ICEHOUSE-EXAM3

A medical expense is generally deductible only in the year in which the expense is actually paid.

TRUE Explanation: This cash-basis rule supercedes the accounting method of the taxpayer and the timing of the event causing the expenditure.

Expenditures for a weight reduction program are deductible if recommended by a physician to treat a specific medical condition such as hypertension caused by excess weight.

TRUE Explanation: Unless expenditures are for routine preventive care, expenditures must be incurred to treat a specific ailment, rather than for general health. A weight loss program must be prescribed by a doctor to treat a specific condition.

Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct?

$0

The following taxes are deductible as itemized deductions with the exception of A) state income taxes. B) federal income taxes. C) foreign real property taxes. D) local personal property taxes.

B) federal income taxes.

Medical expenses are deductible as a from AGI deduction to the extent that they exceed 2 percent of the taxpayer's AGI in 2018.

FALSE Explanation: The floor for medical expenses is 10% of AGI.

Taj operates a sole proprietorship, maintaining the business records under the cash method of accounting. Taj performs services for a client and sends the client a bill for $12,000. Six months later, before payment is received by Taj, the client files bankruptcy, with no assets available for unsecured creditors such as Taj. Taj will deduct

$0.

Amy, a single individual and sole shareholder of Brown Co, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown meets the Section 1244 requirements. Amy has...?

A $50,000 ordinary loss and $70,000 LTCL.

Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His AGI this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations?

$1,400

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of bueiness without repaying Vera. Vera will be able to recognize a loss of what amount?

$10,000

CPA Associates, a cash-basis partnership with a calendar tax year, signs a contract for a 20-month subscription to an online tax research service, effective as of April 1. The firm pays the full $10,000 subscription bill on the April 1, 2019 subscription start date. For 2019 the firm can deduct

$10,000.

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of

$10,000.

In Feb 2013, Amelia's home, which originally cost $150,000, is damaged by a windstorm. Amelia had refinanced the home shortly before the storm, and it was appraised at $200,000. After the storm, the home appraised at $120,000. Amelia has received no insurance reimbursement by Dec 31, but expect lbs to recover 90% of the loss. In the subsequent year, the insurance company pays Amelia $50,000. Amelia's AGI is $85,000 in 2013, and her 2014 AGI is $80,000. Amelia suffers no other casualty losses in either year. She may deduct...?

$14,000 in 2014.

Jarrett owns a mountain chalet that he purchased in '08 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. Its value was reduced to $135,000. Jarrett does not have insurance. J's AGI is $200,000. J's deductible loss after limitation is...?

$144,900

Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a severe blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. The blizzard was declared a federal disaster. The chalet's value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations is

$144,900.

Franca has AGI of $130,000 this year. After applying the $100 floor, she has $26,000 of federally declared disaster losses on personal assets, $12,000 of non-federally declared casualty losses on personal assets, and $23,000 of personal casualty gains for the year. What is Franca's deductible casualty loss?

$2,000

A flood damaged an auto owned by Mr. & Mrs. South on 6/15 of this year. The car was only used for personal purposes. FMV before flood: $18.5 FMV after: $2 Cost basis $20 Ins Proceeds: $13 AGI this yr: $25 Bus use of auto: $0 Based on above facts, what is the amount of the South's casualty loss deduction after limitations for this year?

$900

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss?

$20,000

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss?

$20,000 (10+15)

Sue has AGI of $90,000 & owns rental property she actively managed with a $27,000 loss. Her deductible loss is...?

$25,000

Jorge owns activity X which produced a $20,000 passive loss last year. Jorge's only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge's wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year?

$4,000 (20-16=4)

In October 2019, Jonathon Remodeling Co., an accrual method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2020. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report

$30,000 income in 2019 and a bad debt deduction of $30,000 in 2020.

Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss?

$300,000

Leonard owns a hotel damaged by a hurricane. The hotel had an AB of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before hurricane & $700,000 after. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss?

$300,000 (1,000,000-700)

In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael inches $5,000 in real estate commissions. Michael's gain or loss on the sale is?

$41,000 loss

Salary: $60 Income from act A: 18 Loss from " " B: (9) Loss from " " C: (13) Nancy also has suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy's AGI as a result of these transactions?

$50,000 and idk why

Rex has generated $150,000 of AGI this year due to salary, interest income and dividends. Rex is a single taxpayer. He plans to sell his shares of Trisco Inc., a qualifying small business corporation under Sec. 1244, realizing a $110,000 loss. Rex has not sold any other investment assets this year. Due to the sale of the Trisco stock, he will reduce his AGI by

$53,000.

This summer, Rick's home (basis 80,000) is damaged by tornado. Appraisal realtor appraised the FMV of his home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is $50,000 and his next year's AGI is 55,000. Rick suffers no other casualty losses in either year. After limitations, he may deduct a casualty loss this year of...?

$8,900

Rondo Construction, a calendar-year taxpayer, starts a new long-term construction project in December that is expected to last about 18 months. The project is a mall. Because of some contingencies, it is difficult to estimate total costs this early in the project. Rondo can elect to defer income recognition under the modified percentage of completion method if costs completed by year-end are less than

10% of the total estimated cost.

Which of the following is not generally classified as a passive activity?

A business in which the taxpayer owns an interest and works 1,000 hours a year.

Marcus reports casualty gains and losses on personal use property. Assets X & Y are destroyed in the first casualty while Z is destroyed in a second casualty.

A long term capital gain of $5,000 on asset X; a STCL of $900 on asset Y; STCL of $200 on asset Z.

All of the following are true losses from tee sale or worthlessness of small business corporation (Sec 1244) stock with the exception of:

A single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

45) Pamela owns land for investment purposes. The land is worth $300,000 (basis of $260,000 to Pamela). Pamela exchanges the land, plus $20,000 cash, for a warehouse to be used in her business. The FMV of the warehouse is $400,000, but the warehouse is subject to a mortgage of $80,000, which is assumed by Pamela. Pamela must recognize a gain of A) $ 0. B) $ 40,000. C) $ 120,000. D) $ 140,000.

A) $ 0.

77) This summer, Rick's home (which has a basis of $80,000) is damaged by a tornado. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is $50,000 and his next year's AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year of A) $ 8,900. B) $ 9,900. C) $15,000. D) $35,000.

A) $ 8,900.

63) Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct? A) $0 B) $10,000 C) $20,000 D) $25,000

A) $0

67) Patrick purchased a one-third interest in the PPP partnership for $600,000. At the time of the purchase, the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000. This year, PPP sells the land for $1,800,000. What is Patrick's recognized share of the gain on the sale of the land? A) $0 B) $100,000 C) $300,000 D) none of the above

A) $0

75) Mitchell and Debbie, both 55 years old and married, sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage. To make the sale they pay $4,000 in commissions and $1,000 in legal costs. They have owned and lived in the house for seven years and their tax basis is $125,000. What is the amount of gain recognized on the sale? A) $0 B) $100,000 C) $165,000 D) $170,000

A) $0

77) Frank, a single person age 52, sold his home this year. He had lived in the house for 10 years. He signed a contract on March 4 to sell his home and closed the sale on May 3. Sales price $202,000 Selling expenses 12,000 Replaced and paid for a broken window on March 2 200 Basis of old home before repairs and improvements 150,000 Based on these facts, what is the amount of his recognized gain? A) $0 B) $39,800 C) $40,000 D) $52,000

A) $0

83) Jenna, who is single, sold her principal residence on December 1, 2013, and excluded the $150,000 gain because she met the ownership and usage requirements under Sec. 121. Jenna purchased another residence in Pensacola on January 1, 2014 that she occupied until July 1, 2014 when she receives a new job offer from an employer in Miami. She sells the Pensacola residence on October 1, 2014 and realizes a gain of $40,000. Jenna may exclude what amount of the gain from the sale on October 1, 2014? A) $0 B) $10,000 C) $20,000 D) $40,000

A) $0

Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct? A) $0 B) $10,000 C) $20,000 D) $25,000

A) $0 His AGI exceeds $150,000, so no portion of the rental loss is deductible.

74) Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations? A) $1,400 B) $1,500 C) $6,900 D) $7,000

A) $1,400

Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations? A) $1,400 B) $1,500 C) $6,900 D) $7,000

A) $1,400 ($35,000 - $28,000 - $100 - $5,500) = $1,400

72) Hope sustained a $3,600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope's AGI for the year is $25,000 and she does not have insurance coverage. Hope's deductible casualty loss is A) $1,700. B) $1,800. C) $4,200. D) $4,300.

A) $1,700.

Carl purchased a machine for use in his trade or business two years ago for $30,000. During the current year, Carl donates the machine to the local community college. At the time of the contribution, the machine's adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year is $48,000. What is the amount of his charitable contribution deduction? A) $10,000 B) $14,000 C) $15,000 D) $25,000

A) $10,000 Because the machine is ordinary income property (if sold, the machine would have resulted in section 1245 ordinary income), the amount of the contribution is adjusted basis of $10,000.

Westin paid the following taxes this year: Real estate taxes on rental property he owns $4,000 Real estate taxes on his own residence 3,600 Federal income taxes 18,000 State income taxes 5,400 Local city income taxes 1,500 What amount can Arun deduct as an itemized deduction on his tax return? A) $10,000 B) $28,500 C) $10,500 D) $14,500

A) $10,000 State and local income taxes and the property taxes on his home are allowed as itemized deductions, but limited in total to $10,000.

83) Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of A) $10,000. B) $3,000. C) $7,000. D) -0-

A) $10,000.

Doris donated a diamond brooch recently appraised at $25,000 to her local church. Doris had purchased it many years ago for $10,000. The church sold the brooch to provide funding for church programming. Doris' AGI is $40,000. Doris will be able to take a charitable deduction of A) $10,000. B) $25,000. C) $12,000. D) $20,000.

A) $10,000.

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of A) $10,000. B) $3,000. C) $7,000. D) 0.

A) $10,000. The motivation for the loan is to assist the functioning of Vera's business so it will be considered a business bad debt. An ordinary loss of the full amount will be allowed.

Teri pays the following interest expenses during the year: Home mortgage interest on personal residence $8,500 Credit card interest on personal purchases 550 Interest on loans used to purchase investments (Net investment income is $2,000) 2,400 Interest on loans used for a business conducted as a sole proprietorship 3,800 Interest on a credit card used exclusively in the business 470 What is the amount of interest expense that can be deducted as an itemized deduction? A) $10,500 B) $10,900 C) $14,300 D) $14,700

A) $10,500 Explanation: Home mortgage interest $ 8,500 Investment interest limited to net investment income 2,000 Total as itemized deduction $ 10,500

52) Jason owns a warehouse that is used in business. The FMV of the warehouse is $200,000 (basis $120,000), and the warehouse is subject to a mortgage of $40,000. Jason exchanges the warehouse for land valued at $150,000. The other party also pays him $10,000 cash and assumes the mortgage on the warehouse. Jason's basis in the land received will be A) $120,000. B) $150,000. C) $180,000. D) $200,000.

A) $120,000.

63) Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. Assuming the proper election is made to defer gain, Stephanie's basis in the new building will be A) $175,000. B) $180,000. C) $200,000. D) $210,000.

A) $175,000.

Leslie, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,800. What is the amount and classification of her student loan interest education deduction if her modified AGI is $40,000? A) $2,500 for AGI B) $2,500 from AGI C) $3,800 for AGI D) $3,800 from AGI

A) $2,500 for AGI

65) Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in 2008. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income? A) $21,000 B) $24,000 C) $25,000 D) $45,000

A) $21,000

Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in 2014. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income? A) $21,000 B) $24,000 C) $25,000 D) $45,000

A) $21,000 $27,000 of the loss offsets $27,000 income from the other passive activity, leaving a net.$21,000 loss. The $21,000 net rental loss may offset nonpassive income using the special allowance of up to $25,000.

47) Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000). She exchanges the land, plus $40,000 cash, for a warehouse to be used in her business. The warehouse is worth $420,000, but is subject to a mortgage of $80,000 which Emily will assume. The gain realized by Emily on the exchange is A) $40,000. B) $80,000. C) $120,000. D) $160,000.

