Question 1

Karl has the following income (loss)during the current year:   ​
What is Karl's adjusted gross income for this year?

Accepted Answer

A) $23,500 
B) $31,400 
C) $32,500 
D) $45,500 
E) $57,500 
A) $23,500 
B) $31,400 
C) $32,500 
D) $45,500 
E) $57,500 C

Question 2

Match each statement with the correct term below.
-Limited partnership

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. L

Question 3

Gomez,a self-employed consultant,is involved in a traffic accident with his business-use automobile.The car is totally destroyed and Gomez's insurance policy reimburses him $8,000 for the fair market value of the car immediately before the accident.His basis in the car is $11,000.What is the amount of Gomez's casualty loss deduction?

Accepted Answer

A) $- 0 - 
B) $ 2,000 
C) $ 3,000 
D) $ 8,000 
E) $11,000 
A) $- 0 - 
B) $ 2,000 
C) $ 3,000 
D) $ 8,000 
E) $11,000 C

Question 4

Pedro owns a 50% interest in a limited partnership that operates an apartment complex.During the current year,the partnership generates a taxable rental loss of $42,000.Pedro's other sources of income are salary of $55,000 and interest of $18,000.What is Pedro's allowable loss from the apartment?

Accepted Answer

A) $ - 0 - 
B) $18,000 
C) $21,000 
D) $25,000 
E) None of the above. 
A) $ - 0 - 
B) $18,000 
C) $21,000 
D) $25,000 
E) None of the above.

Question 5

Nancy is the owner of an apartment complex.She actively participates in the management of the building.During the current year,it generates a taxable loss of $27,000.Nancy's other sources of income are salary of $52,000 and interest of $21,000.What is Nancy's allowable loss from the apartment?

Accepted Answer

A) $- 0 - 
B) $18,000 
C) $25,000 
D) $27,000 
E) None of the above. 
A) $- 0 - 
B) $18,000 
C) $25,000 
D) $27,000 
E) None of the above.

Question 6

The term tax shelter refers to investment property that involves residential and commercial real estate.

Accepted Answer

A) True 
 B)False

Question 7

Nelson is the owner of an apartment complex.He actively participates in the management of the building.During the current year,it generates a taxable loss of $33,000.Nelson's other sources of income are salary of $148,000 and interest of $12,000.What is Nelson's allowable loss from the apartment?

Accepted Answer

A) $- 0 - 
B) $ 1,000 
C) $12,000 
D) $25,000 
E) $33,000. 
A) $- 0 - 
B) $ 1,000 
C) $12,000 
D) $25,000 
E) $33,000.

Question 8

Georgia sells stock she purchased for $20,000 to her brother Billy for $12,000.Two years later,Billy sells the stock to Allie,an unrelated individual,for $22,000.What is Billy's recognized gain or loss?

Accepted Answer

A) $- 0 - 
B) $ 2,000 gain 
C) $10,000 gain 
D) $ 8,000 loss 
E) $ 6,000 loss 
A) $- 0 - 
B) $ 2,000 gain 
C) $10,000 gain 
D) $ 8,000 loss 
E) $ 6,000 loss

Question 9

Which of the following losses are generally deductible?
I.Loss on the sale of a personal residence.
II.Loss due to the theft of business inventory.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 10

Judy and Larry are married and their combined salaries for the current year are $115,000.They actively participate in the rental of two houses.For the current year they have the following losses:   ​
What is Judy and Larry's adjusted gross income?

Accepted Answer

A) $108,000 
B) $111,000 
C) $114,000 
D) $115,000 
E) $118,000 
A) $108,000 
B) $111,000 
C) $114,000 
D) $115,000 
E) $118,000

Question 11

For each of the following situations,determine whether the item is deductible,and discuss any limitations that might be placed on the deduction.
Rioters damage Margarita's business building,which has an adjusted basis of $50,000,during the current year.
a.Assume the building is totally destroyed. The cost of replacing the building is estimated to be $55,000. Margarita's insurance reimburses her $32,000.
b.Assume the building is severely damaged. Before the riot, the building is worth $55,000. The insurance adjuster estimates the value of the building after the damage at $20,000. Margarita's insurance reimbursed her $32,000.

Accepted Answer

The answer of For each of the following situations,determine whether...

