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

Business

Alternative minimum tax and Passive income/loss At-risk amount AMT is applicable to individual corporation. It is a separate tax system which eliminates the tax escape. Passive activities are those where a taxpayer is not materially involved in the business activity. Income or losses from passive activities are not considered for AGI. At-risk amount is the amount invested or borrowed without any recourse.Discussion and analysis Any amount which contributed by taxpayer's for business activity is borrowed on full recourse, this amount will be considered at-risk amount. To limit the deductible losses from taxpayer's income at-risk passive activity losses, where material participant of taxpayer's is not there those business activity losses is not considered.

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Meaning of at-risk: It is the money plus the adjusted basis of the property contributed to the activity is referred to as initial at-risk amount. This at-risk amount keeps increased by gain or income or any additional contribution of money or property by the taxpayer for each tax year. The At-Risk amount includes certain amounts which were borrowed by the taxpayer for the activity and they are as follows: 1. Cash contributions 2. Property contributions 3. Share of liability 4. Income items such as interest, dividends etc.5. Gain items such as capital gain and gain on sale of assets etc.It must also be noted here that At-Risk amount exclusive excludes certain amounts which are as follows: 1. Cash distributions 2. Property distributions and 3. Release of liabilities.

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