Question 1

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 2

The Code does not specifically define what constitutes a trade or business.

Accepted Answer

A) True 
 B)False

Question 3

Tracy invested in the following stocks and bonds during 2018.
   
To finance the investments, she borrowed $100,000 from Swan Bank. Interest expense paid on the loan during 2018 was $5,000. During 2018, Tracy received $1,250 of dividend income from Blue, Inc. and $3,000 of interest income on the municipal bonds.
a. Determine the amount of Tracy's gross income.
b. Determine the maximum amount of Tracy's deductible interest expense.

Accepted Answer

a. Tracy must include the $1,250 of divi

Question 4

Which of the following is not a related party for constructive ownership purposes under § 267?

Accepted Answer

A)  The taxpayer's aunt. 
B)  The taxpayer's brother. 
C)  The taxpayer's grandmother. 
D)  A corporation owned more than 50% by the taxpayer. 
E)  None of the above. 
A)  The taxpayer's aunt. 
B)  The taxpayer's brother. 
C)  The taxpayer's grandmother. 
D)  A corporation owned more than 50% by the taxpayer. 
E)  None of the above.

Question 5

Which of the following are deductions for AGI?

Accepted Answer

A)  Mortgage interest on a personal residence. 
B)  Property taxes on a personal residence. 
C)  Mortgage interest on a building used in a business. 
D)  Fines and penalties incurred in a trade or business. 
E)  None of the above. 
A)  Mortgage interest on a personal residence. 
B)  Property taxes on a personal residence. 
C)  Mortgage interest on a building used in a business. 
D)  Fines and penalties incurred in a trade or business. 
E)  None of the above.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

Because the interest income on municipal

Question 8

During the year, Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months. The following expenses were incurred on the home:
   
Calculate her rental gain or loss and itemized deductions.

Accepted Answer

Rita excludes the $2,400 of rental incom

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

A) True 
 B)False

Question 10

Calculate the net income includible in taxable income for the following hobby in 2018:

Accepted Answer

@#IMG-DLM& The mortgage interest and tax

Question 11

Which of the following statements is correct in connection with the investigation of a business?

Accepted Answer

A)  If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned. 
B)  Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired. 
C)  That business must be related to the taxpayer's present business for any expense ever to be deductible. 
D)  Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be ??????????? ??? ?????????. 
E)  None of the above. 
A)  If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned. 
B)  Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired. 
C)  That business must be related to the taxpayer's present business for any expense ever to be deductible. 
D)  Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be ??????????? ??? ?????????. 
E)  None of the above.

Question 12

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Accepted Answer

A)  If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part. 
B)  If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part. 
C)  If Jeanette pays the mortgage company directly, she cannot deduct the interest part. 
D)  Only b. and c. are correct. 
E)  a., b., and c. are correct. 
A)  If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part. 
B)  If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part. 
C)  If Jeanette pays the mortgage company directly, she cannot deduct the interest part. 
D)  Only b. and c. are correct. 
E)  a., b., and c. are correct.

Question 13

Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows:  
What is Al's AGI?

Accepted Answer

A)  $94,100. 
B)  $103,000. 
C)  $107,000. 
D)  $127,000. 
E)  None of the above. 
A)  $94,100. 
B)  $103,000. 
C)  $107,000. 
D)  $127,000. 
E)  None of the above.

Question 14

In what situations may individuals be able to take a qualified business income deduction?

Accepted Answer

The QBI deduction potentially

Question 15

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000. Walter reinvests the proceeds in the stock market. Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.
a. Determine the tax consequences to Walter.
b. Determine the tax consequences to Shirley.

Accepted Answer

The answer of Walter sells land with an adjusted basis...

Question 16

Taylor, a cash basis architect, rents the building in which his office is located for $5,000 per month. He commenced his practice on February 1, 2018. In order to guarantee no rent increases during an 18-month period, he signed an 18- month lease and prepaid the $90,000 on February 1, 2018. How much can Taylor deduct as rent expense for 2018?

Accepted Answer

Taylor is a cash basis taxpayer. Thus, h

Question 17

Bridgett's son, Clyde, is $12,000 in arrears on his residential mortgage payments. Of the $12,000, $7,500 represents interest and $4,500 represents principal.
a. If Bridgett pays the $12,000 to the lender, how much can she deduct? How much can
Clyde deduct?
b. If Bridgett pays the $7,500 of interest to the lender and loans or gives $4,500 to Clyde, who pays the $4,500 of principal, how much can Bridgett deduct? How much can Clyde deduct?
c. If Bridgett gives or lends the $12,000 to Clyde who pays the lender, how much can he deduct? How much can Bridgett deduct?
d. Advise Bridgett and Clyde on how the payment should be made.

Accepted Answer

a. A deduction cannot be taken for payin

Question 18

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year. At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year.
a. Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer.
b. Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

Accepted Answer

a. The deduction for salaries

Question 19

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

Accepted Answer

Amounts deductible under other Code sect

Question 20

Briefly discuss the disallowance of deductions for capital expenditures.

Accepted Answer

Any expenditures that add to t

Exam 6: Deductions and Losses: In General

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

The Code does not specifically define what constitutes a trade or business.

Which of the following is not a related party for constructive ownership purposes under § 267?

Which of the following are deductions for AGI?

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

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

During the year, Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months. The following expenses were incurred on the home: Calculate her rental gain or loss and itemized deductions.

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).

Calculate the net income includible in taxable income for the following hobby in 2018:

Which of the following statements is correct in connection with the investigation of a business?

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows: What is Al's AGI?

In what situations may individuals be able to take a qualified business income deduction?

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

Briefly discuss the disallowance of deductions for capital expenditures.

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, Section 1231, and Recapture Provisions

Taxing Business Income

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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