BUS FPX 4065 Assessment 6 Applying the IRS Code

BUS FPX 4065 Assessment 6 Applying the IRS Code

Student Name

Capella University

BUS-FPX4065 Income Tax Concepts and Strategies

Prof. Name:

Date

Application of IRS Code Scenarios

Problem Scenarios and Calculations

Problem 1: Matthew’s Partnership Contribution and At-Risk Amounts
In 2021, Matthew contributed equipment valued at $36,000 to Construction Limited Partnership (CLP) in exchange for a 3% limited partnership interest. His share of CLP income and losses included $1,000 in interest, $600 in dividends, $1,800 in capital gains, and an ordinary loss of $8,650. CLP had no liabilities. Matthew’s initial basis for the equipment was $40,000. After accounting for allowed losses and additional income, the ending at-risk amount for Matthew was calculated as follows:

• Initial basis: $40,000
• Income additions: $1,000 (interest), $600 (dividends), $1,800 (capital gains)
• Ending total at-risk amount: $34,750 after subtracting the ordinary loss of $8,650.

Problem 2: Ben’s Taxable Income and Deductible Losses
Ben worked as a tax consultant for 1,500 hours and as a real estate agent for 500 hours during the current year, with his wife contributing 350 hours in the real estate business. While Ben earned $60,000 as a tax consultant, the couple incurred an $18,000 loss in their real estate venture. Ben is eligible to deduct the real estate loss from his earned income, resulting in a taxable income of $42,000.

Deductions and Passive Loss Considerations

Problem 3: Chrystal’s Final Income Tax Deductions
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. Deductible items on her final income tax return included the adjusted basis, fair market value, and suspended losses, with relevant fees accounted for, including a $14,000 set-up fee and $11,000 in income taxes.

Problem 4: Howard’s Investment Loss and Disallowed Losses
Howard incurred a $76,000 loss from a partnership investment with a basis of $70,000. Under the at-risk rules, $6,000 of the loss was disallowed, while the passive loss rules disallowed the remaining $70,000.

Problem 5: Roberta’s Gift and Her Daughter’s Income Reporting
Roberta gifted a passive activity with an adjusted basis of $37,500, suspended losses of $17,500, and a fair market value of $60,000 to her daughter. In the current year, her daughter realized $9,000 in income from the activity, which must be reported on her tax return. Roberta would need to account for the gift tax implications of the passive activity.

Problem 6: Charles’ Itemized Deductions and AMT Adjustment
Charles’ itemized deductions in 2021 included $3,000 in state income taxes, $4,900 in charitable contributions, $14,000 in mortgage interest on his personal residence, and $2,375 in medical expenses. The total itemized deductions for AMT purposes were $24,275, with a $3,000 AMT adjustment for state income taxes.

Summary Table: IRS Code Application

References

Cruz, A. M. (2022). Fundamentals of taxation, 2022 Edition. Retrieved from https://capella.vitalsource.com/reader/books/9781264209422/epubcfi/6/56

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

BUS FPX 4065 Assessment 6 Applying the IRS Code

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