BUS FPX 4065 Assessment 6 Applying the IRS Code

Student Name

Capella University

BUS-FPX4065 Income Tax Concepts and Strategies

Prof. Name

Date

Applying the IRS Code

Problem 1

Matthew contributed equipment valued at $36,000 to Construction Limited Partnership (CLP) in 2021, in exchange for a 3% limited partnership interest. His share of CLP income and losses for the year were: Interest $1,000, Dividends $600, Capital gains $1,800, and an Ordinary loss of $8,650. CLP had no liabilities.

Initial basis: $40,000 (equipment adjusted basis)
Allowed losses: ($8,650) (ordinary loss)
Prior at-risk:

Initial basis: $40,000
Interest: $1,000
Dividends: $600
Capital gains: $1,800 Total: $43,400
Ending at-risk:

Prior at-risk: $43,400
Ordinary loss: ($8,650) Total: $34,750
Thus, the ending at-risk amount for Matthew is $34,750.

Problem 2

Ben worked 1,500 hours as a tax consultant and 500 hours as a real estate agent during the current year. His wife, the other employee, worked 350 hours in the real estate business. Ben earned $60,000 as a tax consultant, while the couple incurred a $18,000 loss in the real estate business.

Ben can deduct the real estate loss from his earned income as a tax consultant:

Tax consultant income: $60,000
Real Estate Losses: ($18,000)
Taxable Income: $42,000

Problem 3

Chrystal passed away owning an interest in a passive activity property with an adjusted basis of $270,000, a fair market value of $284,000, and suspended losses of $25,000.

Deductions on her final income tax return include:

Adjusted Basis: $270,000
Fair Market Value: $284,000
Suspended losses: $25,000
Set-up Fee: $14,000
Income Tax Return: $11,000

Problem 4

Howard incurred a $76,000 loss from an investment in a partnership, with a basis of $70,000.

a. Disallowed loss by the at-risk rule: $6,000
b. Disallowed loss by the passive loss rule: $70,000

Problem 5

Roberta gave her daughter a passive activity with an adjusted basis of $37,500, suspended losses of $17,500, and a fair market value of $60,000 last year. Her daughter realized $9,000 income from the passive activity in the current year.

Roberta would have to consider the gift tax implications of the $37,500 passive activity. Her daughter needs to report the $9,000 income on her tax return.

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: $2,375

a. Charles’ itemized deductions for AMT purposes: $24,275
b. The AMT adjustment is $3,000 for state income tax.

References

Cruz, Ana M. (2022). Fundamentals of taxation, 2022 Edition. Retrieved from https://capella.vitalsource.com/reader/books/9781264209422/epubcfi/6/56[%3Bvnd.vst.i

IRS.gov (n.d.). 2021 Instructions for Schedule A, itemized deductions. Retrieved from https://www.irs.gov/pub/irs-pdf/i1040sca.pdf

IRS.gov (n.d.). Schedule A, itemized deductions. Retrieved from https://www.irs.gov/pub/irs-pdf/f1040sa.pdf

BUS FPX 4065 Assessment 6 Applying the IRS Code