Question 1

When both borrowed and owned funds are mingled in the same account,for purposes of categorizing interest expense,a repayment of the debt is allocated first to
A)personal expenditures.
B)trade or business expenditures.
C)investment expenditures.
D)passive activity expenditures in real estate.

Accepted Answer

The answer of When both borrowed and owned funds are...

Question 2

While points paid to purchase a residence are deductible as interest in the period paid,points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.

Accepted Answer

This statement is true. Points paid to purchase a residence are deductible as interest in the period paid, while points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.

Question 3

Valeria owns a home worth $1,400,000,with a mortgage balance of $950,000.She borrows $200,000 to purchase a speedboat,using a home equity loan.What is the total amount of debt on which Valeria can deduct interest in the current year?
A)$1,000,000
B)$950,000
C)$1,050,000
D)$1,100,000

Accepted Answer

Valeria can deduct interest on the mortgage balance of $950,000 and the home equity loan of $200,000, totaling $1,150,000. However, the IRS limits the amount of debt on which interest can be deducted to the fair market value of the home ($1,400,000 in this case). Therefore, the total amount of debt on which Valeria can deduct interest is $1,050,000.

Question 4

Ted pays $2,100 interest on his automobile loan,$120 interest on a loan to purchase a computer for personal use,$630 interest on credit cards,and $1,100 investment interest expense.Ted has net investment income of $850.Ted's deductible interest is
A)$850.
B)$1,100.
C)$2,950.
D)$3,200.

Accepted Answer

The answer of Ted pays $2,100 interest on his automobile...

Question 5

Teri pays the following interest expenses during the year:  What is the amount of interest expense that can be deducted as an itemized deduction?
A)$10,500
B)$10,900
C)$14,300
D)$14,700

Accepted Answer

The answer of Teri pays the following interest expenses during...

Question 6

Investment interest expense is deductible
A)as an offset to net investment income.
B)as a capital loss.
C)as an itemized deduction.
D)as a deduction for AGI.

Accepted Answer

The answer of Investment interest expense is deductible
A)as an offset...

Question 7

Faye earns $100,000 of AGI,including $90,000 of salary and $10,000 of interest income.Faye does itemize her deductions.The miscellaneous category of her itemized deductions consists of $1,500 of unreimbursed employee business expenses and a $900 fee paid for investment advice.Faye has paid $11,000 of interest expense on a loan used to purchase stocks.How much of the $11,000 interest expense can be deducted this year?
A)$11,000
B)$10,000
C)$9,100
D)$9,600

Accepted Answer

D)Deduction of investment interest expense is limited to net investment income.Net investment income includes the $10,000 interest income,but is reduced by investment-related expenses remaining after the 2% of AGI floor is applied to the miscellaneous deduction category.
 11ea7cb8_548c_c615_928c_11f56ec16f84_TB1258_00 $9,600 of the $11,000 interest expense is currently deductible,and the balance carries over.

Question 8

Nina includes the following expenses in her miscellaneous itemized deductions before application of the 2% of AGI floor:  Nina's AGI is $100,000.How much of the above-noted expenses will reduce her net investment income?
A)$4,000
B)$5,500
C)$3,000
D)$3,500

Accepted Answer

The answer of Nina includes the following expenses in her...

Question 9

Mingming is planning to purchase a new car and plans to borrow $15,000 to help finance the purchase.She has $50,000 of equity in her home so she is planning to take out a home equity loan.Mingming is in the 25% tax bracket.The bank is requiring an 8% interest rate on this loan.The car dealership has just announced a promotion lowering its interest rate on auto loans.In order for the auto dealership loan to be more attractive,the interest rate must be lower than
A)8%.
B)6%.
C)4%.
D)10%.

Accepted Answer

The home equity loan with an 8% interest rate means that Mingming will pay $1,200 in interest ($15,000 x 0.08) over the course of the loan. However, since she is in the 25% tax bracket, she can deduct the interest paid on a home equity loan from her taxes. This means that the effective interest rate on the loan is only 6% ($1,200 divided by 0.75 (1-0.25 tax rate) equals $1,600).

In order for the auto dealership loan to be more attractive than the home equity loan, the interest rate would need to be lower than 6%. Therefore, the best choice is B) 6%.