A) $40,000.

19) Becky has a $24,000 basis in her partnership interest. She receives a current distribution of $4,000 cash, unrealized receivables with a basis of $12,000 and an FMV of $16,000, and land held as an investment with a basis of $3,000 and an FMV of $8,000. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. The basis of her partnership interest following the distribution is A) $5,000. B) $1,000. C) $0. D) ($4,000).

A) $5,000.

54) Nancy reports the following income and loss in the current year. Salary - $ 60,000 Income from activity A - 18,000 Loss from activity B - ( 9,000) Loss from activity C -( 13,000) All three activities are passive activities with respect to Nancy. Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy's AGI as a result of these transactions? A) $50,000 B) $55,000 C) $64,000 D) $71,000

A) $50,000

54) Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities. What is Rosa's basis for the new equipment? A) $60,000 B) $80,000 C) $100,000 D) $120,000

A) $60,000

Arun paid the following taxes this year: Real estate taxes on rental property he owns $4,000 Real estate taxes on his own residence 3,600 Federal income taxes 8,000 State income taxes 3,400 Local city income taxes 500 What amount can Arun deduct as an itemized deduction on his tax return? A) $7,500 B) $19,500 C) $15,500 D) $15,000

A) $7,500

During the year Jason and Kristi, cash-basis taxpayers, paid the following taxes: State gift tax $1,000 Property tax on home in the United States 4,100 State income tax (withholdings) 3,000 Estimated federal income tax 4,500 Estimated state income tax (paid by check) 800 Special assessment by city for sidewalks and street lighting on their street 2,000 What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year? A) $7,900 B) $8,900 C) $10,900 D) $15,400

A) $7,900

Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is A) $850. B) $1,100. C) $2,950. D) $3,200.

A) $850. Only the investment interest expense, to the extent of net investment income of $850 is deductible.

Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is A) $850. B) $1,100. C) $2,950. D) $3,200.

A) $850. Explanation: Only the investment interest expense, to the extent of net investment income of $850 is deductible.

75) A flood damaged an auto owned by Mr. and Mrs. South on June 15 of this year. The car was only used for personal purposes. Fair market value before the flood $18,500 Fair market value after the flood 2,000 Cost basis 20,000 Insurance proceeds 13,000 Adjusted gross income for this year 25,000 Business use of auto -0- Based on these facts, what is the amount of the South's casualty loss deduction after limitations for this year? A) $900 B) $1,000 C) $4,400 D) $4,500

A) $900

59) All of the following are true except: A) A nonsimultaneous exchange may never qualify as a like-kind exchange. B) Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange. C) A loss may be recognized on non-like-kind property (boot) if the taxpayer transfers the boot in an otherwise like-kind exchange. D) The holding period of like-kind property received includes the holding period of the property exchanged.

A) A nonsimultaneous exchange may never qualify as a like-kind exchange.

85) Under what circumstances can a taxpayer obtain a partial exclusion if a home is sold before the use and ownership tests are satisfied? A) change in employment that meets the requirement for a moving expense deduction B) increased traffic due to widening of a road C) birth of one child D) divorce

A) change in employment that meets the requirement for a moving expense deduction

66) Which of the following statements is false regarding involuntary conversions? A) A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. B) A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. C) If deferral of gain is elected, the holding period of the converted property carries over to the replacement property. D) Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.

A) A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.

66) Which of the following is valid reason for making a 754 election? A) An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets. B) Partners are able to increase their basis in the partnership interest upon the sale of a partnership interest. C) Partnerships can increase, but not decrease, their basis in partnership assets. D) A partnership can reduce its basis in assets upon cash distributions to partners.

A) An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets.

60) Cassie owns a Rembrandt painting she acquired on June 1, 2008 as an investment. She exchanges the painting on September 5, 2014, for a Picasso sculpture and marketable securities to be held as an investment. On what date does the sculpture's holding period begin? A) June 1, 2008 B) June 2, 2008 C) September 5, 2014 D) September 6, 2014

A) June 1, 2008

47) Identify which of the following statements is false. A) On June 30 of the current year, James Roe sells his interest in the Roe & Doe Partnership for $30,000. Roe's adjusted basis in Roe & Doe at June 30 is $7,500 before apportionment of any partnership income for the current year. The Roe & Doe Partnership uses the calendar year as its tax year and has no liabilities on June 30. Roe's distributive share of partnership income up to June 30 is $22,500. Roe acquired his interest in the partnership five years ago. Roe will have a long-term capital gain on the sale of his interest of $22,500. B) Section 751 assets include all inventory and all unrealized receivables in a sale or exchange situation. C) When a partnership interest is sold, the buyer and seller can allocate the sale price among the Sec. 751 assets and non-Sec. 751 assets in any reasonable manner. D) Statements B and C are true.

A) On June 30 of the current year, James Roe sells his interest in the Roe & Doe Partnership for $30,000. Roe's adjusted basis in Roe & Doe at June 30 is $7,500 before apportionment of any partnership income for the current year. The Roe & Doe Partnership uses the calendar year as its tax year and has no liabilities on June 30. Roe's distributive share of partnership income up to June 30 is $22,500. Roe acquired his interest in the partnership five years ago. Roe will have a long-term capital gain on the sale of his interest of $22,500.

28) Identify which of the following statements is true. A) The basis for property distributed by a partnership cannot be increased above the carryover basis amount when it is received by a partner in a nonliquidating distribution. B) A partner's partnership capital account balance cannot be less than zero. C) The length of time a partner owns a partnership interest is relevant when determining the holding period for distributed property. D) All of the above are false.

A) The basis for property distributed by a partnership cannot be increased above the carryover basis amount when it is received by a partner in a nonliquidating distribution.

84) Which of the following statements is false with regard to the ownership and use tests under Sec. 121? A) The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply. B) If a principal residence is sold before satisfying the ownership and use tests, part of the gain may be excluded if the sale is due to a change in employment, health, or unforeseen circumstances. C) For purposes of the two-year ownership rule, a taxpayer's period of ownership includes the period during which the taxpayer's deceased spouse owned the residence. D) When a taxpayer receives a residence from a spouse or an ex-spouse incident to a divorce, the taxpayer's period of owning the property includes the time the residence was owned by the spouse or ex-spouse.

A) The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply.

49) Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has A) a $50,000 ordinary loss and $70,000 LTCL. B) a $50,000 STCL and a $70,000 LTCL. C) a $100,000 ordinary loss and a $20,000 LTCL. D) a $100,000 LTCL and a $20,000 ordinary loss.

A) a $50,000 ordinary loss and $70,000 LTCL.

52) If a partnership chooses to form an LLC, under the check-the-box rules, and assuming no elections are made, the entity will be taxed as A) a partnership if it has more than one member. B) an S corporation. C) a C corporation. D) Unable to determine from the facts presented.

A) a partnership if it has more than one member.

46) Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

A) an ordinary loss.

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

A) an ordinary loss. Although property held as an investment is a capital asset, the $32,500 loss is ordinary since a casualty is not a sale or exchange.

31) For purposes of Sec. 751, inventory includes all of the following except A) capital assets or 1231 property. B) items held for sale in the ordinary course of business. C) accounts receivable. D) All of the above are inventory per Sec. 751.

A) capital assets or 1231 property.

42) All of the following losses are deductible except A) decline in value of securities. B) total worthlessness of securities. C) sale or exchange of business property. D) destruction of personal use property by fire, storm, or casualty.

A) decline in value of securities.

All of the following losses are deductible except A) decline in value of securities. B) total worthlessness of securities. C) sale or exchange of business property. D) destruction of personal use property by fire, storm, or casualty.

A) decline in value of securities. Securities must be sold or determined to be worthless in order for the loss to be realized and then recognized.

A review of the 2018 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2018 tax status: Adjusted gross income $40,000 Medical expenses (before percentage limit) 5,000 Itemized deductions other than medical 10,200 2018 potential standard deduction 12,000 In 2019, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory must A) include $200 in gross income for 2019. B) include $1,200 in gross income for 2018. C) reduce 2018's medical expenses by $1,200. D) amend the 2018 return.

A) include $200 in gross income for 2019.

33) The Internal Revenue Code includes which of the following assets in the definition of Sec. 751 properties? A) inventory, which is substantially appreciated B) cash C) capital assets D) Sec. 1231 assets

A) inventory, which is substantially appreciated

54) If a partner dies, his or her tax year closes A) on the date of death. B) on the day after death. C) on the day before death. D) on some other date.

A) on the date of death.

When both borrowed and owned funds are mingled in the same account, for purposes of categorizing interest expense, a repayment of the debt is allocated first to A) personal expenditures. B) trade or business expenditures. C) investment expenditures. D) passive activity expenditures in real estate.

A) personal expenditures. Explanation: When the taxpayer repays the debt, the tax law requires that the allocation of the repayment to the expenditures made with the borrowed funds occur in the following order: (1) personal expenditures, (2) investment expenditures and passive activity expenditures other than rental real estate, (3) passive activity expenditures in rental real estate, and (4) trade or business expenditures.

25) The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to A) the partner's predistribution basis in his partnership interest. B) the FMV of the property distributed. C) the partnership's bases in the distributed property. D) the predistribution FMV of the partner's partnership interest.

A) the partner's predistribution basis in his partnership interest.

All of the following are deductible as medical expenses except A) vitamins and health foods that improve a taxpayer's general health. B) payments for a vision exam and contact lenses. C) payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem. D) cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.

A) vitamins and health foods that improve a taxpayer's general health

During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From activity A, he earns $20,000 of income, and from activity B, he incurs a $30,000 loss. As a result, Mark reports...?

AGI of $90,000 with a $10,000 passive loss carryover.

An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income?

All of the above. (Below) 1) capital losses 2) non business deductions in excess of non business income 3) personal & dependency exemptions

An installment sale is best defined as

any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs.

38) The XYZ Partnership owns the following assets on December 31: Basis FMV Cash $20,000 $20,000 Unrealized receivables 0 15,000 Inventory $30,000 35,000 Land (Sec. 1231 asset) 40,000 70,000 By how much must XYZ reduce its unrealized receivables to avoid meeting the substantially appreciated inventory test? A) $10,000 B) $14,000 C) $15,000 D) No amount of reduction of unrealized receivables will affect meeting the substantially appreciated

B) $14,000

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

An operating loss from a sole proprietorship

Sarah had a $30,000 loss on Sec 1244 Stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognize:

An ordinary loss of $30,000 and a capital loss of $8,000.

Juan currently has a casualty loss of $32,000 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss is:

An ordinary loss.

56) Rolf exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Rolf's adjusted basis in the building and stock is $130,000 and $11,000, respectively. How much gain will Rolf recognize on the exchange? A) $0 B) $14,000 C) $20,000 D) $34,000

B) $14,000

51) Bobbie exchanges business equipment (adjusted basis $160,000) for other business equipment that has a FMV of $140,000. Bobbie also receives $30,000 cash. Bobbie's basis in the new equipment is A) $130,000. B) $140,000. C) $160,000. D) $170,000.

B) $140,000.

15) Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. How much gain should Mirabelle and Sergio recognize? A) Mirabelle - $0 Sergio - $0 B) Mirabelle $4,000 Sergio $0 C) Mirabelle $4,000 Sergio $3,000 D) Mirabelle $5,500 Sergio $1,500

B) Mirabelle $4,000 Sergio $0

44) Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized gain? A) $0 B) $10,000 C) $20,000 D) $30,000

B) $10,000

71) The STU Partnership, an electing Large Partnership, has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000, Sec. 1231 gain $60,000, ordinary income $20,000, charitable contributions $15,000, and tax-exempt income $2,000. How much will be reported as long-term capital gains to its partners? A) $0 B) $10,000 C) $50,000 D) $60,000

B) $10,000

Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures: Wheelchair $ 1,200 Whirlpool bath 2,000 Maintenance of the whirlpool 250 Increased utility bills associated with whirlpool 450 Entrance ramp, various home modifications 7,200 A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will be A) $6,000. B) $10,100. C) $7,000. D) $7,700.

B) $10,100.

