Problem 1: James has investments in two passive activities. Activity A, acquired three years ago, produces income in the current year of $175,000. Activity B, acquired last year, produces a loss of $275,000 in the current year. At the beginning of this year, James's at-risk amounts in Activities A and B are $150,000 and $200,000, respectively. What is the amount of James's suspended passive loss with respect to these activities at the end of the current year?
a. $0.
b. $25,000.
c. $50,000.
d. $75,000.
e. $175,000.
Problem 2: Amber, who is single and age 30, provides you with the following information from her financial records for 2004.
Regular income tax liability $61,250
AMT adjustments (positive) 80,000
AMT preferences 120,000
Taxable income 200,000
Calculate her AMTI for 2004.
a. $240,000.
b. $261,250.
c. $320,000.
d. $400,000.
e. None of the above
Problem 3: Beatrice's regular income tax liability is $170,000 and her tentative AMT is $240,000. Beatrice's AMT is:
a. $0.
b. $70,000.
c. $240,000.
d. $410,000.
e. None of the above.
Problem 4: Jerome is considering making a $30,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Jerome, who does not anticipate itemizing his deductions, is in the 30% marginal tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Jerome's tax liability decline because of the investment?
a. $-0-.
b. $9,000.
c. $12,000.
d. $30,000.
e. None of the above.
Problem 5: Waylan purchased a tract of land for $100,000 in 1997 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $150,000. The highway project was abandoned in 2004 and the value of the land fell to $80,000. What is the amount of loss Waylan can claim in 2004?
a. $0.
b. $20,000.
c. $50,000.
d. $100,000.
e. None of the above.