Question 10

On July 31 of the current year,Marjorie borrows $120,000 to purchase a new fishing boat.The loan is secured by her personal residence.On the date of the loan,the outstanding balance on the original debt incurred to purchase the residence is $300,000 and the FMV of the home is $450,000.What is the total amount of debt on which Marjorie can deduct interest in the current year?
A)$300,000
B)$400,000
C)$420,000
D)$450,000

Accepted Answer

B)The loan for the boat is home equity indebtedness.Interest on $300,000 of acquisition indebtedness plus $100,000 of the home equity indebtedness is allowed.The home equity indebtedness is the lesser of home equity of $150,000 or $100,000.

Question 11

Valeria owns a home worth $1,400,000,with a mortgage balance of $1,050,000.She borrows $200,000 to purchase a speedboat,using a home equity loan.What is the total amount of debt on which Valeria can deduct interest in the current year?
A)$1,000,000
B)$1,150,000
C)$1,050,000
D)$1,100,000

Accepted Answer

Valeria can deduct interest on the mortgage balance of $1,050,000 and the home equity loan of $200,000, totaling $1,250,000. Therefore, the total amount of debt on which Valeria can deduct interest in the current year is $1,100,000 ($1,250,000 - $150,000 for the speedboat loan that is not deductible).

Question 12

In 2015 Mario earned $9,000 in net investment income and incurred $14,000 of investment interest expense.Mario paid off the loan in early 2016 so he only paid $2,000 of investment interest expense in 2016.He earned $10,000 of net investment income in 2016.How much investment interest expense can Mario deduct in 2016?
A)$2,000
B)$10,000
C)$7,000
D)$0

Accepted Answer

The investment interest expense deduction is limited to net investment income. In 2015, Mario had $9,000 of net investment income, but $14,000 of investment interest expense. Therefore, $5,000 of the interest expense was not deductible in 2015. Since Mario paid off the loan in 2016, he only had $2,000 of investment interest expense, and he had $10,000 of net investment income. Therefore, he can deduct up to $7,000 ($10,000 - $3,000) of investment interest expense in 2016.

Question 13

All of the following statements are true except
A)investment interest expense is deductible to the extent of a taxpayer's net investment income.
B)short-term capital gains meet the definition of net investment income.
C)investment interest expense includes interest expense to purchase or carry tax-exempt securities.
D)net investment income is the taxpayer's investment income in excess of investment expenses.

Accepted Answer

The answer of All of the following statements are true...

Question 14

Riva borrows $10,000 that she intends to use for purchasing supplies for her business.She temporarily deposits the funds in her personal checking account.Prior to the deposit,the checking account held $40,000 of personal funds.Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account.Later in the month,the business supplies bill arrives and Riva writes a check for $10,000 from the personal account.With respect to the interest expense on the $10,000 loan,
A)it will all be treated trade or business expense.
B)60 percent will be treated as personal interest expense and 40 percent as trade or business expense.
C)it will all be treated as personal expense.
D)20 percent will be treated trade or business expense.

Accepted Answer

Since Riva deposited the loan funds into her personal checking account, the loan has become commingled with her personal funds. Therefore, the interest expense on the loan must be apportioned between personal and business use. Since the business supplies were purchased with the loan funds, 40% of the interest expense will be treated as a trade or business expense, and 60% will be treated as personal interest expense.

Question 15

Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends,$5,400 in interest income,and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200.The capital gains resulted from the sale of stock held as an investment.She has no other investment-related expenses.What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible?
A)$5,400
B)$9,900
C)$13,100
D)$13,000

Accepted Answer

The answer of Dana paid $13,000 of investment interest expense...

Question 16

In the current year,Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense.What is the maximum amount of investment interest expense she is allowed to deduct this year?
A)$0
B)$3,000 deductible this year;$11,000 carried forward to next year
C)$9,000 deductible this year;$5,000 carried forward to next year
D)$14,000 deductible this year;nothing to be carried forward to next year

Accepted Answer

The deduction for investment interest expense is limited to the amount of net investment income. Since Julia's net investment income is $9,000, her maximum deductible investment interest expense is also $9,000. The remaining $5,000 of investment interest expense can be carried forward to future years. Therefore, option C is the correct choice.