During February and March, Jade spends approximately 90 hours of her time volunteering at the Salvation Army (a public charity) preparing tax returns for low-income families. As a CPA, Jade normally bills her clients at $130 per hour for her time. Jade also drives her car a total of 800 miles in performing her voluntary work. Jade's deductible contribution is A) $0. B) $112. C) $11,700. D) $11,812.

B) $112.

70) The building used in Manuel's business was condemned by the city of Mobile. Manuel received a condemnation award of $220,000. He paid $800 in lawyer's fees and $600 for an appraisal of the property. Manuel's adjusted basis in the building was $120,000. Manuel reinvests in similar property costing $200,000, and Manuel makes the proper election regarding the property. Manuel's basis in the new building is A) $102,400. B) $121,400. C) $120,000. D) $200,000.

B) $121,400.

68) The building used in Terry's business was condemned by the city of St. Louis. Terry received a condemnation award of $125,000. He paid $1,200 in lawyer's fees and $800 for an appraisal of the property. Terry's adjusted basis in the building was $60,000. Terry reinvests in similar property costing $110,000, and Terry makes the proper election regarding the property. What is the amount of Terry's recognized gain on the condemnation? A) $15,000 B) $13,000 C) $50,000 D) $63,000

B) $13,000

Mitzi's 2018 medical expenses include the following: Medical premiums $10,850 Doctors fees 2,000 Hospital fees 3,350 Prescription drugs 600 Eyeglasses 350 General purpose vitamins 100 Mitzi's AGI for the year is $33,000. She is single and age 49. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expense deduction is A) $12,900. B) $13,850. C) $14,675. D) $16,325.

B) $13,850. Explanation: [$10,850 + $2,000 + $3,350 + $600 + $350] = $17,150 total expenses - ($33,000 × 0..10) = $13,850. The general purpose vitamins do not qualify.

71) Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. Its value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations is A) $135,000. B) $144,900. C) $164,900. D) $165,000.

B) $144,900.

Hugh contributes a painting to a local museum for display. His AGI is $35,000. Hugh paid $16,000 for the painting in 2000, but its market value at the date of the contribution is $22,000. If Hugh makes the election to maximize the current year deduction, his deductible contribution for this year will be A) $10,500. B) $16,000. C) $17,500. D) $22,000.

B) $16,000. To avoid the 30% of AGI ceiling ($10,500), he can elect to use the adjusted basis rather than FMV and instead apply the 50% of AGI ceiling.

70) The STU Partnership, an electing Large Partnership, has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000, Sec. 1231 gain $60,000, ordinary income $20,000, charitable contributions $15,000, and tax-exempt income $2,000. How much will be reported as ordinary income to its partners? A) $5,000 B) $17,000 C) $20,000 D) $22,000

B) $17,000

Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carol's deductible contribution this year is A) $7,000. B) $18,000. C) $22,000. D) $25,000.

B) $18,000. The potential deduction is $25,000, the FMV as of the contribution, but it is limited by the percentage of AGI ceiling.

55) Lewis died during the current year. Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000. Suspended losses of $15,000 were attributable to the property. How much of the suspended loss is deductible on Lewis's final income tax return? A) $0 B) $2,000 C) $13,000 D) $15,000

B) $2,000

Lewis died during the current year. Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000. Suspended losses of $15,000 were attributable to the property. How much of the suspended loss is deductible on Lewis's final income tax return? A) $0 B) $2,000 C) $13,000 D) $15,000

B) $2,000 ($61,000 - $48,000) is increase in basis; $13,000 of suspended losses is lost. $15,000 - $13,000 = $2,000.

43) Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000. He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000. Derrick will recognize A) no gain or loss. B) $2,000 capital loss. C) $2,000 ordinary loss. D) $10,000 capital loss and $20,000 ordinary loss.

B) $2,000 capital loss.

Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $68,000? A) $500 for AGI B) $2,000 for AGI C) $2,500 for AGI D) $3,000 for AGI

B) $2,000 for AGI Explanation: The limit for student loan interest deduction is $2,500, and it is a deduction for AGI. The limit is phased-out ratably between $65,000 and $80,000 of AGI for a single person. [($68,000 - $65,000)/($80,000 - $65,000)] = 20% phase-out. $2,500 limit × (100% - 20%)= $2,000 maximum due to excess AGI.

62) Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year? A) $10,000 B) $20,000 C) $25,000 D) $30,000

B) $20,000

76) Bob and Elizabeth, both 55 years old and married, sell their personal residence to Wolfgang. Wolfgang pays $660,000 and assumes their $90,000 mortgage. To make the sale they pay $20,000 in commissions and $10,000 in legal costs. They have owned and lived in the house for seven years and their tax basis is $200,000. What is the amount of gain recognized on the sale? A) $0 B) $20,000 C) $50,000 D) $520,000

B) $20,000

42) Ted King's basis for his interest in the Troy Partnership is $24,000. In complete liquidation of his interest, King receives cash of $4,000 and real property (not a Sec. 751 asset) having an FMV of $40,000. Troy's adjusted basis for this realty is $15,000. Section 736 does not apply. King's basis for this realty is A) $15,000. B) $20,000. C) $36,000. D) $40,000.

B) $20,000.

65) Ron's building, which was used in his business, was destroyed in a fire. Ron's adjusted basis in the building was $210,000, and its FMV was $330,000. Ron filed an insurance claim and was reimbursed $300,000. In that same year, Ron invested $240,000 of the insurance proceeds in another business building. Ron's basis in the new building is A) $180,000. B) $210,000. C) $240,000. D) $330,000.

B) $210,000.

78) Pierce, a single person age 60, sold his home this year. He had lived in the house for 10 years. He signed a contract on March 4 to sell his home. Sales price $600,000 Selling expenses 15,000 Replaced and paid for a broken window on March 2 800 Basis of old home before repairs and improvements 310,000 Based on these facts, what is the amount of his recognized gain? A) $0 B) $25,000 C) $40,000 D) $275,000

B) $25,000

81) In October 2012, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2013. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report A) $0 income in both years. B) $30,000 income in 2012 and a bad debt deduction of $30,000 in 2013. C) $30,000 income in 2012 and a STCL of $30,000 in 2013 limited to $3,000 after netting. D) $30,000 income in 2012 and then must amend last year's return to show $0 income when advised of the bankruptcy.

B) $30,000 income in 2012 and a bad debt deduction of $30,000 in 2013.

In October 2014, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2015. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report A) $0 income in both years. B) $30,000 income in 2014 and a bad debt deduction of $30,000 in 2015. C) $30,000 income in 2014 and a STCL of $30,000 in 2015 limited to $3,000 after netting. D) $30,000 income in 2014 and then must amend last year's return to show $0 income when advised of the bankruptcy.

B) $30,000 income in 2014 and a bad debt deduction of $30,000 in 2015. Since Jonathon Remodeling Co. is an accrual-basis taxpayer, the $30,000 is recognized in income when billed in 2014. The debt is a business bad debt since it is related to a trade or business. The nonpayment in 2015 results in a business bad debt which is an ordinary loss deductible in 2015.

70) Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss? A) $293,900 B) $300,000 C) $793,900 D) $800,000

B) $300,000

Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss? A) $293,900 B) $300,000 C) $793,900 D) $800,000

B) $300,000 For business property partially destroyed, the amount of the loss is the lower of the decline in FMV or adjusted basis. The decline in FMV is $800,000. Leonard received insurance proceeds of $500,000, resulting in a deductible casualty loss of $300,000.

61) Juan's business delivery truck is destroyed in an accident. He paid $40,000 for the truck, and $30,000 of depreciation has been deducted during its period of use. The insurance company pays Juan $32,000 due to the accident. What is the minimum amount that Juan must spend on a new truck to avoid any gain recognition? A) $40,000 B) $32,000 C) $10,000 D) $22,000

B) $32,000

21) Danielle has a basis in her partnership interest of $12,000. She receives a current distribution of $8,000 cash and equipment with a basis of $7,000. There is no potential gain under Sec. 737. What is her basis in the equipment? A) $0 B) $4,000 C) $7,000 D) none of the above

B) $4,000

Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)? A) $0 B) $4,000 C) $9,000 D) $13,000

B) $4,000 Explanation: $13,000 - ($181,000 - $172,000) = $4,000.

16) Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. What is the impact of the distribution on Mirabelle's partnership basis? A) 0 B) $4,000 increase C) $4,000 decrease D) $7,000 increase

B) $4,000 increase

45) Ten years ago, Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash. This year, Latesha's entire interest in the partnership is liquidated when her basis is $24,000. Dana's assets consist of the following: cash, $20,000; inventory with a basis of $46,000 and an FMV of $40,000. Dana has no liabilities. Latesha receives the cash of $20,000 in liquidation of her entire interest. What is Latesha's recognized loss on the liquidation of her interest in Dana? A) $0 B) $4,000 long-term capital loss C) $4,000 short-term capital loss and $2,000 ordinary loss D) $4,000 long-term capital loss and $2,000 ordinary loss

B) $4,000 long-term capital loss

Matt paid the following taxes this year: Real estate taxes on his own residence $3,600 State income taxes 900 Local city income taxes 300 State sales taxes 1,400 What is the maximum amount Matt can deduct as an itemized deduction on his tax return? A) $6,200 B) $5,000 C) $5,300 D) $4,800

B) $5,000

32) The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000. The partnership has taken an $8,000 depreciation on the machine. The unrealized receivable related to the machine is A) $0. B) $5,000. C) $8,000. D) $20,000.

B) $5,000.

23) Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money, plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375, and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000. What is the basis in Tenika's hands of the distributed property? A) $10,000 B) $6,000 C) $9,000 D) $10,125

B) $6,000

20) John has a basis in his partnership interest of $30,000. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $11,000, basis $10,000), inventory (FMV $8,000, basis $4,000), and investment land (FMV $7,000, basis $6,000). The partners' relative interest in the Sec. 751 assets do not change as a result of the current distribution. His basis in the land is A) $5,000. B) $6,000. C) $7,000. D) $10,000.

B) $6,000.

26) Carlos has a basis in his partnership interest of $30,000. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $11,000, basis $10,000), inventory (FMV $8,000, basis $4,000), land held as an investment (FMV $7,000, basis, $6,000), and building (FMV $21,000, basis $9,000). The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Carlos's basis in the building is A) $2,500. B) $6,000. C) $7,500. D) $9,000.

B) $6,000.

Takesha paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense, assuming Takesha does not make any elections? A) $5,400 B) $6,400 C) $13,100 D) $13,000

B) $6,400 Explanation: Her investment income ceiling will only include the interest income and the short-term capital gain so the deduction for investment interest expense is limited to $6,400. The dividend income and long-term capital gain will not be included in her investment income ceiling without a special election.

69) Lena owns a restaurant which was damaged by a tornado. The following assets were partially destroyed: Building: Basis - $ 150,000 Reduction in FMV - $200,000 Insurance Payment - $100,000 Equipment: Basis - $ 30,000 Reduction in FMV - $20,000 Insurance Payment - $10,000 Lena has AGI of $50,000. What is the amount of Lena's deductible casualty loss? A) $54,900 B) $60,000 C) $70,000 D) $180,000

B) $60,000

Lena owns a restaurant which was damaged by a tornado. The following assets were partially destroyed: Basis Reduction in FMV Insurance Payment Building $150,000 $200,000 $100,000 Equipment $30,000 $20,000 $10,000 Lena has AGI of $50,000. What is the amount of Lena's deductible casualty loss? A) $54,900 B) $60,000 C) $70,000 D) $180,000

B) $60,000 (150,000 - 100,000) + (20,000 - 10,000) = $60,000. The amount of the loss is the lower of the property's adjusted basis or the decline in FMV, reduced by the insurance proceeds. Since the property was used in Lena's business, there is no 10% of AGI and $100 floor.

Phuong has the following sources of investment income: Money market account interest $2,000 Interest on State of New York bond 1,000 Dividends from domestic stocks 3,000 Long-term capital gain 4,000 Short-term capital gain 5,000 Barring any special elections, how much of the investment income will be included in calculating net investment income for purposes of the investment interest expense limitation? A) $2,000 B) $7,000 C) $5,000 D) $15,000

B) $7,000 Explanation: Only the money market account interest and the short-term capital gain will be included.

