ACE 346 Exam 2
Are there special rules if the exchange is between related persons?
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Egbert donates $60,000 in cash to a public charity. During the year of the contribution, his adjusted gross income was $100,000. How much of the deduction, if any, would Egbert be allowed to take in the current year?
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Explain how a taxpayer treats a bad debt loss arising from a guarantee of a loan when A. It arises directly from the guarantor's trade or business. B. The transaction was entered into by the lender for a non business related investment. C. The loan was made for personal reasons and is not legally enforceable.
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For what reasons is a gift of a life insurance policy considered a favorable choice for a charitable gift?
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How is the property inherited from a decedent determined?
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Janet Jantzen purchased 500 shares of American Oil Reserves at $50 per share. Two years later the price per share doubled and she sold the stock. A. What is her basis for the 500 shares. B. What is the total amount realized on the sale C. What is the total gain realized
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Larry Churnkey, a successful businessman, has season tickets to see the Wayne University Leopards, his alma mater's basketball team. This year Larry is required to make a $1000 donation to the university in order to keep his season tickets. He must pay for the tickets in addition. How much of the donation is Larry permitted to deduct?
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What are the rules regarding cosmetic surgery and the medical expense deduction?
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What is qualified residence interest? -Explain the rules for deductibility of acquisition indebtedness. -Explain the rules for the deductibility of home equity indebtedness
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What is the effect of the executors election to use the alternate valuation date for federal estate tax purposes.
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What is the general concept behind the like kind exchange rules
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What is the maximum amount of gain from the sale of a principal residence that may be excludible from gross income by A. Married taxpayers filing jointly B. Other taxpayers
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What is the rule for determining basis when property is acquired by gift.
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What types of property are eligible for like kind exchange treatment
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Would Marjorie treat this a business or non business bad debt? B. When can she deduct the amount? If the corporation had borrowed money from a bank to finance the machinery and Tommy's accountant Bill had guaranteed the debt, what would the tax result of Bill's payment on the guarantee be?
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State the amount of the current tax credit for children.
1,000
What is the maximum tax rate that generally applies to long term capital gains of individual taxpayers from sales of capital assets?
20%
What is the maximum amount of qualifying expenses available to a working taxpayer who is responsible for one qualifying individual.
3,000
Taxpayer pays $5000 for child care for one child. AGI is $100,000. Taxpayer is in the 25% bracket. If $5000 is excluded through employer plan net tax savings is $1250 If the child tax credit is claimed on 5,000 the credit would be 1,000.
5,000 * 25% = 1250 Exclusion is better
This year Handy Andy - a repair business owned by Any and his wife, Mandy - acquires new office furniture, which costs $7000. Andy also buys an auto for $20,000. A. What is the class of property for the furniture? B. What is the depreciation method for the furniture? C. What is the class of property for the auto? D. What is the auto depreciation method?
A. 7 years B. Double declining C. 5 years for auto D. Listed property method
All of the following are correct about boot property in a like kind exchange, except: A. Boot received is not taxable B. Liabilities relieved are considered boot C. Boot paid is not taxable D. If both parties have liabilities on properties they may be netted
A. Boot received is not taxable
Describe the following types of income under the passive activity rules: A. Portfolio Income B. Active Income C. Passive Income
A. Dividends, capital gains, interest B. Wages, Self-Employment income C. Rental income, K1, when you aren't actively involved
7. What are the depreciation methods for each of the following types of post 1986 Property? A. 3,5,7 and 10 year recovery property B. real property
A. Double declining B. Straight line
Assets in the 7 year property class that use MACRS use a half year convention to calculate depreciation in the first year. A. True B. False
A. True
For section 1035 tax deferral to apply to an insurance contract both policies must insure the life of the same person. A. True B. False
A. True
If a taxpayer forgets to deduct depreciation on an asset, the basis of the asset is reduced for the allowable depreciation that could have been claimed. A. True B. False
A. True
Long term capital losses may be netted with short term capital gains. A. True B. False
A. True
Explain the interaction of the American Opportunity Credit with the lifetime learning credit.
AOC for 4 years then switch to LLC
Describe the active participation exception to the passive loss limitations
Active participation: 25,000 max Material- 750 hours
How is the term capital asset defined in the Internal Revenue Code?
Anything that is not current
What assets are specifically excluded by the code from the definition of a capital asset?
Business related items, stock inventory
Mr T is involved in an accident with his van, which he uses in his business. Adjusted basis is 10,000. Its value before the accident was 9,000. After the accident it was worth 2,000. What is his deductible loss.
Deducible loss: 7,000 (9,000-2,000)
Tony Morrison, president of Swinging Door Company has had a difficult year. Tony has no insurance coverage. Tony's AGI is 250,000. This year his office was burglarized. A new answering machine purchased for $500 was stolen after 1 week. He estimates he lost $5000 of business due to missed calls.
Deduct the answering machine (business item, stolen, no time for depreciation) Can't deduct the $5000 of missed calls because never claimed the income
Describe the applicability and operation of the net investment income tax.
