Question 1

During the current year,Jack personally uses his summer home for 25 days.He also rented his summer home to a group of vacationers for 12 days for $600 per day.How much income does Jack report from the rental of his summer home?

Accepted Answer

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Question 2

Nikki is a single taxpayer who owns a vacation cottage on the lake.During the year,she rented it for $2,000 for 14 days,lived in it for 56 days,and left it vacant the remainder of the year.The year's expenses amounted to $5,000 interest expense,$800 property taxes,$1,500 utilities and maintenance,and $2,400 depreciation.Using the IRS method of allocating expenses,how much of the property-related expenses will be deductible for AGI?

Accepted Answer

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Question 3

Abby owns a condominium in the Great Smokey Mountains.During the year,Abby uses the condo a total of 21 days.The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500.Abby incurs the following expenses:  Using the IRS method of allocating expenses,the amount of depreciation that Abby may take with respect to the rental property will be

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Question 4

Brent must substantiate his travel and entertainment expenses.Which of the following is not required for documentation?

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Question 5

Diane,a successful accountant with an annual income of $150,000,also enjoys raising and training race horses,an activity in which she spends about 10 hours per week.Over the past five years her winnings from races have amounted to $20,000.She employs neighborhood children to feed the horses but has a professional trainer who works with the horses about 5 hours per week.Discuss some of the factors that might enter into the determination of whether or not this activity is a hobby or a trade/business.

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The answer of Diane,a successful accountant with an annual income...

Question 6

The Super Bowl is played in Tasha's home town.Tasha moves out of her house for 10 days and stays with her parents.She rents her house for a very high fee to a crew from ESPN.With respect to this rental activity,Tasha will

Accepted Answer

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Question 7

Anita has decided to sell a parcel of land she had been holding for investment purposes.She purchased the land 5 years ago for $10,000.The current fair market value is $6,000.Anita's sister,Kathy,is interested in buying the land as is Anita's friend,Marcia.What tax issues should Anita consider when deciding to whom the land should be sold?

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Question 8

Tess has started a new part-time business.She is concerned that the IRS will call it a hobby if her return is audited.This first year of business showed a small profit,and she expects it to continue to show modest profits.She would like to take advantage of the three out of five year profit rule to shift the burden of proof to the IRS.Because of the three-year statute of limitations,this will not be possible for the first year of business.

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Question 9

Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.

Accepted Answer

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Question 10

Gabby owns and operates a part-time art gallery,now in its fifth year.She views it as a business activity,but she is concerned that the IRS will challenge her classification and consider it a hobby.Her business results,using the cash method of accounting,were net losses in the first and fourth years and small profits in the second and third years.It is now almost year-end and based on projections,the business is showing a small profit of $6,000.Repairs to the security system and to the heating/cooling system were recently completed and these bills total $7,000.When should Gabby pay these bills?

Accepted Answer

Gabby should wait to pay the bills until next year. Since her business is currently showing a small profit of $6,000, deducting the full $7,000 in expenses this year would result in a net loss and potentially raise red flags with the IRS regarding her classification as a business. Waiting until next year to pay the bills and deduct the expenses would be more advantageous for her business.

Question 11

Explain the rules for determining whether a home is considered a rental property or a vacation home and the tax consequences of this classification.

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The answer of Explain the rules for determining whether a...

Question 12

Lindsey Forbes,a detective who is single,operates a small pottery activity on a part-time basis.This year she reported the following income and expenses from this activity:  In addition,she had salary of $70,000 and itemized deductions,not including expenses listed above,of $6,800.
a.What is the amount of Lindsey's taxable income assuming the activity is classified as a hobby?
b.What is the amount of Lindsey's taxable income assuming the activity is classified as a trade or business?

Accepted Answer

The answer of Lindsey Forbes,a detective who is single,operates a...

Question 13

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as

Accepted Answer

Since Vanessa uses the houseboat for personal use for only 25 days out of the year and rents it out for the remaining 280 days, it is classified as a rental property. Expenses in excess of income may be deducted, but the net income or loss is subject to the passive activity rules.

Question 14

Ola owns a cottage at the beach.She and her family use the property for 30 days during the summer season and rent it to unrelated parties for 60 days.The rental receipts amount to $8,000.Total costs of operating the property are as follows:  In addition,potential depreciation expense is $9,000.
a.Is the cottage subject to the vacation home rental limitations of IRC Sec.280A?
b.How much of expenses can Ola deduct?

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Question 15

During the current year,Paul,a single taxpayer,reported the following items:  Compute Paul's taxable income for the year.

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Question 16

Margaret,a single taxpayer,operates a small pottery activity in her spare time.During the current year,she reported the following income and expenses from this activity which is classified as a hobby:  In addition,she had salary of $75,000 and itemized deductions,not including those listed above,of $2,200.
What is the amount of her taxable income?

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The answer of Margaret,a single taxpayer,operates a small pottery activity...

Question 17

In 2015 the IRS audits a company's 2013 tax return and determines that the president's salary was excessive and disallowed $100,000 of the salary deduction.Under the terms of the hedge (payback)agreement in the corporate bylaws,the president repays $100,000 of her salary to her employer in 2015.The president will amend her 2013 tax return to get a refund of the taxes paid on the excess salary.

Accepted Answer

The president cannot amend her 2013 tax return to get a refund. Instead, she can claim a deduction for the repayment on her 2015 tax return under the "claim of right" doctrine, as per IRS guidelines.

Question 18

Mackensie owns a condominium in the Rocky Mountains.During the year,Mackensie uses the condo a total of 23 days.The condo is also rented to tourists for a total of 77 days and generates rental income of $10,900.Mackensie incurs the following expenses in the condo:  Using the court's method of allocating expenses,the amount of depreciation that Mackensie may take with respect to the rental property will be

Accepted Answer

The answer of Mackensie owns a condominium in the Rocky...

Quiz 12: Deductions and Losses