Claudia refinances her home mortgage on June 1 of the current year. She obtains a 30-year mortgage at 5%. As part of the refinancing, she pays points of $3,600 (a customary practice in her location). What amount, if any, of the points are deductible? A) $0 B) $70 C) $120 D) $3,600

B) $70

Doug pays a county personal property tax on his automobile of $1,500. The $1,500 includes $800 based on the weight of the car and $700 based on the value of the car. How much of the tax can Doug deduct on his tax return? A) $0 B) $700 C) $800 D) $1,500

B) $700 Personal property taxes are deductible to the extent that they are ad valorem or based on value.

Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000 in 2018. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The Gere's could claim Mrs. Williams as their dependent, but she has too much gross income. Insulin for Mr. Gere $1,000 Health insurance premiums for Mr. and Mrs. Gere $3,100 Hospital bill for Mrs. Williams $5,200 Doctor bill for Mrs. Gere $4,000 Mr. and Mrs. Gere (both age 40) received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses? A) $5,200 B) $8,300 C) $9,550 D) $13,300

B) $8,300

Caleb's 2018 medical expenses before reimbursement for the year include the following: Medical premiums $11,000 Doctors, hospitals 3,500 Prescriptions 600 Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will be A) $10,350. B) $9,100. C) $14,100. D) $10,100.

B) $9,100. Explanation: ($11,000 + $3,500 + $600 - $1,000) - $5,000 ($50,000 × 0.10) = $9,100

79) Constance, who is single, is in an automobile accident in 2012, and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Constance does not expect to recover any of the loss from her insurance company. Constance's 2012 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2013, Constance's insurance company reimburses her $2,800. Constance's 2013 AGI is $28,000. As a result, Constance must A) amend the 2012 return to show the $200 loss. B) do nothing and simply keep the $2,800. C) amend the 2012 return to show $0 loss and file her 2013 return to show $200 loss. D) do nothing to the 2012 return but report $2,800 of income on her 2013 return.

B) do nothing and simply keep the $2,800.

Riva borrows $10,000 that she intends to use for purchasing supplies for her business. She temporarily deposits the funds in her personal checking account. Prior to the deposit, the checking account held $40,000 of personal funds. Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account. Later in the month, the business supplies bill arrives and Riva writes a check for $10,000 from the personal account. With respect to the interest expense on the $10,000 loan, A) it will all be treated as trade or business expense. B) 60 percent will be treated as personal interest expense and 40 percent as trade or business expense. C) it will all be treated as personal expense. D) 20 percent will be treated as trade or business expense.

B) 60 percent will be treated as personal interest expense and 40 percent as trade or business expense Explanation: If borrowed and personal funds are mingled in the same account, expenditures from that account are treated as coming first from borrowed funds. Therefore, the $6,000 vacation payment is considered as coming from borrowed funds, and only $4,000 of the business supply bill is treated as coming from borrowed funds. Accordingly, the interest expense will be allocated 60% to personal use and 40% to business use.

65) Which of the following statements is correct? A) A partnership may make an annual election to adjust the basis of its assets upon the sale of a partnership interest. B) The Sec. 754 election applies to both sales and distributions. C) The Sec. 754 election applies to only current and nonliquidating distributions. D) A partnership can revoke a Sec. 754 election every 5 years.

B) The Sec. 754 election applies to both sales and distributions.

41) Identify which of the following statements is true. A) When unrealized receivables are distributed in a liquidating distribution, the basis of the receivables will be increased. B) The bases of unrealized receivables and inventory distributed by a partnership in liquidation of a partnership interest are never increased above their bases in the hands of the partnership. C) The basis of the partnership interest is apportioned between all of the assets received in a liquidating distribution based on the relative FMVs of the assets. D) All of the above are false.

B) The bases of unrealized receivables and inventory distributed by a partnership in liquidation of a partnership interest are never increased above their bases in the hands of the partnership.

81) All of the following statements are true with regard to personal residences except: A) Temporarily renting property that was formerly the taxpayer's principal residence does not automatically preclude the use of Sec. 121. B) To qualify for favorable tax treatment under Sec. 121, the residence must be either the taxpayer's principal residence or a secondary residence. C) In the case of married taxpayers, an individual may claim the exclusion even if the individual's spouse used the exclusion within the past two years. D) Houseboats, house trailers, and condominium apartments may qualify as a principal residence.

B) To qualify for favorable tax treatment under Sec. 121, the residence must be either the taxpayer's principal residence or a secondary residence.

59) Identify which of the following statements is false. A) A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive-month period will terminate the partnership and end all of the partnership's elections. B) When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12-month period, each sale is counted separately. C) A partner's individual income tax return, under some circumstances, may include the results of partnership operations for a period exceeding 12-months. D) When several different transfers are made during a 12-month period, the partnership termination occurs on the date of the transfer that first crosses the 50% threshold.

B) When using the 50% rule to terminate a partnership, if an interest is sold more than once during the 12-month period, each sale is counted separately.

45) Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

B) a capital loss.

Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss.

B) a capital loss. Real estate held for investment is considered a capital asset, therefore the loss on the sale or exchange is a capital loss.

Lucia owns 100 shares of Cronco Inc. which she purchased on December 1 of last year for $10,000. The stock is not Sec. 1244 stock. On July 1 of the current year, Lucia receives notice from the bankruptcy court that Conco Inc. has been liquidated, and there are no assets remaining for shareholders. As a result, Lucia will have A) a short-term capital loss of $10,000. B) a long-term capital loss of $10,000. C) an ordinary loss of $10,000. D) no loss allowed.

B) a long-term capital loss of $10,000. Worthlessness of securities is deemed to occur at the end of the year so the loss will be treated as long-term capital loss.

85) Which of the following expenses or losses could create a net operating loss for an individual taxpayer? A) large losses on sales of investment assets B) an operating loss from a sole proprietorship C) large charitable contributions D) all of the above

B) an operating loss from a sole proprietorship

Which of the following expenses or losses could create a net operating loss for an individual taxpayer? A) large losses on sales of investment assets B) an operating loss from a sole proprietorship C) large charitable contributions D) all of the above

B) an operating loss from a sole proprietorship Generally only business losses will allow the creation of an NOL.

61) Tom and Shawn own all of the outstanding stock of Brady Corporation. This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports A) net income of $42,000. B) interest income of $22,000 and a passive loss carryover of $8,000. C) business income of $20,000 and a passive loss carryover of $6,000. D) business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

B) interest income of $22,000 and a passive loss carryover of $8,000.

Tom and Shawn own all of the outstanding stock of Brady Corporation (a retail store operated as a C corporation). This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports A) net income of $42,000. B) interest income of $22,000 and a passive loss carryover of $8,000. C) business income of $20,000 and a passive loss carryover of $6,000. D) business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

B) interest income of $22,000 and a passive loss carryover of $8,000. Because Brady is a closely-held C corporation, the $20,000 of active business income may be offset by $20,000 of the passive loss. The remaining $8,000 loss may be carried over. The investment interest of $22,000 is currently taxable.

51) During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark A) reports AGI of $80,000. B) reports AGI of $90,000 with a $10,000 loss carryover. C) reports AGI of $90,000 with a $30,000 loss carryover. D) reports AGI of $110,000 with a $30,000 loss carryover.

B) reports AGI of $90,000 with a $10,000 loss carryover.

During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark A) reports AGI of $80,000. B) reports AGI of $90,000 with a $10,000 passive loss carryover. C) reports AGI of $90,000 with a $30,000 passive loss carryover. D) reports AGI of $110,000 with a $30,000 passive loss carryover.

B) reports AGI of $90,000 with a $10,000 passive loss carryover. B) Mark offsets $20,000 of B's loss against A's income and carries forward the $10,000 loss. His AGI is $90,000 from the active business income.

Christa has made a $25,000 pledge to the American Red Cross (a public charity). Christa expects AGI of $200,000 this year. Which of the following assets should she donate? A) $25,000 of cash B) stock purchased three years ago for $18,000 with a current FMV of $25,000 C) stock purchased six months ago for $28,000 with a current FMV of $25,000 D) Christa should be indifferent among the three choices.

B) stock purchased three years ago for $18,000 with a current FMV of $25,000

56) Marc is a calendar-year taxpayer who owns a 30% capital and profits interest in the MN Partnership. Nancy sells the remaining 70% capital and profits interest to Henry on October 31. The partnership year-end is March 31 as permitted by the IRS for business purpose reasons. The MN Partnership A) terminates on March 31. B) terminates on October 31. C) terminates on December 31. D) does not terminate.

B) terminates on October 31.

63) Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000. The partnership has assets with a basis of $1,600,000. What is the amount of the basis adjustment, if the partnership has a 754 election in place? A) $0 B) $150,000 increase in Han's basis in his partnership interest C) $200,000 increase in Han's share of the basis in partnership assets D) $1,000,000 increase in partnership assets

C) $200,000 increase in Han's share of the basis in partnership assets

60) An individual is considered to materially participate in an activity if any of the following tests are met with the exception of A) the individual participates in the activity for more than 500 hours during the year. B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. C) the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. D) the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year.

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of A) the individual participates in the activity for more than 500 hours during the year. B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. C) the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. D) the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. The individual participates in the activity for more than 100 hours (not 75) during the year, and that participation is more than any other individual's participation for the year.

72) Each of the following is true of deferral of gain attributable to the involuntary conversion of personal property with the exception of A) gain deferral is elective, except for direct conversions. B) the replacement property may be acquired by gift, inheritance, or purchase. C) qualifying replacement property must be acquired within a specified time period. D) replacement property must be similar or related in service or use to the converted property.

B) the replacement property may be acquired by gift, inheritance, or purchase.

55) A partnership terminates for tax purposes A) only when it terminates under local partnership law. B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months. C) when the sale of partnership assets is made only to an outsider(s) and not to an existing partner(s). D) when a partnership tax return (Form 1065) ceases to be filed by the partnership.

B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months.

61) The LM Partnership terminates for tax purposes on July 15 when Latasha sells her 60% capital and profits interest to Zoe for $100,000. The partnership has no liabilities, and its assets at the time of termination are as follows: Assets Basis FMV Cash $ 20,000 $ 20,000 Receivables 10,000 12,000 Inventory 22,000 28,000 Building 80,000 85,000 Land 30,000 21,667 Total $162,000 $166,667 Marika, a 40% partner in the LM Partnership, has a $64,800 basis in her partnership interest (outside basis) at the time of the termination. She has held her LM Partnership interest for three years at the time of the termination. The bases of Marika and Zoe in the new LM Partnership is: A) Marika Zoe $64,800 $ 97,200 B) Marika Zoe $66,667 $100,000 C) Marika Zoe $64,800 $100,000 D) Marika Zoe $66,667 $ 97,200

C) Marika Zoe $64,800 $100,000

44) Before receiving a liquidating distribution, Kathy's basis in her interest in the KLM Partnership is $30,000. The distribution consists of $5,000 in money, inventory having a $1,000 basis to the partnership and a $2,000 FMV, and two parcels of undeveloped land (not held as inventory) having basis of $3,000 and $9,000 to the partnership with FMVs of $5,000 and $12,000, respectively. What is Kathy's basis in each parcel of land? A) Parcel One - $5,000 Parcel Two - $12,000 B) Parcel One - $3,000 Parcel Two - $9,000 C) Parcel One - $7,059 Parcel Two - $16,941 D) Parcel One - $6,000 Parcel Two - $18,000

C) Parcel One - $7,059 Parcel Two - $16,941

In 2018, Carlos filed his 2017 state income tax return and paid taxes of $800. Also in 2018, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2019, Carlos filed his 2018 state income tax return and paid an additional $600 of state income tax due for 2018. How much state income tax can Carlos deduct on his 2018 federal income tax return for state income tax? A) $1,350 B) $1,400 C) $1,550 D) $2,150

C) $1,550 Explanation: Carlos will deduct all of the state taxes paid in 2018 (through withholding and payments made with the state return) on his federal income tax return. filed for 2018. $800 + $750 = $1,550.

