Exam 6: Deductions and Losses: in General

Rose's business sells air conditioners which have a one-year warranty.Based on historical data,the warranty costs amount to 16% of sales.During 2010,air conditioner sales are $200,000.Actual warranty expenses paid in 2010 are $30,500.

Using his bank credit card,Seneca,a cash method taxpayer,charged a business expense on December 5,2010.He paid the credit card bill,which included the charge,on January 23,2011.Seneca can deduct the expense in 2010.

In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

Payments by a cash basis taxpayer of capital expenditures:

Which of the following is correct?

In preparing his 2010 Federal income tax return,Sam,who is not married,incorrectly claimed alimony payments of $12,000 as an itemized deduction (rather than as a deduction for AGI).Sam's AGI is $60,000 and itemized deductions (which consist of the alimony,property taxes,and mortgage interest)are $20,000.Which of the following statements is correct?

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year.The rental income is $6,000 and the expenses are as follows: Using the IRS approach,total expenses that Robyn can deduct on her tax return associated with the beach house are:

Legal expenses incurred in connection with rental property are deductions from AGI.

Landscaping expenditures on new rental property are deductible in the year they are paid or incurred.

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Sarah incurred the following expenses for her dependent son during the current year: How much may Sarah deduct in computing her itemized deductions?

For an expense to be deducted as ordinary,it must be recurring in nature.

The stock of Eagle,Inc.is owned as follows:

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

Vera is the CEO of Brunettes,a publicly held corporation.For the year,she receives a salary of $950,000,a bonus of $600,000,and contributions to her retirement plan of $35,000.The bonus was awarded at the December board meeting based on Vera's threat to accept a better paying job with a competitor.What amount may Brunettes deduct?

Bridgett's son,Amos,is $4,500 in arrears on his residential mortgage payments.Of the $4,500,$3,800 represents interest and $700 represents principal.

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.

Calvin opened his dental practice (a sole proprietorship)in May 2010.At the end of the year,he has unpaid accounts receivable of $36,000 and no unpaid accounts payable.Should Calvin use the accrual method or the cash method for his dental practice?

Which of the following expenses is classified as a deduction for AGI?

In a related party transaction where realized loss is disallowed,when can the disallowed loss be used by the buyer on the subsequent sale of the property?