Question 12

Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following losses are generally deductible?
I.Loss on the sale of corporate stock.
II.Losses incurred in carrying on a trade or business.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 14

Jerome owns a farm,which has three separate houses.He rents out two of the houses and lives in the other house.During the current year,a tornado goes through his property causing damage to the houses.Rental House A had a fair market value of $40,000 and an adjusted basis of $20,000,but it is not damaged by the tornado.A local real estate agent told Jerome that because of the tornado,property values in the area have declined 10%.Rental House B,which has an adjusted basis of $25,000,is worth $60,000 before the tornado and $20,000 after the tornado.Jerome's insurance company pays him $20,000 for the damage to Rental House B.Jerome's residence (which has an adjusted basis of $80,000)was worth $70,000 before it is totally destroyed by the tornado.Jerome's insurance company reimburses him $60,000 for the loss of his residence.Ignore the limitation based on Adjusted Gross Income.
I.Jerome deducts a loss of $5,000 on Rental House A.
II.Jerome deducts a loss of $35,000 on Rental House B.
III.Jerome's loss on his residence is $9,900.
IV.Jerome cannot deduct a loss on Rental House A.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Only statement III is correct. 
D) Statements II and IV are correct. 
E) Statements III and IV are correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Only statement III is correct. 
D) Statements II and IV are correct. 
E) Statements III and IV are correct.

Question 15

The Ottomans own a winter cabin in Durango,Colorado.They purchased the cabin in 2004 for $65,000.During the current year,a blizzard partially destroys the cabin.The fair market value of the cabin after the blizzard is $70,000.The insurance company estimates that the cost of repairing the cabin will be $40,000.The insurance company will reimburse the Ottomans for 70% of the repair cost.What can they deduct as a casualty loss if their adjusted gross income for the year is $80,000?

Accepted Answer

A) $3,900 
B) $4,000 
C) $8,000 
D) $11,900 
E) $12,000 
A) $3,900 
B) $4,000 
C) $8,000 
D) $11,900 
E) $12,000

Question 16

Jose,Mahlon,and Eric are partners in New Communications Partnership.Jose owns a 50% interest,Mahlon owns a 35% interest,and Eric owns a 15% interest.During the current year (the first year of operation for the enterprise),the business has a loss.Although the partnership is established as a general partnership,Jose functions as the manager and performs all of the day-to-day duties of a chief operating officer.Mahlon and Eric are merely investors who receive monthly reports about the business.At the close of the current tax year,each partner will receive a share of the partnership loss.Which of the partners will be able to deduct his (their)share of the partnership loss?
I.Jose
II.Mahlon
III.Eric
​

Accepted Answer

A) Mahlon 
B) Jose, Mahlon, and Eric 
C) Jose 
D) Jose and Mahlon 
E) Mahlon and Eric 
A) Mahlon 
B) Jose, Mahlon, and Eric 
C) Jose 
D) Jose and Mahlon 
E) Mahlon and Eric

Question 17

An operating loss occurs when an entity's deductions exceeds the income generated for the period.

Accepted Answer

A) True 
 B)False

Question 18

The wash sale provisions apply to which of the following?
I.Jim bought 500 additional shares of Alfa Gamma stock for $4,000 on December 2,2016.Jim owned 2,500 shares after that purchase.On December 26,2016,Jim realizes a loss of $1,500 on the sale of 250 shares of Alfa Gamma stock.
II.Calvin realizes a $8,000 loss on the December 29,2016,sale of Sloan corporate bonds.Each bond has a face value of $1,000.He replaces the Sloan corporate bonds with the same number of Jackson corporate bonds,each with a face value of $1,000 on January 16,2017.The Jackson bonds have a different interest rate and maturity date then the Sloan bonds but have the same bond rating (AAA).
​

Accepted Answer

A) ​Only statement I is correct. 
B) ​Only statement II is correct. 
C) ​Both statements are correct. 
D) ​Neither statement is correct. 
A) ​Only statement I is correct. 
B) ​Only statement II is correct. 
C) ​Both statements are correct. 
D) ​Neither statement is correct.

Question 19

Mario's delivery van is completely destroyed when a tree fell on it.Mario's insurance company pays him $11,000 for the accident.The van cost $20,000 three years ago.Tax depreciation deductions of $6,000 have been taken to date.The "Blue Book value" (i.e.,fair market value)of the van is $12,000 on the accident date.What is Mario's casualty loss on the van?