Patrick's records for the current year contain the following information: -He donated stock having a fair market value of $5,000 to a qualified charitable organization. Patrick acquired the stock two years ago at a cost of $3,000. -He donated 20 hours of his time as a professional plumber to a qualified charitable organization. He bills his time to his customers at $50 per hour. -He also donated $7,500 cash to a qualified charitable organization. Patrick's adjusted gross income for the year is $100,000. What is the amount of his charitable contribution deduction? A) $10,500 B) $11,500 C) $12,500 D) $13,500

C) $12,500 FMV Stock $5,000 Value of professional services 0 Cash 7,500 Total $12,500

49) Kai owns an apartment building held for investment purposes. The apartment building is worth $500,000, although it is subject to a mortgage of $100,000. Kai's basis in the apartment building is $380,000. Kai exchanges the apartment building for an office building. The office building has an FMV of $350,000. Kai receives $50,000 cash in addition to receiving the office building, and the other party assumes the apartment building mortgage. What is Kai's recognized gain on this exchange? A) $0 B) $50,000 C) $120,000 D) $150,000

C) $120,000

67) Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount is A) $0. B) $10,000. C) $120,000. D) $140,000.

C) $120,000.

Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount is A) $0. B) $10,000. C) $120,000. D) $140,000.

C) $120,000. 260,000 (FMV Before casualty)-140,000 (FMV after casualty)=120,000

50) In a nontaxable exchange, Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000, for a new truck having a FMV of $15,000. In addition, Henri paid cash of $5,000. What is Henri's basis in the new truck? A) $5,000 B) $8,500 C) $13,500 D) $15,000

C) $13,500

48) Kenya sells her 20% partnership interest having a $28,000 basis to Ebony for $40,000 cash. At the time of the sale, the partnership has no liabilities and its assets are as follows: Basis FMV Cash $20,000 $20,000 Unrealized receivables 0 40,000 Inventory 10,000 40,000 Land (Sec. 1231) 110,000 100,000 Kenya and Ebony have no agreement concerning the allocation of the sales price. Ordinary income recognized by Kenya as a result of the sale is A) $6,000. B) $12,000. C) $14,000. D) $16,000.

C) $14,000.

53) Laurie owns land held for investment. The land's FMV is $150,000. Laurie's basis in the land is $130,000. Laurie exchanges the land, plus $20,000 of cash, for a warehouse owned by Trey. The warehouse is worth $210,000, but is subject to a mortgage of $40,000 which Laurie will assume. Trey's basis in the warehouse is $120,000. Laurie's basis in the warehouse received will be A) $150,000. B) $170,000. C) $190,000. D) $210,000.

C) $190,000.

In 2018, Sela traveled from her home in Flagstaff to San Francisco to seek specialized medical care. Because she was unable to travel alone, her father accompanied her. Total expenses included: Hotel room en route ($150 × 2 rooms × 3 nights) $900 Mileage, 1,000 miles Doctors bills in San Francisco 1,600 The total medical expenses deductible before the 7.5% limitation are A) $1,600. B) $2,080. C) $2,500. D) $2,680.

C) $2,500. Explanation: $300 [($50 maximum × 2) for 3 nights ] + $180 mileage (1,000 × 18 cents per mile) + $1,600 doctors = $2,080.

Van pays the following medical expenses this year: • $1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse. • $300 for Van's eyeglasses. • $900 for Van's dental work. • $3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes. How much can Van include on his return as qualified medical expenses before limitation? A) $1,200 B) $2,400 C) $2,700 D) $6,500

C) $2,700

62) Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. If the proper election is made, Stephanie will recognize gain of A) $ 0. B) $15,000. C) $20,000. D) $25,000.

C) $20,000.

Clayton contributes land to the American Red Cross for use as a future site for a new building. His AGI is $50,000. Clayton paid $20,000 for the land eight months ago but its market value at the date of contribution is $25,000. With no special elections, Clayton's deductible contribution this year is A) $7,000. B) $18,000. C) $20,000. D) $25,000.

C) $20,000. Since the property was held by Clayton for less than one year, the contribution amount is the adjusted basis of $20,000. The $20,000 does not exceed the 50% of AGI ceiling.

64) Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss is A) $0. B) $13,500. C) $25,000. D) $27,000.

C) $25,000.

Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss is A) $0. B) $13,500. C) $25,000. D) $27,000.

C) $25,000. Since her AGI is less than $100,000, she is allowed a $25,000 rental loss. She has a $2,000 suspended loss.

80) William and Kate married in 2014 and purchased a new home together. Each had owned and lived in separate residences for the past 5 years. William's adjusted basis in his old residence was $200,000; Kate's adjusted basis in her old residence was $120,000. In late 2014, William sells his residence for $500,000 while Kate sells her residence for $190,000. What is the total gain to be excluded from these transactions in 2014? A) $0 B) $250,000 C) $320,000 D) $370,000

C) $320,000

58) Jorge owns activity X which produced a $20,000 passive loss last year. Jorge's only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge's wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year? A) $-0- B) $3,000 C) $4,000 D) $18,000

C) $4,000

Jorge owns activity X which produced a $20,000 passive loss last year. Jorge's only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge's wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year? A) $0 B) $3,000 C) $4,000 D) $18,000

C) $4,000 $20,000 carryover from prior year - $16,000 current passive income offset = $4,000 carryover to next year. This year's $14,000 active business loss from Activity X may offset Jorge's wages.

17) Susan contributed land with a basis of $6,000 and an FMV of $10,000 to the SH Partnership two years ago to acquire her partnership interest. This year, the land is distributed to Harry when its FMV is $11,000. No other distributions have been made since Susan became a partner. When the land is distributed, the partnership's basis in the land immediately before distribution is increased by A) $0. B) $1,000. C) $4,000. D) $5,000.

C) $4,000.

42) Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange? A) $0 B) $20,000 C) $40,000 D) $60,000

C) $40,000

48) Glen owns a building that is used in business. The building is worth $200,000, but is subject to a mortgage of $40,000. Glen's basis in the building is $120,000. Glen exchanges the building for investment land worth $150,000 plus $10,000 cash. In addition, the other party assumes the mortgage which will be held for investment. Glen must recognize a gain of A) $0. B) $10,000. C) $50,000. D) $80,000.

C) $50,000.

79) On May 1 of this year, Ingrid sold her personal residence for $250,000. Commissions on the sale were $20,000. Ingrid also incurred $10,000 of costs for painting and repairs, which were all completed and paid for two weeks prior to the sale of her home. Ingrid's basis in her old home was $180,000. Ingrid's realized gain upon the sale of her first home is A) $ 0. B) $40,000. C) $50,000. D) $70,000.

C) $50,000.

43) Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV. What is the amount of gain recognized on the exchange? A) $0 B) $4,000 C) $6,000 D) $10,000

C) $6,000

64) Ron's building, which was used in his business, was destroyed in a fire. Ron's adjusted basis in the building was $210,000, and its FMV was $330,000. Ron filed an insurance claim and was reimbursed $300,000. In that same year, Ron invested $240,000 of the insurance proceeds in another business building. Ron will recognize gain of A) $0. B) $30,000. C) $60,000. D) $90,000.

C) $60,000.

67) The building used in Tim's business was condemned by the city of Lafayette. Tim received a condemnation award of $125,000. He paid $1,200 in lawyer's fees and $800 for an appraisal of the property. Tim's adjusted basis in the building was $60,000. Tim reinvests in similar property costing $110,000, and Tim makes the proper election regarding the property. What is the amount of Tim's realized (not recognized) gain on the condemnation? A) $ 0 B) $50,000 C) $63,000 D) $65,000

C) $63,000

In 2017, Mario earned $9,000 in net investment income and incurred $14,000 of investment interest expense. Mario paid off the loan in early 2018, so he only paid $2,000 of investment interest expense in 2018. He earned $10,000 of net investment income in 2018. How much investment interest expense can Mario deduct in 2018? A) $2,000 B) $10,000 C) $7,000 D) $0

C) $7,000 Explanation: Mario has $7,000 of potentially deductible investment interest expense—the $2,000 paid in 2018 and the $5,000 carryover from 2017. The investment interest expense can be deducted up to a ceiling of net investment income which is $10,000. The entire $7,000 investment interest expense available can be deducted in 2018.

In 2017, Mario earned $9,000 in net investment income and incurred $14,000 of investment interest expense. Mario paid off the loan in early 2018, so he only paid $2,000 of investment interest expense in 2018. He earned $10,000 of net investment income in 2018. How much investment interest expense can Mario deduct in 2018? A) $2,000 B) $10,000 C) $7,000 D) $0

C) $7,000 Explanation: Mario has $7,000 of potentially deductible investment interest expense—the $2,000 paid in 2018 and the $5,000 carryover from 2017. The investment interest expense can be deducted up to a ceiling of net investment income which is $10,000. The entire $7,000 investment interest expense available can be deducted in 2018.

Steve and Marian purchase a new condominium in Manhattan on February 1, 2018 to use as their primary residence. The purchase price of the condominium is $1.5 million. The couple obtained a $1.0 million mortgage from the bank and paid the balance in cash. On their joint tax return the couple will be allowed an itemized deduction for interest expense on a principal balance of up to A) $1.5 million. B) $1.0 million. C) $750,000. D) $500,000.

C) $750,000.

In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year? A) $0 B) $3,000 deductible this year; $11,000 carried forward to next year C) $9,000 deductible this year; $5,000 carried forward to next year D) $14,000 deductible this year; nothing to be carried forward to next year

C) $9,000 deductible this year; $5,000 carried forward to next year

In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year? A) $0 B) $3,000 deductible this year; $11,000 carried forward to next year C) $9,000 deductible this year; $5,000 carried forward to next year D) $14,000 deductible this year; nothing to be carried forward to next year

C) $9,000 deductible this year; $5,000 carried forward to next year Explanation: Investment interest expense is deductible to the extent of net investment income. The remainder is carried over to the next tax year.

56) Mara owns an activity with suspended passive losses from prior years of $13,000. In the current year, Mara becomes a material participant in the activity. This year the activity generates $6,000 of income. The net effect of this activity on Mara's current year AGI is a(n) A) increase of $6,000. B) decrease of $13,000. C) -0-. D) decrease of $7,000.

C) -0-.

Mara owns an activity with suspended passive losses from prior years of $13,000. In the current year, Mara becomes a material participant in the activity. This year the activity generates $6,000 of income. The net effect of this activity on Mara's current year AGI is a(n) A) increase of $6,000. B) decrease of $13,000. C) 0. D) decrease of $7,000.

C) 0. The suspended passive loss will be allowed to offset this year's non-passive income from the activity, but the excess suspended passive loss of $7,000 will carryforward.

55) If there is a like-kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange? A) 6 months B) 1 year C) 2 years D) no waiting period

C) 2 years

87) Sometimes taxpayers should structure a transaction to avoid the application of like-kind provisions. Which of the following conditions is likely to cause a taxpayer to avoid like-kind treatment? A) Expected higher tax rates in the future. B) Less accelerated depreciation provisions expected in the future. C) A decline in the value of the asset being disposed of. D) None of the above.

C) A decline in the value of the asset being disposed of.

69) Identify which of the following statements is true. A) When a partnership is divided into two or more new partnerships, all of the resulting partnerships must be considered new partnerships. B) A partnership is "publicly traded" only if its interests are traded on an established securities exchange. C) A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form. D) All of the above are false.

C) A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

58) Which of the following statements is not true with regard to like-kind exchanges? A) Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange. B) The holding period of like-kind property received includes the holding period of the property exchanged. C) A loss is always recognized if the taxpayer transfers non-like-kind personal use property (e.g. a personal use car) in an otherwise like-kind exchange. D) The basis of property received in an exchange is equal to the basis of the property exchanged less the boot received plus the gain recognized and less any loss recognized.

C) A loss is always recognized if the taxpayer transfers non-like-kind personal use property (e.g. a personal use car) in an otherwise like-kind exchange.

