Question 1

Mr. Jain paid the following taxes this year.  Compute Mr. Jain's itemized deduction for taxes.

Accepted Answer

The answer of Mr. Jain paid the following taxes this...

Question 2

Which of the following deductions is disallowed in the computation of alternative minimum taxable income (AMTI)?

Accepted Answer

Interest paid on a home equity debt is disallowed in the computation of AMTI. Alimony and charitable contributions are not disallowed.

Question 3

On February 1, 2013, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2013, Alan sold this residence for $460,000 because he wanted to rent a newly constructed condominium. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Accepted Answer

Alan must recognize the full gain of $60,000 because he did not meet the ownership and use tests required for the exclusion of gain on the sale of a personal residence, which typically requires living in the home for at least 2 years.

Question 4

Mr. and Mrs. Allen made the following interest payments. Determine their deduction for each payment.
a. $28,000 on a $400,000 acquisition mortgage secured by their personal residence
b. $5,000 on a $60,000 second mortgage secured by their personal residence. The Allens used the proceeds to pay off credit card debt and take a second honeymoon.
c. $2,400 on credit card debt
d. $1,500 on a bank loan incurred to purchase a new family car
e. $1,890 on an unsecured bank loan incurred to pay for a new roof on their personal residence

Accepted Answer

The answer of Mr. and Mrs. Allen made the following...

Question 5

On February 1, 2013, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2013, Alan sold this residence for $460,000 because he accepted a new job in another state. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Accepted Answer

To calculate the gain, we need to determine the adjusted basis of the property. 
Adjusted basis = purchase price + any improvements or closing costs - depreciation
In this case, since Alan lived in the home for less than two years, he is not eligible for the primary residence exclusion and must pay taxes on any gain. However, he is eligible for a partial exclusion based on the amount of time he lived in the home. 
Partial exclusion = (number of days of occupancy / 730) x $250,000 (or $500,000 if married)
In this case, Alan's partial exclusion is calculated as (150 / 730) x $250,000 = $51,370. 
Since Alan lived in the home for less than one year, he cannot claim any depreciation. 
Thus, his adjusted basis is $400,000 + $0 - $0 = $400,000. 
To calculate the gain, we subtract the adjusted basis from the selling price: 
Gain = selling price - adjusted basis = $460,000 - $400,000 = $60,000. 
However, since Alan is eligible for a partial exclusion, we subtract that amount from the gain to determine the taxable gain: 
Taxable gain = gain - partial exclusion = $60,000 - $51,370 = $8,630. 
Therefore, Alan must recognize a gain of $8,630.

Question 6

Mrs. Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs. Hanson's AGI.

Accepted Answer

The answer of Mrs. Hanson's financial support this year consisted...

Question 7

Mr. and Mrs. Nguyen, ages 71 and 61, reported $70,200 AGI and were allowed a $6,400 itemized medical expense deduction this year. Compute their medical expense deduction for alternative minimum tax (AMT) purposes.

Accepted Answer

The answer of Mr. and Mrs. Nguyen, ages 71 and...

Question 8

Mr. and Mrs. Hunt, ages 38 and 33, have the following allowable itemized deductions this year.  Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

Accepted Answer

The answer of Mr. and Mrs. Hunt, ages 38 and...

Question 9

Mr. and Mrs. Darwin sold their principal residence on September 12, 2012, and purchased and moved into a new residence three weeks later. They properly excluded their $353,000 gain realized on this sale from gross income. On October 2, 2013, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?

Accepted Answer

The answer of Mr. and Mrs. Darwin sold their principal...

Question 10

Which of the following deductions is allowed in the computation of alternative minimum taxable income (AMTI)?

Accepted Answer

The answer of Which of the following deductions is allowed...

Question 11

Mr. and Mrs. Stimson incurred $3,937 of miscellaneous itemized deductions this year. Their AGI was $97,300, and their marginal rate on ordinary income was 25%. Which of the following statements is false?

Accepted Answer

The answer of Mr. and Mrs. Stimson incurred $3,937 of...

Question 12

Which of the following itemized deductions is disallowed in the computation of alternative minimum taxable income (AMTI)?

Accepted Answer

State and local income tax deduction is disallowed in the computation of AMTI. Casualty loss, charitable contribution, and gambling loss are allowed as itemized deductions in the computation of AMTI.

Question 13

Mr. and Mrs. Alvarez paid $130,000 for their home 30 years ago. They recently sold this home and moved into a retirement apartment. Describe the tax consequences of the sale assuming that the amount realized was:
a. $125,000
b. $450,000
c. $850,000

Accepted Answer

The answer of Mr. and Mrs. Alvarez paid $130,000 for...

Quiz 17: Tax Consequences of Personal Activities

Mr. Jain paid the following taxes this year. Compute Mr. Jain's itemized deduction for taxes.

Which of the following deductions is disallowed in the computation of alternative minimum taxable income (AMTI) ?

On February 1, 2013, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2013, Alan sold this residence for $460,000 because he accepted a new job in another state. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Mrs. Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs. Hanson's AGI.

Mr. and Mrs. Nguyen, ages 71 and 61, reported $70,200 AGI and were allowed a $6,400 itemized medical expense deduction this year. Compute their medical expense deduction for alternative minimum tax (AMT) purposes.

Mr. and Mrs. Hunt, ages 38 and 33, have the following allowable itemized deductions this year. Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

Which of the following deductions is allowed in the computation of alternative minimum taxable income (AMTI) ?

Mr. and Mrs. Stimson incurred $3,937 of miscellaneous itemized deductions this year. Their AGI was $97,300, and their marginal rate on ordinary income was 25%. Which of the following statements is false?

Which of the following itemized deductions is disallowed in the computation of alternative minimum taxable income (AMTI) ?

Mr. and Mrs. Alvarez paid $130,000 for their home 30 years ago. They recently sold this home and moved into a retirement apartment. Describe the tax consequences of the sale assuming that the amount realized was: a. $125,000 b. $450,000 c. $850,000