaseout = $500,000
MFS = $54,700 / 25% phaseout = $500,000

Question 6

How do you calculate NOL?

Answer 6

Net business loss + wages + net rental income = NOL

Interest/dividends is not business income

Question 7

How much can individuals deduct of capital loss against ordinary income?

Answer 7

Deduct up to $3,000 of CL against OI.

Question 8

When computing AMT, can the individual taxpayer take a deduction for casualty losses?

Answer 8

Casualty losses are allowed as deductions against AMTI, subject to limitations.

Question 9

What are some preferences or adjustments for noncorporate taxpayers related to AMT?

Answer 9

Examples: Personal exemptions, tax-exempt interest on private activity bonds (which is included in investment income), and incentive stock options.

Question 10

Can an AMT credit be carried forward indefinitely?

Answer 10

Yes

Question 11

In computing AGI how much of net capital losses are deductible against ordinary income?

Answer 11

Net capital losses are deductible to the lesser of $3,000 or ordinary income.

Question 12

The American Opportunity Credit allows taxpayers how much credit towards tuition and fees and is there a phase out?

Answer 12

A 100% credit for the first $2,000 of tuition and fees incurred and a 25% credit for the second $2,000.
The credit is phased out when modified AGI > $160,000 for joint filers to $180,000.
$2,500 × ($AGI – $160,000) ÷ $20,000].

Question 13

Can losses arising from one passive activity be used to offset income from other passive activities but may not be used to offset active or portfolio income?

Answer 13

Yes

Question 14

If you have an operating loss from a passive entity, what do you do?

Answer 14

Multiply the operating loss by the ownership %.

The losses may be carried forward indefinitely or until the entire interest is disposed of.

Question 15

Does tax preference items allow relatively favorable treatment in determining regular tax and an amount reflecting the relative preference is added to taxable income in computing AMTI?

Answer 15

Yes, the 7% is the amount of preference added back for AMTI, not the entire gain exclusion.

Question 16

What is the maximum amount of employment-related expenses to which the credit for child-care credit or dependent care expenses may be applied?

Answer 16

The maximum amount is $3,000, if one qualifying person is involved, or $6,000, if two or more are involved, less excludable employer dependent-care assistance program payments.

Question 17

Does the IRC provide for the exclusion from the gross income of the recipient the value of property acquired by gift (by bequest, i.e., personal property by a will)?

Answer 17

Yes

Question 18

Do the at-risk rules apply to a closely held corporation for which 50% or more of its gross receipts are from equipment leasing?

Answer 18

No, there is an exception for a closely held corporation actively engaged in equipment leasing. It is one owned more than 50% during the last half of the year by five or fewer individuals. At least 50% of the gross receipts must be from EQ leasing.

Question 19

Is a working interest in oil and gas property when the taxpayer-owner has unlimited liability and does not materially participate in the activity an example of a passive activity?

Answer 19

No, excludes from the passive activity definition any working interest in oil or gas property in which the form of ownership does not limit liability.

Question 20

Is a taxpayers own money and money borrowed from a parent both included in the at-risk limitation? What about funds owned to a seller?

Answer 20

Yes, includes own money + parents amount.

The debt to the seller is not included because the seller is a person from whom the taxpayer acquired the property.

Question 21

Is the deduction allowed for depreciation of any tangible property (personal and real) placed in service after 1986 determined under the alternative depreciation system of Sec. 168(g)?

Answer 21

Yes.
However, for personal property, the 150%-declining-balance method is used and switches to a SL method in the first year the SL method yields a larger deduction.
For nonresidential real and residential rental property, the SL method is used over a 40-year recovery period However, for Sec. 1250 property placed in service after 1999, the adjustment is based on the property’s regular MACRS recovery period, which eliminates the adjustment.

Question 22

What is the phased down related to the Child Care Credit?

Answer 22

When AGI > $15,000, phased down from 35% to 20% in increments of 1% for each $2,000 AGI > $15,000.

Question 23

What is a taxpayer considered at risk for?

Answer 23

At risk for cash contributions, the AB of other property contributed, and amounts borrowed for use in the activity, if the taxpayer is personally liable on the debt or has pledged property not used in the at-risk activity.
A taxpayer is generally not considered at risk for nonrecourse debt secured by property used in the activity.

Question 24

Do the at-risk rules limit a taxpayer’s deductible losses from investment activities?

Answer 24

Yes

Question 25

The AMT exemption is phased out by 25% of the amount of AMTI over what amount for single filers?

Answer 25

The AMT exemption for a single filer is $70,300 and is phased out by 25% of the amount of AMTI over $500,000 for single filers. (AMTI – 500,000) × 25%]. The exemption ($70,300 – phase-out amount). $191,000 × 26% + ($excess over %191K × 28%)].
AMT = tentative minimum tax – regular tax liability.

Question 26

Is a limited partner in a partnership considered to have at-risk the amount of cash and AB of property contributed to the partnership and also a share of any qualified nonrecourse financing on real estate?

Answer 26

Yes.

Question 27

When does the rental real estate activity deduction of up to $25,000 of losses from the passive activity from other than passive income completely phase-out?

Answer 27

It is completely phased out when the taxpayer has MAGI of at least $150,000.

Question 28

How do you calculate the reduction in the rental real estate deduction of $25,000 if a taxpayer makes over $100,000?

Answer 28

(AGI - $100k) x 50% = Amount to be reduced

$25 K - Amount to be reduced = Deduction Allowed