46) Identify which of the following statements is true. A) On December 31 of the current year, Max Curcio's adjusted basis for his interest in the Maduro & Motta Partnership is $36,000. Maduro & Motta distributes cash of $6,000 and a parcel of land held as an investment to Curcio in liquidation of his entire interest in the partnership. The land has an adjusted basis of $18,000 to the partnership and an FMV of $42,000. Curcio's basis in the land is $18,000. B) Jake has a basis in his partnership interest of $40,000 before receiving a liquidating distribution of $5,000 cash, inventory with a basis of $4,000 and an FMV of $5,000, and land with a basis of $3,000 and an FMV of $6,000. Jake will receive no further distributions. He can recognize a loss of $28,000 at the time the liquidating distribution is received. C) A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution. D) All of the above are false.

C) A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.

50) Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognize A) a ordinary loss of $38,000. B) a capital loss of $53,000. C) an ordinary loss of $30,000 and a capital loss of $8,000. D) an ordinary loss of $30,000 and a capital loss of $23,000.

C) an ordinary loss of $30,000 and a capital loss of $8,000.

88) Which of the following statements in not correct regarding the compliance requirements of an involuntary conversion? A) The taxpayer elects the deferral by not reporting the gain as income for the first year in which the gain is realized although all relevant information regarding the vent will be reported. B) A taxpayer who recognized the full gain and paid the taxes can later file a refund claim to elect the deferral if qualified property is acquired before the expiration of the replacement period. C) A taxpayer elects to defer the full gain in the year the gain is realized (year one), and no gain is reported on that year's tax return. Qualified replacement property is acquired in the following year (year two), but the full insurance proceeds are not spent so some gain must be recognized. The partial gain recognition will be reported on the tax return for year two. D) A taxpayer properly elected to defer the full realized gain in year one and provides appropriate information on the replacement property. The taxpayer cannot later revoke the election and designate a different property as the replacement property.

C) A taxpayer elects to defer the full gain in the year the gain is realized (year one), and no gain is reported on that year's tax return. Qualified replacement property is acquired in the following year (year two), but the full insurance proceeds are not spent so some gain must be recognized. The partial gain recognition will be reported on the tax return for year two.

53) Identify which of the following statements is true. A) Under the check-the-box rules, an LLC with more than one member is taxed as a corporation unless it elects to be taxed as a partnership. B) The partnership's tax year closes with respect to a partner whose interest is transferred by gift. C) An LLC has been taxed as a partnership for five years. Under the check-the-box rules, the LLC makes a timely election in 2009 to be taxed as a C corporation. The election of C corporation status is permitted and results in the LLC's assets being transferred from a partnership to a C corporation under the federal income tax rules. D) All of the above are false.

C) An LLC has been taxed as a partnership for five years. Under the check-the-box rules, the LLC makes a timely election in 2009 to be taxed as a C corporation. The election of C corporation status is permitted and results in the LLC's assets being transferred from a partnership to a C corporation under the federal income tax rules.

62) The AB, BC, and CD Partnerships merge into the ABCD Partnership. AB (owned by Austin and Ben) contributes assets worth $100,000. BC (owned by Ben and Charlie) contributes assets worth $200,000. CD (owned by Charlie and Dennis) contributes assets worth $300,000. The capital and profits interest in ABCD is owned by: Austin, 10%; Ben, 30%; Charlie, 25%; and Dennis, 35%. ABCD Partnership is a continuation of A) AB. B) BC. C) CD. D) none of the partnerships.

C) CD.

82) Martha, an accrual-method taxpayer, has an accounting practice. In 2011, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2012, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year. The result is A) Martha deducts a nonbusiness bad debt in 2012. B) Martha deducts a business bad debt in 2012 C) David deducts a business bad debt in 2012. D) David deducts a nonbusiness bad debt in 2012.

C) David deducts a business bad debt in 2012.

Martha, an accrual-method taxpayer, has an accounting practice. In 2013, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2014, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is A) Martha deducts a nonbusiness bad debt in 2014. B) Martha deducts a business bad debt in 2014. C) David deducts a business bad debt in 2014. D) David deducts a nonbusiness bad debt in 2014.

C) David deducts a business bad debt in 2014. Since David acquired the account upon acquiring the business, he is entitled to a business bad debt deduction because the debt was incurred in the trade or business in which David is currently engaged.

84) In 2011 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2012 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is A) Grace deducts a business bad debt of $12,000 in 2012. B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2012. C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years. D) Grace deducts a business bad debt of $3,000 in 2012 and carries $9,000 over to subsequent years.

C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years.

Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognize A) a ordinary loss of $38,000. B) a capital loss of $53,000. C) an ordinary loss of $30,000 and a capital loss of $8,000. D) an ordinary loss of $30,000 and a capital loss of $23,000.

C) an ordinary loss of $30,000 and a capital loss of $8,000. $30,000 Section 1244 ordinary loss + $8,000 capital loss. The loss on the sale of personal use assets, the automobile, is not deductible.

In 2013 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2014 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is A) Grace deducts a business bad debt of $12,000 in 2014. B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2014. C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2014 and carries $9,000 over to subsequent years. D) Grace deducts a business bad debt of $3,000 in 2014 and carries $9,000 over to subsequent years.

C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2014 and carries $9,000 over to subsequent years. The debt is a nonbusiness bad debt since it is not related to Grace's trade or business. Therefore, the $12,000 loss is treated as a short-term capital loss, $3,000 of which is deductible this year and $9,000 of which may be carried over to next year.

30) Identify which of the following statements is true. A) The depreciation recapture potential for a Sec. 1245 property is not included in the definition of a Sec. 751 asset. B) For Sec. 751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis. C) Inventory for Sec. 751 purposes includes all property except cash, capital assets, and Sec. 1231 assets assets. D) All of the above are false.

C) Inventory for Sec. 751 purposes includes all property except cash, capital assets, and Sec. 1231 assets assets.

50) Identify which of the following statements is true. A) John Albin is a retired partner of Brill & Crum, a personal service partnership. Albin has not rendered any services to Brill & Crum since his retirement six years ago. Under the provisions of Albin's retirement agreement, Brill & Crum is obligated to pay Albin 10% of the partnership's net income each year through the end of the current year. In compliance with the agreement, Brill & Crum pay Albin $25,000 in the current year. Albin should treat this $25,000 as a long-term capital gain. B) An exchange of partnership interests in different partnerships qualifies under the like-kind exchange rules. C) The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner. D) All of the above are false.

C) The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner.

40) Identify which of the following statements is true. A) A liquidating distribution that terminates a partnership interest cannot include more than one distribution. B) A partnership with a large amount of unrealized receivables and substantially appreciated inventory items liquidated and distributed all of its assets in kind to each partner in proportion to their partnership interests. Each partner will report ordinary income at the time these assets are received equal to their FMV. C) The rule for recognizing gain on a liquidating distribution is the same rule that is used for a current distribution. D) All of the above are false.

C) The rule for recognizing gain on a liquidating distribution is the same rule that is used for a current distribution.

40) A owns a ranch in Wyoming, which B offers to purchase. A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana. The complex is available for sale. B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch. The ranch and the complex each have a $1,000,000 fair market value. Which of the following is true? A) The transaction qualifies as a like-kind exchange for B but not for A. B) The transaction qualifies as a like-kind exchange for both B and A. C) The transaction qualifies as a like-kind exchange for A but not for B. D) The transaction does not qualify as a like-kind exchange for either B or A.

C) The transaction qualifies as a like-kind exchange for A but not for B.

73) In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. Asset Reduction in FMV Adjusted Basis Insurance Holding Period X $8,000 $2,000 $7,000 2 years Y 3,000 5,000 2,000 10 months Z 2,500 1,300 1,000 8 months As a result of these losses and insurance recoveries, Marcus must report A) a net gain of $3,700. B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.

13) A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane's basis in the partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner Diane has A) no recognized gain or loss and a partnership interest basis of $10,000. B) no recognized gain or loss. C) a recognized gain of $5,000 and a partnership interest basis of zero. D) a recognized gain of $5,000 and a partnership interest basis of $5,000.

C) a recognized gain of $5,000 and a partnership interest basis of zero.

Investment interest expense is deductible A) as an offset to net investment income. B) as a capital loss. C) as an itemized deduction. D) as a deduction for AGI.

C) as an itemized deduction. Explanation: Investment interest expense, after the net investment income ceiling is applied, is an itemized deduction.

74) According to Sec. 121, individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for A) at least five years immediately before the sale date. B) at least one year of the three-year period before the sale date. C) at least two years of the five-year period before the sale date. D) at least five years of the ten-year period before the sale date.

C) at least two years of the five-year period before the sale date.

86) Which of the following is not an unforeseen circumstance for purposes of obtaining a partial exclusion of a gain on the sale of a home? A) loss of employment by the qualified individual if the individual is eligible for unemployment compensation B) natural or man-made disaster resulting in a casualty to the residence C) birth of one child D) divorce or legal separation

C) birth of one child

78) Juanita, who is single, is in an automobile accident in 2012 and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Juanita does not expect to recover any of the loss from her insurance company. Juanita's 2012 AGI is $31,000, and she deducts a $3,000 loss on her 2012 tax return. Her other itemized deductions in 2012 exceed $12,000. In 2013, Juanita's insurance company reimburses her $2,800. Juanita's 2012 AGI is $28,000. As a result, Juanita must A) amend 2012 to show a $200 loss. B) do nothing and simply keep the $2,800. C) do nothing to the 2012 return but report $2,800 of income on her 2013 return. D) amend the 2012 return to show $0 loss and file her 2013 return to show a $200 loss.

C) do nothing to the 2012 return but report $2,800 of income on her 2013 return.

All of the following statements are true except A) investment interest expense is deductible to the extent of a taxpayer's net investment income. B) short-term capital gains meet the definition of net investment income. C) investment interest expense includes interest expense to purchase or carry tax-exempt securities. D) net investment income is the taxpayer's investment income in excess of investment expenses.

C) investment interest expense includes interest expense to purchase or carry tax-exempt securities. Explanation: Investment interest does not include interest expense incurred to purchase or carry tax-exempt securities.

43) The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of A) cash received by Matt. B) mortgage on the property that is assumed by Caitlin. C) mortgage on the property paid off by Matt prior to the sale. D) the FMV of any other property received by Matt in the transaction.

C) mortgage on the property paid off by Matt prior to the sale.

The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of A) cash received by Matt. B) mortgage on the property that is assumed by Caitlin. C) mortgage on the property paid off by Matt prior to the sale. D) the FMV of any other property received by Matt in the transaction.

C) mortgage on the property paid off by Matt prior to the sale. Cash received, the mortgage assumed by the buyer, and the FMV of property received in the transaction are all part of amount realized.

52) Joy reports the following income and loss: Salary - $ 120,000 Income from activity A - 60,000 Loss from activity B - ( 35,000) Loss from activity C - ( 55,000) Activities A, B, and C are all passive activities. Based on this information, Joy has A) adjusted gross income of $90,000. B) salary of $120,000 and deductible net losses of $30,000. C) salary of $120,000 and net passive losses of $30,000 that will be carried over. D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.

C) salary of $120,000 and net passive losses of $30,000 that will be carried over.

All of the following payments for medical items are deductible with the exception of the payment for A) insulin. B) general appointment for teeth cleaning. C) acupuncture for specific medical purposes. D) nonprescription medicine for treatment of a specific medical condition.

D) nonprescription medicine for treatment of a specific medical condition.

Joy reports the following income and loss: Salary $ 120,000 Income from activity A 60,000 Loss from activity B ( 35,000) Loss from activity C ( 55,000) Activities A, B, and C are all passive activities. Based on this information, Joy has A) adjusted gross income of $90,000. B) salary of $120,000 and deductible net losses of $30,000. C) salary of $120,000 and net passive losses of $30,000 that will be carried over. D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.

C) salary of $120,000 and net passive losses of $30,000 that will be carried over. The losses from passive activities B and C may offset and eliminate the income from passive activity A resulting in a net passive loss of $30,000 ($60,000 income less $90,000 loss). The passive loss of $30,000 may not offset the salary and must be carried over to the next tax year.

