Question

Question 2 (2 points)

The at-risk rules prevent taxpayers from including nonrecourse debt in their tax basis.
O a) True
O b) False
Question 3 (2 points) The passive-activity loss rules prevent taxpayers from deducting losses from passive activities against their active and portfolio income.
O a) True
O b) False
A taxpayer owns an apartment building and tells the renters to mail their checks to taxpayer's daughter. The daughter will be taxed on the rental income.
O a) True
O b) False

Answer 1

The at-risk rules correctly prevent the inclusion of nonrecourse debt in tax basis, and the passive-activity loss rules rightfully prevent deducting losses from passive activities against active income. Rental income is taxed to the owner of the property, not the person receiving the checks on their behalf.

Step-by-step explanation:

The statement about the at-risk rules is True. These rules are designed to prevent taxpayers from writing off nonrecourse debt in their tax basis, meaning if there's no personal liability for the debt, it cannot be counted as part of the investment which the taxpayer is "at risk" for.

Regarding the passive-activity loss rules, this statement is also True. These rules prevent taxpayers from using losses incurred from passive activities to offset other non-passive income, like wages, thus aiming to make sure that losses are deducted only against income generated from similar types of passive activities.

For the scenario involving rental income being sent to the taxpayer's daughter, the statement is False. The tax liability for income generally follows the owner of the income-producing asset – in this case, the taxpayer who owns the apartment building – not the person who merely receives the checks.

Answer 2

The at-risk rules prevent inclusion of non recourse debt in tax basis, which is true. Passive activity loss rules restrict loss deductions against active and portfolio income, also true. Rental income is taxed to the property owner, not the recipient of the rent checks, making the last statement false.

Step-by-step explanation:

Regarding the statements in the questions:

1. The at-risk rules indeed prevent taxpayers from including certain types of nonrecourse debt in their tax basis. This is because nonrecourse debt does not put the taxpayer at economic risk for the debt. Hence, the statement is True.
2. The passive-activity loss rules are designed to prevent taxpayers from deducting losses from passive activities against other types of income like active (from business activities in which they materially participate) or portfolio income (from investments). Thus, the statement is True.
3. If a taxpayer owns an apartment building and has the renters mail their checks to the taxpayer's daughter, the taxpayer (as the owner of the property) remains responsible for the tax on the rental income, not the daughter. Therefore, the statement is False.

While rules apply across various systems—from taxes to chemistry—they often come with exceptions tailored to specific circumstances, making the application sometimes less straightforward.