Question 1

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

Accepted Answer

A)  All rental income is included in gross income. 
B)  All rental related expenses that are deductible are classified as deductions from AGI. 
C)  Expenses must be allocated between rental and personal use. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct. 
A)  All rental income is included in gross income. 
B)  All rental related expenses that are deductible are classified as deductions from AGI. 
C)  Expenses must be allocated between rental and personal use. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct.

Question 2

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Accepted Answer

Generally personal expenditures cannot b

Question 3

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

Accepted Answer

A) True 
 B)False

Question 4

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

A) True 
 B)False

Question 5

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

A) True 
 B)False

Question 6

Albie operates an illegal drug­running business and has the following items of income and expense. What is Albie's adjusted gross income from this operation?
 $\begin{array}{lr}\text { Income }&\$800,000\
\text { Expenses: }\
\text { Rent } & 24,000 \
\text { Utilities } & 9,000 \
\text { Bribes to police } & 55,000 \
\text { Medical expense } & 5,000 \
\text { Legal fees } & 25,000 \
\text { Depreciation } & 30,000 \
\text { Illegal kickbacks } & 30,000 \
\text { Cost of goods sold } & 300,000
\end{array}$

Accepted Answer

Albie is allowed to reduce his AGI only

Question 7

Marvin spends the following amounts on a house he owns:
 $\begin{array}{lr}
\text { Repair to roof }\
\text { Carpeting for the living room } & 1,200 \
\text { Painting of the exterior } & 4,000 \
\text { Replacement of front door } & 800
\end{array}$ 
a. How much of these expenses can Marvin deduct if the house is his principal residence?
b. How much of these expenses can Marvin deduct if he rents the house to a tenant?
c. Classify any deductible expenses as deductions for AGI or as deductions from AGI.

Accepted Answer

a. Since these expenditures are personal

Question 8

Payments by a cash basis taxpayer of capital expenditures:

Accepted Answer

A)  Must be expensed at the time of payment. 
B)  Must be expensed by the end of the first year after the asset is acquired. 
C)  Must be deducted over the actual or statutory life of the asset. 
D)  Can be deducted in the year the taxpayer chooses. 
E)  None of the above. 
A)  Must be expensed at the time of payment. 
B)  Must be expensed by the end of the first year after the asset is acquired. 
C)  Must be deducted over the actual or statutory life of the asset. 
D)  Can be deducted in the year the taxpayer chooses. 
E)  None of the above.

Question 9

Bruce owns several sole proprietorships. Must Bruce use the same accounting method for each of these businesses?

Accepted Answer

No. If a taxpayer owns multipl

Question 10

Trade or business expenses are classified as deductions for AGI. Section 212 expenses, barring certain exceptions, are classified as deductions from AGI. What are these exceptions?

Accepted Answer

The normal classification for § 212 expe

Question 11

Alice incurs qualified moving expenses of $12,000. If she is reimbursed by her employer, the deduction is classified as a deduction for AGI. If not reimbursed, the deduction is classified as an itemized deduction.

Accepted Answer

A) True 
 B)False

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

A) True 
 B)False

Question 13

Melba incurred the following expenses for her dependent daughter during the current year:
$\begin{array}{llr}
  \text {  Payment of principal on daughter's automobile loan} &\$3,600\
 \text {Payment of interest on above loan  } &2,900\
 \text { Payment of daughter's property taxes } &1,800\
 \text { Payment of principal on daughter's personal residence loan } &2,800\
 \text { Payment of interest on daughter's personal residence loan } &7,000\
\end{array}$

How much may Melba deduct in computing her itemized deductions?
A) $\$ 0$
B) $ \$8 3 , 8 0 0 .$
C) $\$11,700$
D) $\$18,100$ .
E)None of the above

Accepted Answer

The answer of Melba incurred the following expenses for her...

Question 14

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

Accepted Answer

To be classified in the primarily rental

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Susan is a sales representative for a U.S. weapons manufacturer. She makes a $100,000 "grease" payment to a U.S. government official associated with a weapons purchase by the U.S. Army. She makes a similar payment to a Saudi Arabian government official associated with a similar sale. Neither of these payments is deductible by Susan's employer.

Accepted Answer

A) True 
 B)False

Question 17

What losses are deductible by an individual taxpayer?

Accepted Answer

Generally deductible losses of individua

Question 18

For an activity classified as a hobby, the expenses are categorized as follows:
1() Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion).
2() Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest.
3() Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies).
If these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

Accepted Answer

A)  (1), (2), (3). 
B)  (1), (3), (2). 
C)  (2), (3), (1). 
D)  (2), (1), (3). 
E)  (3), (2), (1). 
A)  (1), (2), (3). 
B)  (1), (3), (2). 
C)  (2), (3), (1). 
D)  (2), (1), (3). 
E)  (3), (2), (1).

Question 19

On January 2, 2014, Fran acquires a business from Chuck. Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill.
Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant. The amount of the excess of the purchase price over the identifiable assets was $100,000. What is the amount of the amortization deduction for 2014?

Accepted Answer

A)  $10,667. 
B)  $16,000. 
C)  $20,000. 
D)  $32,667. 
E)  None of the above. 
A)  $10,667. 
B)  $16,000. 
C)  $20,000. 
D)  $32,667. 
E)  None of the above.

Question 20

Which of the following is a deduction for AGI (itemized deduction)?

Accepted Answer

A)  Contribution to a traditional IRA. 
B)  Roof repairs to a personal use home. 
C)  Safe deposit box rental fee in which stock certificates are stored. 
D)  Property tax on personal residence. 
E)  All of the above. 
A)  Contribution to a traditional IRA. 
B)  Roof repairs to a personal use home. 
C)  Safe deposit box rental fee in which stock certificates are stored. 
D)  Property tax on personal residence. 
E)  All of the above.

Exam 6: Deductions and Losses: in General

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

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.

Payments by a cash basis taxpayer of capital expenditures:

Bruce owns several sole proprietorships. Must Bruce use the same accounting method for each of these businesses?

Trade or business expenses are classified as deductions for AGI. Section 212 expenses, barring certain exceptions, are classified as deductions from AGI. What are these exceptions?

Alice incurs qualified moving expenses of $12,000. If she is reimbursed by her employer, the deduction is classified as a deduction for AGI. If not reimbursed, the deduction is classified as an itemized 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.

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

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

What losses are deductible by an individual taxpayer?

Which of the following is a deduction for AGI (itemized deduction)?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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