14) If a distribution occurs within ________ years of the contribution date, in a nonliquidating distribution that does not qualify for Sec. 751 treatment, the distribution event may trigger a precontribution gain or loss. A) three B) five C) seven D) unlimited

C) seven

82) Generally, a full exclusion of gain under Sec. 121 upon the sale of a personal residence applies to only one sale or exchange every A) six months. B) year. C) two years. D) five years.

C) two years.

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss? A) $5,900 B) $12,000 C) $13,900 D) $20,000

D) $20,000 For business property totally destroyed, the amount of the loss is the property's adjusted basis. There is no reduction for the $100 floor and 10% of AGI for business property. The loss equals the $20,000 adjusted bases of the property destroyed ($15,000 + $5,000).

Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.

FALSE Explanation: One-half of the self-employment tax is a deduction for AGI.

34) The definition of "inventory" for purposes of Sec. 751 includes A) cash. B) land held for investment. C) marketable securities not held by dealers. D) depreciation recapture potential on Sec. 1231 assets.

D) depreciation recapture potential on Sec. 1231 assets.

24) Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money, plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375, and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000. What is Tenika's basis for the plastic tubes and drip irrigation pipe? A) Plastic Tubes $ 3,375 Drip Pipe $5,000 B) Plastic Tubes $3,000 Drip Pipe $6,000 C) Plastic Tubes $3,000 Drip Pipe $5,000 D) Plastic Tubes $2,250 Drip Pipe $3,750

D) Plastic Tubes $2,250 Drip Pipe $3,750

41) Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash. Landry held the original land for investment purposes and will do the same with the new parcel. Due to the exchange, Landry will recognize A) $10,000 gain. B) $5,000 gain. C) $5,000 loss. D) $0.

D) $0.

64) Patrick purchases a one-third interest in the PPP partnership for $600,000. The partnership has assets with a value of $1,500,000. PPP has a 754 election in effect. What is the amount of the basis adjustment? A) $0 B) $300,000 increase in the basis of partnership assets C) $100,000 increase in Patrick's basis in the partnership assets D) $100,000 increase in Patrick's share of the basis in the partnership assets

D) $100,000 increase in Patrick's share of the basis in the partnership assets

Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home? A) $4,400 B) $4,580 C) $7,200 D) $11,600

D) $11,600

Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible? A) $5,400 B) $9,900 C) $13,100 D) $13,000

D) $13,000 Explanation: If she makes the appropriate election on her return to include the dividends and long-term capital gain in her ceiling, she can deduct the investment interest expense to the extent of net investment income including the dividends and long-term capital gain. $4,500 + $5,400 + $1,000 + $2,200 = $13,100 limited to $13,000 of investment interest expense.

57) Yael exchanges an office building worth $150,000 for investment land worth $175,000. He also provided stock worth $25,000. Yael's adjusted basis in the building and stock is $180,000 and $11,000, respectively. How much gain or loss will Yael recognize on the exchange? A) $0 B) ($30,000) C) ($16,000) D) $14,000

D) $14,000

76) In February 2012, Amelia's home, which originally cost $150,000, is damaged by a windstorm. Amelia had refinanced the home shortly before the storm, and it was appraised at $200,000. After the storm, the home appraised at $120,000. Amelia has received no insurance reimbursement by December 31, but expects to recover 90 percent of the loss. In the subsequent year, the insurance company pays Amelia $50,000. Amelia's AGI is $85,000 in 2012, and her 2013 AGI is $80,000. Amelia suffers no other casualty losses in either year. Amelia may deduct A) $7,900 in 2012. B) $22,000 in 2013. C) $13,900 in 2013. D) $14,000 in 2013.

D) $14,000 in 2013.

49) Steve sells his 20% partnership interest having a $28,000 basis to Nancy for $40,000 cash. At the time of the sale, the partnership has no liabilities and its assets are as follows: Basis FMV Cash $20,000 $20,000 Unrealized receivables 0 40,000 Inventory 10,000 40,000 Land (Sec. 1231) 110,000 100,000 The receivables and inventory are Sec. 751 assets. There is no agreement concerning the allocation of the sales price. Steve must recognize A) no gain or loss. B) $12,000 ordinary income. C) $12,000 capital gain. D) $14,000 ordinary income and $2,000 capital loss.

D) $14,000 ordinary income and $2,000 capital loss.

Corner Grocery, Inc., a C corporation with high taxable income, donates some of its inventory to the County Food Bank (a charitable organization) which distributes food to the needy. At the time of the contribution, the FMV of the inventory was $20,000, and Corner Grocery's basis was $12,000. Corner Grocery will be allowed a charitable contribution deduction of A) $20,000. B) $12,000. C) $8,000. D) $16,000.

D) $16,000.

68) A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss? A) $5,900 B) $12,000 C) $13,900 D) $20,000

D) $20,000

46) Bob owns a warehouse that is used in business while Rebecca owns land. Bob exchanges the warehouse for the land, which will be held for investment. The FMV of the warehouse is $440,000 (basis $240,000), but the warehouse is subject to a mortgage of $80,000, which is assumed by Rebecca. Bob receives $40,000 cash and the land, which has a FMV of $320,000. Bob realizes a gain (loss) on the exchange of A) $80,000. B) $120,000. C) $190,000. D) $200,000.

D) $200,000.

39) The XYZ Partnership owns the following assets on December 31: Basis FMV Cash $10,000 $10,000 Unrealized receivables 0 10,000 Inventory $25,000 30,000 A partner has a 20% interest with a basis of $6,000 in XYZ before receiving a liquidating distribution of $10,000 cash. XYZ Partnership has no liabilities. His recognized gain is A) $4,000 capital gain. B) $3,000 capital gain and $1,000 ordinary income. C) $3,000 ordinary income. D) $3,000 ordinary income and $1,000 capital gain.

D) $3,000 ordinary income and $1,000 capital gain.

69) Ed owns a racehorse with a $600,000 basis used for breeding purposes. The racehorse is killed in a tornado, and Ed collects $1,000,000 from the insurance company. He purchases another horse for $550,000. What is the amount of gain recognized on the transaction? A) $0 B) $50,000 C) $350,000 D) $400,000

D) $400,000

44) In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael's gain or loss on the sale is A) $4,000 gain. B) $1,000 loss. C) $36,000 loss. D) $41,000 loss.

D) $41,000 loss.

In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael's gain or loss on the sale is A) $4,000 gain. B) $1,000 loss. C) $36,000 loss. D) $41,000 loss.

D) $41,000 loss. ($30,000 + $34,000 - $5,000) - $100,000 = $41,000 loss

18) Helmut contributed land with a basis of $5,000 and an FMV of $10,000 to the HG Partnership five years ago to acquire a 50% partnership interest. This year the land is distributed to another partner, Gail, when its FMV is $11,000. No other distributions have been made since Helmut became a partner. When the land is distributed to Gail, Helmut recognizes a gain of A) $0. B) $2,500. C) $3,000. D) $5,000.

D) $5,000.

Grace has AGI of $60,000 in 2018 and 2019. She makes cash contributions to public charities of $40,000 in 2018 and $37,000 in 2019. Grace's charitable contribution carryover to 2020 is A) $0. B) $1,000. C) $4,000. D) $5,000.

D) $5,000. Explanation: Both 2018 and 2019 have AGI ceilings of $36,000 (60% of AGI) resulting in a $4,000 carryover from 2018 and a $1,000 carryover from 2019.

Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)? A) $0 B) $2,000 C) $4,600 D) $6,600

D) $6,600 Explanation: Expenditures to remove structural barriers in the home of a physically handicapped individual such as costs of constructing entrance ramps, widening doorways and halls, etc. are deductible in full.

27) Bart has a partnership interest with a $32,000 basis. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000), inventory (FMV $8,000, basis $4,000), investment land (FMV $7,000, basis $4,000), and building (FMV $20,000, basis $8,000). No depreciation recapture applies with respect to the building. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Bart's basis in the building is A) $3,000. B) $4,000. C) $6,000. D) $8,000.

D) $8,000.

22) Identify which of the following statements is true. A) If a partnership asset with a deferred precontribution gain is distributed in a nonliquidating distribution to the partner who contributed the asset, the precontribution gain must be recognized by the partner. B) The partner's basis in the partnership interest is normally reduced by the FMV of property distributed in a nonliquidating distribution. C) When a current distribution from a partnership reduces the basis of the partnership interest to zero, the partner's interest in the partnership is terminated. D) All of the above are false.

D) All of the above are false.

29) Identify which of the following statements is true. A) If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership, the partner will always recognize ordinary income. B) The primary purpose of Sec. 751 is to prevent partnerships from converting capital gains into ordinary income. C) Unrealized receivables include rights to payments on the sale of a capital asset. D) All of the above are false.

D) All of the above are false.

58) Identify which of the following statements is true. A) The partnership tax year closes when a partner transfers his interest by gift. B) If a partner dies in a two-member partnership, the partnership terminates on the date of death, even though the successor-in-interest continues to share in the profits and losses of the partnership business. C) When the interest of a partner who owns 60% of a partnership is completely liquidated by a partnership distribution, the partnership is considered terminated, even though three other partners remain. D) All of the above are false.

D) All of the above are false.

73) Alex owns an office building which the state condemns on January 15, 2014. Alex receives the condemnation award on April 1, 2014. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Alex to acquire qualified replacement property? A) January 15, 2016 B) January 15, 2017 C) December 31, 2016 D) December 31, 2017

D) December 31, 2017

53) Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity? A) Increase of $2,000. B) No net change. C) Decrease of $4,000. D) Decrease of $11,000.

D) Decrease of $11,000.

Which of the following is deductible as interest expense? A) personal credit card interest B) interest to purchase tax-exempt bonds C) bank service charges on personal account D) None of the above.

D) None of the above.

71) Which of the following statements regarding involuntary conversions is incorrect? A) With some exceptions, the replacement property must be similar or related in service or use to the property converted. B) The functional-use test is more restrictive than the like-kind test. C) The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor. D) Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.

D) Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.

39) Which of the following statements with respect to a like-kind exchange is false? A) Property of one class must be exchanged for property of the same class. B) An exchange of inventory does not qualify as a like-kind exchange. C) Personal property must be exchanged for personal property. D) Sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange.

D) Sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange.

60) Sally is a calendar-year taxpayer who owns a 30% capital and profits interest in the SEM Partnership. Eric sells the remaining 70% capital and profits interest to Michelle on October 3. The partnership year-end is March 31 as permitted by the IRS for business purposes. Which of the following statements is correct? A) Sally must conform her tax year with the partnership tax year. B) The new partnership is a continuation of the old partnership. C) Sally's tax return will include a partnership distributive share only for the period ending March 31. D) Sally's tax return will include partnership distributive shares for periods ending March 31 and October 3.

D) Sally's tax return will include partnership distributive shares for periods ending March 31 and October 3.

59) Which of the following is not generally classified as a passive activity? A) an activity in which the taxpayer does not materially participate B) a limited partnership interest C) rental real estate D) a business in which the taxpayer owns an interest and works 1,000 hours a year

D) a business in which the taxpayer owns an interest and works 1,000 hours a year

Which of the following is not generally classified as a passive activity? A) an activity in which the taxpayer does not materially participate B) a limited partnership interest C) rental real estate D) a business in which the taxpayer owns an interest and works 1,000 hours a year

D) a business in which the taxpayer owns an interest and works 1,000 hours a year An individual participating in a business for more than 500 hours per year is generally classified as a material participant.

47) All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of A) the stock must be owned by an individual or a partnership. B) the stock must have been issued by a domestic corporation. C) the stock must have been issued for cash or property other than stock or securities. D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

36) What is the definition of "substantially appreciated inventory"? A) inventory with a FMV greater than its basis B) inventory and unrealized receivables with a FMV greater than their basis C) inventory with a FMV greater than 120% of its basis D) inventory and unrealized receivables with a FMV greater than 120% of their basis

D) inventory and unrealized receivables with a FMV greater than 120% of their basis

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of A) the stock must be owned by an individual or a partnership. B) the stock must have been issued by a domestic corporation. C) the stock must have been issued for cash or property other than stock or securities. D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses. D) Single taxpayers may deduct up to $50,000 per tax year.

86) An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income? A) capital losses B) personal and dependency exemptions C) nonbusiness deductions in excess of nonbusiness income D) all of the above

D) all of the above

An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income? A) capital losses B) personal and dependency exemptions C) nonbusiness deductions in excess of nonbusiness income D) all of the above

D) all of the above The NOL is due to business losses so all of the above will be added back in the computation of the NOL.

38) All of the following qualify as a like-kind exchange except A) an apartment building held for investment for farmland used in a trade or business. B) a printer used in trade or business for a computer used in trade or business. C) improved real estate held for investment for unimproved real estate held for investment. D) an airplane used in trade or business for a general purpose truck used in trade or business.

D) an airplane used in trade or business for a general purpose truck used in trade or business.

A taxpayer's rental activities will be considered a trade or business, rather than a passive activity, if A) the taxpayer performs more than 750 hours of work during the year managing the rental properties B) the taxpayer performs more than 500 hours of work during the year managing the rental properties. C) more than half of the taxpayers personal services performed in all business activities during the year are spent managing the rental properties. D) conditions A and C, but not B, are satisfied.

D) conditions A and C, but not B, are satisfied. Rental activities are deemed to be passive unless both the 751 hour test and more than half of the work hours test are met.

Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity? A) increase of $2,000 B) no net change C) decrease of $4,000 D) decrease of $11,000

D) decrease of $11,000 Due to the sale, the current year loss and the suspended loss will be recognized. $2,000 gain - $6,000 current loss - $7,000 suspended loss = $11,000 loss.

57) Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of activity X's income is $13,000. Charlie's salary this year is $70,000. As a result, this year Charlie must A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of activity X's income is $13,000. Charlie's salary this year is $70,000. As a result, this year Charlie must A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year. Charlie may deduct Activity B's current $9,000 loss since it is not a passive activity. He may also offset passive activity X's income of $13,000 with the $17,000 carryover from Activity B resulting in a $4,000 carryover.

68) When must a partnership make mandatory basis adjustments? A) on any sale of a 20% or greater partnership interest B) on any sale of a partnership interest for $250,000 or more C) on any distribution of assets with a value of $250,000 or more D) on any sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more

D) on any sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more

51) For tax purposes, a partner who receives retirement payments ceases to be regarded as a partner A) on the last day of the taxable year in which the partner retires. B) on the last day of the month in which the partner retires. C) on the day on which the partner retires. D) only after the partner's last payment is received.

D) only after the partner's last payment is received.

48) Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n) A) ordinary loss of $125,000. B) long-term capital loss of $125,000. C) long-term capital loss of $100,000 and ordinary loss of $25,000. D) ordinary loss of $100,000 and long-term capital loss of $25,000.

D) ordinary loss of $100,000 and long-term capital loss of $25,000.

35) The definition of "unrealized receivable" does not include the A) right to payment for services performed by a cash-basis taxpayer. B) recapture potential on Sec. 1245 property. C) recapture potential on Sec. 1250 property. D) right to payment for services performed by an accrual-basis taxpayer.

D) right to payment for services performed by an accrual-basis taxpayer.

80) Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n) A) itemized deduction. B) ordinary loss. C) long-term capital loss. D) short-term capital loss.

D) short-term capital loss.

Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n) A) itemized deduction. B) ordinary loss. C) long-term capital loss. D) short-term capital loss.

D) short-term capital loss. Because the debt is not related to Abby's trade or business, it is a nonbusiness bad debt. All nonbusiness bad debts are deductible as short-term capital losses.

37) The ABC Partnership owns the following assets on December 31. Basis FMV Cash $20,000 $20,000 Unrealized receivables 0 40,000 Inventory $20,000 30,000 Land (Sec. 1231 asset) 50,000 90,000 The indication that ABC owns substantially appreciated inventory is A) the total FMV of all assets except cash is greater than their total basis. B) the FMV of all assets except land is $90,000 while their bases is $40,000. C) the FMV of the inventory is $30,000 while its adjusted basis is $20,000. D) the FMV of the inventory and unrealized receivables is $70,000 while their adjusted bases is $20,000.

D) the FMV of the inventory and unrealized receivables is $70,000 while their adjusted bases is $20,000.

87) A taxpayer incurs a net operating loss in the current year. With respect to the application of the NOL, A) the taxpayer will carry back the NOL three years first, then carry forward any balance for five years. B) the taxpayer must carry forward the loss and has up to 20 years to use it. C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

A taxpayer incurs a net operating loss in the current year. With respect to the application of the NOL, A) the taxpayer will carry back the NOL three years first, then carry forward any balance for five years. B) the taxpayer must carry forward the loss and has up to 20 years to use it. C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period. The normal application period for utilizing the NOL is carry back two years and then carry forward for up to 20 years, but the taxpayer does have the option to forego the carryback period.

66) Which of the following is most likely not considered a casualty? A) fire loss B) water damage caused by a busted water heater C) death of a pine tree due to a two-day infestation of pine beetles D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

Which of the following is most likely not considered a casualty? A) fire loss B) water damage caused by a busted water heater C) death of a pine tree due to a two-day infestation of pine beetles D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof Water damage due to the gradual deterioration of a roof is not a casualty. It is not sudden or unexpected.

57) A partnership terminates for federal income tax purposes if A) a general partner who owns a majority interest dies. B) state partnership law terminates the partnership. C) a partnership interest of more than 50% is gifted. D) within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits.

D) within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits.

Martha, an accrual-method taxpayer, has an accounting practice. In 2012, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2013, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year. The result is:

David deducts a business bad debt in 2013.

Martha, an accrual method taxpayer, has an accounting practice. In 2018, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2019, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is

David deducts a business bad debt in 2019.

Constance, who is single, is in an automobile accident in 2013, and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Constance does not expect to recover any of the loss from her insurance company. Constance's AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2014, Constance's insurance company reimburses her $2,800. Her AGI is $28,000. She must...?

Do nothing and simply keep the $2,800.

Expenditures incurred in removing structural barriers in the home of a physically handicapped individual are deductible only to the extent the costs exceed the increase in fair market value to the property attributable to the capital expenditure.

FALSE Explanation: Such expenses are fully deductible subject to the 10% limitation on all medical expenses.

In order for a taxpayer to deduct a medical expense, the amount must be paid to a licensed physician.

FALSE Explanation: Taxpayers may deduct payments to a wide range of medical, dental, and other diagnostic and healing services.

Sacha purchased land in 2010 for $35,000 that she held as a capital asset. This year, she contributed the land to the Boy Scouts of America (a charitable organization) for use as a site for a summer camp. The market value of the land at the date of contribution is $40,000. Sacha's adjusted gross income is $90,000. Assuming no special elections, Sacha's maximum deductible contribution this year is A) $13,000. B) $27,000. C) $35,000. D) $40,000.

Explanation: The potential deduction is the $40,000 FMV. Ceiling on current year contribution: $90,000 AGI × .30 Limit on capital gain property $ 27,000 Maximum current year deduction $ 13,000 Carryover

Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.

FALSE Explanation: As long as one divorced parent qualifies to claim the dependency exemption under Sec. 152(e), the parent who pays medical expenses on behalf of the children may deduct the expenses.

Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.

FALSE Explanation: Both are deductible as itemized deductions.

Jeffrey, a T.V. news anchor, is concerned about the wrinkles around his eyes. Because it is job-related, the cost of a face lift to eliminate these wrinkles is a deductible medical expense.

FALSE Explanation: Cosmetic surgery is not deductible unless such surgery is necessary to correct a deformity arising from a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.

A personal property tax based on the weight of the property is deductible.

FALSE Explanation: In order to be deductible, a personal property tax must be ad valorem (based on value).

If a medical expense reimbursement is received in a year after a deduction has been taken on a previous year's return, the previous year's return must be amended to eliminate the reimbursed expense.

FALSE Explanation: The reimbursement should be included in gross income in the year received to the extent the taxpayer received a tax benefit in the year of payment.

Due to stress on the job, taxpayer Fiona began to experience anxiety attacks. Her doctor advised her to engage in some relaxation activities. Fiona enrolled in yoga lessons. The cost of the yoga lessons to alleviate this medical condition is tax deductible.

FALSE Explanation: Unless expenditures are for routine preventive care, expenditures must be incurred to treat a specific ailment, rather than for general health.

In 2019, Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2019, Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is

Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2019 and carries $9,000 over to subsequent years.

Tom and Shawn own all of the outstanding stock of Brady Co (a retail store operated as a C Corp). This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Co reports...?

Interest income of $22,000 and a passive loss carryover of $8,000.

The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of:

Mortgage on the property paid off by Matt prior to sale.

Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a?

STCL (short term capital loss)

When preparing a tax return for a short period, the taxpayer should annualize the income if the short period return

None of the above situations require annualization of income for the short period return.

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increased his involvement with B so that this year B is not considered passive for Charlie. During this year, B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of X's income is $13,000. Charlie's salary this year is $70,000. This year Charlie must...?

Offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

The definition of medical care includes preventive measures such as routine physical examinations.

TRUE Explanation: The definition of medical care does include preventive medical care.

Assessments or fees imposed by the government for specific privileges or services are not deductible as taxes.

TRUE Explanation: Assessments or fees for specific privileges or services do not meet the definition of a tax.

Capital expenditures incurred for medical purposes which permanently improve or better the taxpayer's property are deductible, but only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.

TRUE Explanation: Capital improvements needed for medical care are only allowed to the extent they exceed the increase in the FMV of the property.

If the principal reason for a taxpayer's presence in an institution (e.g., a nursing home) is the need and availability of medical care, the entire cost of lodging and meals is considered qualified medical expenditures.

TRUE Explanation: Costs of institutional care (including meals and lodging) are only allowed if the principal reason is for access to needed medical care.

Medical expenses paid on behalf of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.

TRUE Explanation: Generally a taxpayer can only deduct his own qualifying expenses, but a limited exception applies for payment of another's medical expenses.

If a prepayment is a requirement for the receipt of the medical care, the payment is deductible in the year paid rather than the year in which the care is rendered.

TRUE Explanation: Generally, prepayments are deferred. An exception applies if the prepayment is required for the medical treatment.

Expenditures for long-term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.

TRUE Explanation: Premiums for long-term care will qualify for medical expense treatment, but the deduction amounts are limited by the taxpayer's age.

Assessments made against real estate for the purpose of funding new street lights are not deductible in the year paid but rather should be added to the cost basis of the property.

TRUE Explanation: Such assessments are not taxes; they are improvements.

An individual is considered to materially participate in an activity if any of the tests are met with the exception of...?

The individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year.

Which of the following conditions are required for the use of the installment method?

The taxpayer must realize a gain on the sale of the property.

Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. Amy's stock basis was $150,000. She had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has

a $50,000 ordinary loss and $70,000 LTCL.

A new business is established. It is not a seasonal business. All of the following are acceptable accounting tax years with the exception of

a C corporation (not a personal service corporation) tax year ending on February 15.

Which of the following companies whose business involves long-term contracts will be eligible to use the completed contract method?

a home construction company averaging $30 million in gross revenues each year

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

A business uses the same inventory method for both financial reporting and tax reporting. Because of the UNICAP requirement, ending inventory is likely to be

higher for tax reporting purposes than for financial reporting purposes.

The installment method may be used for sales of all kinds of property with the exception of

marketable securities.

Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n)

ordinary loss of $100,000 and long-term capital loss of $25,000.

Under UNICAP, all of the following overhead costs are included in inventory except

research and experimentation.

When accounting for long-term contracts (other than those for services), all of the following accounting methods may be acceptable with the exception of

the allocated completion method of accounting.

Look-back interest may be required on long-term contracts if actual total costs had been employed in determining gross profit rather than estimated costs in earlier years of the contract. The interest will not be assessed if

the contract price is less than $1 million. the completed contract method is used. the contract is completed within two years of the commencement date. All of the above

The installment sale method can be used for all of the following transactions except

the sale of shares of publicly traded corporate stock.

Which of the following is most likely not considered a casualty?

water damage to the walls and ceiling of a building as the result of gradual deterioration of the roof