Question 17

Which of the following is deductible as interest expense?
A)personal credit card interest
B)interest to purchase tax-exempt bonds
C)bank service charges on personal account
D)interest on a home equity loan to purchase a car

Accepted Answer

Interest on a home equity loan to purchase a car is typically deductible as interest expense if it meets certain criteria, such as the loan being secured by the taxpayer's primary residence and the car being used for personal purposes. Personal credit card interest and bank service charges on personal accounts are generally not deductible as interest expense. Interest on tax-exempt bonds is not deductible because the income generated from those investments is already exempt from federal income tax.

Question 18

Christopher,a cash basis taxpayer,borrows $1,000 from ABC Bank by issuing a 3-month note on December 1,2016.Christopher receives $940 but must repay $1,000 on the due date.The amount of interest expense deductible in 2016 is $20.

Accepted Answer

Cash basis taxpayers can only deduct the interest expense in the year it is actually paid. In this case, Christopher will pay the $1,000 on the due date which is in 2017, therefore he cannot deduct any interest expense in 2016.

Question 19

Phuong has the following sources of investment income:  Barring any special elections,how much of the investment income will be included in calculating net investment income for purposes of the investment interest expense limitation?
A)$2,000
B)$7,000
C)$$5,000
D)$15,000

Accepted Answer

The answer of Phuong has the following sources of investment...

Question 20

Takesha paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends,$5,400 in interest income,and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200.The capital gains resulted from the sale of stock held as an investment.She has no other investment-related expenses.What is her maximum deduction for investment interest expense,assuming Takesha does not make any elections?
A)$5,400
B)$6,400
C)$13,100
D)$13,000

Accepted Answer

Takesha's maximum deduction for investment interest expense is limited to the amount of her net investment income, which is calculated as follows:

Net Investment Income = Dividends + Interest Income + Short-Term Capital Gain + Long-Term Capital Gain - Investment Interest Expense
Net Investment Income = $4,500 + $5,400 + $1,000 + $2,200 - $13,000
Net Investment Income = $0

Since her net investment income is zero, her maximum deduction for investment interest expense is also zero. However, if her net investment income had been positive, her maximum deduction would have been equal to that amount, up to a maximum of $6,400 (the amount of investment interest expense in excess of net investment income). Therefore, the best choice is B.

Quiz 7: Itemized Deductions

When both borrowed and owned funds are mingled in the same account,for purposes of categorizing interest expense,a repayment of the debt is allocated first to

While points paid to purchase a residence are deductible as interest in the period paid,points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.

Valeria owns a home worth $1,400,000,with a mortgage balance of $950,000.She borrows $200,000 to purchase a speedboat,using a home equity loan.What is the total amount of debt on which Valeria can deduct interest in the current year?

Ted pays $2,100 interest on his automobile loan,$120 interest on a loan to purchase a computer for personal use,$630 interest on credit cards,and $1,100 investment interest expense.Ted has net investment income of $850.Ted's deductible interest is

Teri pays the following interest expenses during the year: What is the amount of interest expense that can be deducted as an itemized deduction?

Investment interest expense is deductible

Nina includes the following expenses in her miscellaneous itemized deductions before application of the 2% of AGI floor: Nina's AGI is $100,000.How much of the above-noted expenses will reduce her net investment income?

Valeria owns a home worth $1,400,000,with a mortgage balance of $1,050,000.She borrows $200,000 to purchase a speedboat,using a home equity loan.What is the total amount of debt on which Valeria can deduct interest in the current year?

All of the following statements are true except

In the current year,Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense.What is the maximum amount of investment interest expense she is allowed to deduct this year?

Which of the following is deductible as interest expense?

Christopher,a cash basis taxpayer,borrows $1,000 from ABC Bank by issuing a 3-month note on December 1,2016.Christopher receives $940 but must repay $1,000 on the due date.The amount of interest expense deductible in 2016 is $20.

Phuong has the following sources of investment income: Barring any special elections,how much of the investment income will be included in calculating net investment income for purposes of the investment interest expense limitation?