Question 1

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions:
Salary from job
$90,000
Alimony received from ex-wife
10,000
Medical expenses
8,000
​
Based on this information,Sammy has:
A)AGI of $90,000.
B)AGI of $95,000.
C)AGI of $99,500.
D)Deduction for medical expenses of $0.
E)None of the above.

Accepted Answer

The answer of Sammy,a calendar year cash basis taxpayer who...

Question 2

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

Accepted Answer

The statement is incorrect. The adjusted basis for depreciation is not based on the fair market value of the property when it is converted to rental use, but rather the lower of its adjusted basis or its fair market value at the time of conversion. In this case, the adjusted basis for depreciation would be $390,000, the lower of the original adjusted basis and the fair market value.

Question 3

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

Accepted Answer

The answer of For purposes of the § 267 loss...

Question 4

If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.

Accepted Answer

According to the IRS, if a vacation home is rented for less than 15 days during a year, it is considered a personal residence and the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses. Other expenses such as maintenance, utilities, and depreciation cannot be deducted.

Question 5

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Accepted Answer

The portion of property tax on a vacation home that is attributable to personal use is considered a deductible personal expense if the taxpayer itemizes deductions. However, if the vacation home is rented out for more than 14 days a year, the portion of property tax attributable to rental use may be deductible as a rental expense on Schedule E.

Question 6

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2%-of-AGI floor.

Accepted Answer

The answer of Hobby activity expenses are deductible from AGI...

Question 7

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

Accepted Answer

The answer of A vacation home at the beach which...

Question 8

If a vacation home is classified as primarily personal use,part of the maintenance and utility expenses can be allocated and deducted as a rental expense.

Accepted Answer

If a vacation home is primarily used for personal purposes, none of the maintenance and utility expenses can be allocated and deducted as a rental expense. Only expenses directly related to the rental activity can be taken as rental deductions.

Question 9

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Accepted Answer

Marge's recognized loss is not $5,000 but $0. This is because she sold the land to her son for its appraised value, which is equal to her adjusted basis. Therefore, there is neither gain nor loss to be recognized. Additionally, Jason's adjusted basis should be $20,000 (the cost of the land) and not $25,000 as he did not incur any gain on the transaction.

Question 10

Walt wants to give his daughter $1,800 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he can deduct them.

Accepted Answer

The answer of Walt wants to give his daughter $1,800...

Question 11

If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction.

Accepted Answer

You can deduct expenses for maintenance, repairs, property taxes, mortgage interest, and other qualified expenses for your vacation home if it is a personal/rental residence. However, the percentage that is deductible depends on how much of the year the home is used for personal purposes versus rented out.

Question 12

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Accepted Answer

If a vacation home is classified as primarily personal use (i.e., rented for fewer than 15 days per year), the owner cannot deduct rental expenses, but they also do not have to report the rental income. Expenses like mortgage interest and property taxes may still be deductible on Schedule A if the taxpayer itemizes deductions.

Question 13

Marsha is single,had gross income of $50,000,and incurred the following expenses:
Charitable contribution
$2,000
Taxes and interest on home
7,000
Legal fees incurred in a tax dispute
1,000
Medical expenses
3,000
Penalty on early withdrawal of savings
250
​
Her AGI is:
A)$39,750
B)$49,750.
C)$40,000.
D)$39,750.
E)None of the above.

Accepted Answer

To find Marsha's AGI, we need to subtract her deductions from her gross income. Marsha qualifies for the following deductions:
- Charitable contribution: $2,000
- Taxes and interest on home: $7,000
- Legal fees incurred in a tax dispute: $1,000
- Medical expenses: $3,000 (since it exceeds 7.5% of her adjusted gross income)

Her total deductions add up to $13,000, which when subtracted from her gross income of $50,000, gives an AGI of $37,000. However, she also incurred a penalty on early withdrawal of savings of $250, which can be subtracted from her AGI, giving a final AGI of $49,750. Thus, the correct answer is B.

Question 14

Which of the following can be claimed as a deduction for AGI?
A)Personal casualty losses.
B)Investment interest expenses.
C)Medical expenses.
D)Property taxes on personal use real estate.
E)None of the above.

Accepted Answer

The answer of Which of the following can be claimed...