Accepted Answer

A) $- 0 - 
B) $ 1,000 
C) $ 3,000 
D) $ 8,000 
E) $13,000 
A) $- 0 - 
B) $ 1,000 
C) $ 3,000 
D) $ 8,000 
E) $13,000

Question 20

Mark has an adjusted gross income of $154,000.Not included in his adjusted gross income is a $16,000 loss from a passive activity.Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I.If the activity does not involve rental real estate,he can only deduct the loss as a miscellaneous itemized deduction.
II.If the activity is rental real estate and Mark is an active participant,he can deduct the $16,000 loss for adjusted gross income.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Karl has the following income (loss)during the current year: What is Karl's adjusted gross income for this year?

Match each statement with the correct term below. -Limited partnership

Pedro owns a 50% interest in a limited partnership that operates an apartment complex.During the current year,the partnership generates a taxable rental loss of $42,000.Pedro's other sources of income are salary of $55,000 and interest of $18,000.What is Pedro's allowable loss from the apartment?

Nancy is the owner of an apartment complex.She actively participates in the management of the building.During the current year,it generates a taxable loss of $27,000.Nancy's other sources of income are salary of $52,000 and interest of $21,000.What is Nancy's allowable loss from the apartment?

The term tax shelter refers to investment property that involves residential and commercial real estate.

Nelson is the owner of an apartment complex.He actively participates in the management of the building.During the current year,it generates a taxable loss of $33,000.Nelson's other sources of income are salary of $148,000 and interest of $12,000.What is Nelson's allowable loss from the apartment?

Georgia sells stock she purchased for $20,000 to her brother Billy for $12,000.Two years later,Billy sells the stock to Allie,an unrelated individual,for $22,000.What is Billy's recognized gain or loss?

Which of the following losses are generally deductible? I.Loss on the sale of a personal residence. II.Loss due to the theft of business inventory.

Judy and Larry are married and their combined salaries for the current year are $115,000.They actively participate in the rental of two houses.For the current year they have the following losses: What is Judy and Larry's adjusted gross income?

Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.

Which of the following losses are generally deductible? I.Loss on the sale of corporate stock. II.Losses incurred in carrying on a trade or business.

An operating loss occurs when an entity's deductions exceeds the income generated for the period.

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 7: Losses-Deductions and Limitations

Karl has the following income (loss)during the current year: ​ What is Karl's adjusted gross income for this year?

Match each statement with the correct term below. -Limited partnership

Pedro owns a 50% interest in a limited partnership that operates an apartment complex.During the current year,the partnership generates a taxable rental loss of $42,000.Pedro's other sources of income are salary of $55,000 and interest of $18,000.What is Pedro's allowable loss from the apartment?

Nancy is the owner of an apartment complex.She actively participates in the management of the building.During the current year,it generates a taxable loss of $27,000.Nancy's other sources of income are salary of $52,000 and interest of $21,000.What is Nancy's allowable loss from the apartment?

The term tax shelter refers to investment property that involves residential and commercial real estate.

Nelson is the owner of an apartment complex.He actively participates in the management of the building.During the current year,it generates a taxable loss of $33,000.Nelson's other sources of income are salary of $148,000 and interest of $12,000.What is Nelson's allowable loss from the apartment?

Georgia sells stock she purchased for $20,000 to her brother Billy for $12,000.Two years later,Billy sells the stock to Allie,an unrelated individual,for $22,000.What is Billy's recognized gain or loss?

Which of the following losses are generally deductible? I.Loss on the sale of a personal residence. II.Loss due to the theft of business inventory. ​

Judy and Larry are married and their combined salaries for the current year are $115,000.They actively participate in the rental of two houses.For the current year they have the following losses: ​ What is Judy and Larry's adjusted gross income?

Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.

Which of the following losses are generally deductible? I.Loss on the sale of corporate stock. II.Losses incurred in carrying on a trade or business. ​

An operating loss occurs when an entity's deductions exceeds the income generated for the period.

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Karl has the following income (loss)during the current year: What is Karl's adjusted gross income for this year?

Which of the following losses are generally deductible? I.Loss on the sale of a personal residence. II.Loss due to the theft of business inventory.

Judy and Larry are married and their combined salaries for the current year are $115,000.They actively participate in the rental of two houses.For the current year they have the following losses: What is Judy and Larry's adjusted gross income?

Which of the following losses are generally deductible? I.Loss on the sale of corporate stock. II.Losses incurred in carrying on a trade or business.