Extra 3.8% on higher income levels
The active participation exception for passive activities allows what maximum amount of deduction in the current year, assuming the taxpayer does not have an AGI phaseout. A. Zero B. $10,000 C. $25,000 D. $100,000
C. 25,000
For 2016, what is the maximum amount a business may expense under code section 179 for qualified property? A. 50,000 B. 100,000 C. 500,000 D. 1,000,000
C. 500,000
For a married taxpayer the threshold for foreign taxes paid before needing to file form 1116 is : A. Zero B. 300 C. 600 D. 1000
C. 600
The period of time available to amend a return for deducting a loss from a worthless corporate security is: A. 3 years B. 5 years C. 7 years D. 10 years
C. 7 years
To be considered materially participating in real estate activities the taxpayer must perform how many hours of service during the year in real property trades or business? A. 100 hours B. 500 hours C. 750 hours D. 1,000 hours
C. 750
All of the following types of income are subject to the unearned income medicare contribution tax, except. A. Interest B. Dividends C. Business Income D. Capital Gain Income
C. Business Income
All of the following expenses are allowed for the American Opportunity credit, except: A. Tuition B. Required fees C. Room and Board D. Textbooks
C. Room and board
Marjorie lends her friend Tommy 10,000 to purchase a machine for his business. Marjorie is not in the business of lending money and does so as a personal favor. She receives 12% interest on the loan and has a signed note from Tommy both personally and as president of his closely held business. The business goes bankrupt when there is still 7,300 left on the debt and there are no assets to pay it.
Issue is if she is doing it as a personal favor. No business activity- looks more like a gift
How are capital losses treated for income tax purposes?
Most capital loss for one year: 3,000. What you don't use you carry over until you die
Explain how an individuals capital gains and losses are netted for a given year.
Net the long term and short term capital gains on schedule D
Tony sold his home for 300,000. Original purchase price was 500,000. Closed on the sale in December. While reading Wall Street Journal on December 31st noticed that Magic Barker stock had dropped 1000 in value since purchase. Can Tony take a deduction for each of the following items and if so, how much?
No deductible loss for home Can't deduct the stock because there's not a identifiable event (must sell a stock)
Kathy lives in a home she has owned and occupied for some time. Over the years local wind and weather conditions have steadily weakened the house. Would a casualty loss deduction be allowed?
No, this is considered wear and tear over time. Not a sudden event
Tony bought a new personal use auto for 50,000. Drove to Miami Beach for American Legion convention. On the way he ran into a tree partially wrecking the car. After the wreck the car was worth 20,000. Repairs cost 30,000. He has no collision insurance.
Personal auto: subject to 10% limitation, $100 floor
What expenses qualify for the American opportunity and Lifetime learning credits?
What doesn't qualify: room and board
To be considered a qualifying child for the child tax credit the taxpayer must be younger than what age. A. 13 B. 17 C. 19 D. 24
B. 17
How many years during the 5 year period leading up to the sale of a taxpayers residence must the taxpayer actually own and use it as their principal residence. A. 1 B. 2 C. 5 D. Zero
B. 2
Which of the following is a qualifying expense for the dependent care credit? A. Expenses paid for an overnight camp B. Day care services for the taxpayers 7 year old dependent child C. Expenses paid to the taxpayers child who is under 19 D. Expenses paid to the taxpayers 21 year old dependent child
B. Day care services for the taxpayers 7 year old dependent child
If a debt is written off (deducted) and later payment is received, the amount received is non taxable. A. True B. False
B. False
Losses from one publicly traded partnership can be deducted against profits from another publicly traded partnership. A. True B. False
B. False
There is a $100 amount that is not deductible for business casualty losses: A. True B. False
B. False
To be considered for long term capital gain treatment an asset must be held; A. More than 6 months B. More than 12 months C. More than 24 months D. More than 60 months
B. More than 12 months
Which of the following is true regarding like kind exchanges (Section 1031). A. A machine can be exchanged tax deferred for a building. B. A rental property can be exchanged tax deferred for a commercial building C. Inventory is eligible for like kind exchange treatment D. US property can be exchanged tax deferred for foreign real estate
B. Rental property can be exchanged for a commercial building
All of the following are examples of a sudden event for casualty loss purposes, except. A. A house catches on fire. B. A taxpayer drops a plate while doing the dishes. C. A tornado demolishes a house. D. An earthquake breaks a plate.
B. Taxpayer drops a plate while doing the dishes
Which of the following assets is eligible for a cost recovery deduction? A. Personal Residence B. Tractor used by a farmer. C. Automobile used for personal use. D. Jewelry
B. Tractor used by a farmer.
The limitation on deductible acquisition indebtedness for a married couple is: A. 100,000 B. 250,000 C. 500,000 D. 1,000,000
D. 1,000,000
For 2016 the floor applicable to medical expense deductions is: A. 20% of AGI B. $500 C. $5000 D. 10% of AGI
D. 10% of AGI
The limitation for a cash contribution to a public charity is: A. Unlimited B. 10% of AGI C. 30% of AGI D. 50% of AGI
D. 50% of AGI
Which of the following is not a deductible tax expense on Schedule A? A. Property taxes on a taxpayers home B. State income taxes withheld from wages C. Personal Property Taxes D. Federal income taxes
D. Federal income taxes
All of the following are true of section 1231 assets, except: A. Must be held more than one year B. Gains are treated as long term capital gain C. Losses are treated as ordinary losses D. Gains are treated as short term capital gain
D. Gains are treated as short term capital gain
All of the following are true of passive losses, except: A. Generally losses are aggregated so that one passive loss can offset a passive gain from another property B. Excess passive losses are suspended and carried over to future years C. Publicly traded partnerships must stand alone for loss treatment D. Passive losses are always deductible currently.
D. Passive losses are always deductible currently
Describe the types of activities that are subject to limitations on tax deductions under the passive activity rules.
Rental property (most popular example) Any passive activity (K1, PTP)
Who is a qualifying individual for purposes of the dependent care credit?
Same as exemptions, child under 13
Describe the allowable credit for adoption expenses for: An eligible child who is not a special needs child. A child with special needs.
Special needs adoption- claim the full credit. Other adoption only up to 13570
What special rules apply to the American Opportunity and Lifetime learning credit expenses?
Special rules: when you're a dependent, no one claims exemption, you can claim yourself