Question 15

Al is single,age 60,and has gross income of $140,000.His deductible expenses are as follows:
Alimony
$20,000
Charitable contributions
4,000
Contribution to a traditional IRA
5,500
Expenses paid on rental property
7,500
Interest on home mortgage and property taxes on personal residence
7,200
State income tax
2,200
​
What is Al's AGI?
A)$94,100.
B)$103,000.
C)$107,000.
D)$127,000.
E)None of the above.

Accepted Answer

To calculate AGI, we begin with gross income and then subtract any deductible expenses (above-the-line deductions). 
Al's gross income: $140,000 
Alimony: -$20,000 
Charitable contributions: -$4,000 
Contribution to a traditional IRA: -$5,500 
Expenses paid on rental property: -$7,500 
Interest on home mortgage and property taxes on personal residence: -$7,200 
State income tax: -$2,200

AGI = $140,000 - $20,000 - $4,000 - $5,500 - $7,500 - $7,200 - $2,200 = $93,100

The correct answer is C.

Question 16

Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

Accepted Answer

This is true because Martha is only renting out part of her personal residence and the rental period is during the summer, whereas Anne is renting out her entire personal residence but only for one week in December, which qualifies as an exception under the tax law. Therefore, Anne is not required to include the rental income in her gross income but Martha is.

Question 17

LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.

Accepted Answer

The $150,000 allocated to the building must be capitalized and depreciated over its useful life, not deducted in full in the year of purchase, regardless of the partnership's gross receipts.

Question 18

If a vacation home is classified as primarily rental use,a deduction for all of the rental expenses is allowed.

Accepted Answer

If a vacation home is classified as primarily rental use, you can deduct rental expenses, but they are limited to the amount of rental income; you cannot deduct a loss to offset other income.

Question 19

Trade and business expenses should be treated as:
A)A deduction from AGI subject to the 2%-of-AGI floor.
B)A deduction from AGI not subject to the 2%-of-AGI-of-AGI floor.
C)Deductible for AGI.
D)An itemized deduction if not reimbursed.
E)None of the above.

Accepted Answer

The answer of Trade and business expenses should be treated...

Question 20

Purchased goodwill must be capitalized,but can be amortized over a 60-month period.

Accepted Answer

Purchased goodwill is capitalized but it is not amortized over a specific period. Instead, it is tested annually for impairment.

Quiz 6: Deductions and Losses in General

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 Based on this information,Sammy has:

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2%-of-AGI floor.

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

If a vacation home is classified as primarily personal use,part of the maintenance and utility expenses can be allocated and deducted as a rental expense.

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Walt wants to give his daughter $1,800 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he can deduct them.

If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction.

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Marsha is single,had gross income of $50,000,and incurred the following expenses: Charitable contribution $2,000 Taxes and interest on home 7,000 Legal fees incurred in a tax dispute 1,000 Medical expenses 3,000 Penalty on early withdrawal of savings 250 Her AGI is:

Which of the following can be claimed as a deduction for AGI?

Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

If a vacation home is classified as primarily rental use,a deduction for all of the rental expenses is allowed.

Trade and business expenses should be treated as:

Purchased goodwill must be capitalized,but can be amortized over a 60-month period.

Quiz 6: Deductions and Losses in General

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 ​ Based on this information,Sammy has:

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2%-of-AGI floor.

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

If a vacation home is classified as primarily personal use,part of the maintenance and utility expenses can be allocated and deducted as a rental expense.

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Walt wants to give his daughter $1,800 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he can deduct them.

If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction.

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Marsha is single,had gross income of $50,000,and incurred the following expenses: Charitable contribution $2,000 Taxes and interest on home 7,000 Legal fees incurred in a tax dispute 1,000 Medical expenses 3,000 Penalty on early withdrawal of savings 250 ​ Her AGI is:

Which of the following can be claimed as a deduction for AGI?

Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

If a vacation home is classified as primarily rental use,a deduction for all of the rental expenses is allowed.

Trade and business expenses should be treated as:

Purchased goodwill must be capitalized,but can be amortized over a 60-month period.

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 Based on this information,Sammy has:

Marsha is single,had gross income of $50,000,and incurred the following expenses: Charitable contribution $2,000 Taxes and interest on home 7,000 Legal fees incurred in a tax dispute 1,000 Medical expenses 3,000 Penalty on early withdrawal of savings 250 Her AGI is: