Income Exclusions
John receives a monthly disability benefit of $1,200 from the VA. He spends $200 a month on high speed internet and uses the rest to travel around the world watching video game tournaments. None of it is used to cover medical expenses. How much of this monthly benefit is taxable? - $0 - $200 - $1,000 - $1,200
$0
Amanda receives the following monthly amounts from her career in the military, and her work as a government employee: $1,200 disability payment for a combat-related injury she incurred during training $1,000 disability pension based on years of service What amount does Amanda include in her monthly income? - $0 - $1,200 - $1,000 - $2,200
$1,000
Jane Adams receives a qualified scholarship to attend college. In the fall semester, she received $6,000. That semester, her expenses were $4,000 tuition, $500 lab fees, $250 parking fees, $500 books, and $1,000 room and board. How much of the scholarship must she report as income? - $6,000 - $5,000 - $1,250 - $1,000
$1,000
Jody received several awards at a recent company event. Her boss gave her a $200 gift card to an upscale restaurant plus a crystal vase worth $100 for her overall positive attitude. In addition, she received a $1,000 watch presented as part of an established annual anniversary celebration for employees with 10 years of service. Jody was also one of two employees who received a $50 plaque for achieving safety goals. What amount of the awards received by Jody is excluded from income? - $1,350 - $1,150 - $1,050 - $1,000
$1,050
Jack invests in a bond issued by his city to raise capital for a local bridge expansion. Jack receives an interest check for $1,600. Mid-year, Jack invests in a private activity bond to construct a for-profit hospital in his town's center. His interest earnings on that bond are $800. Jack also receives $365 in interest from his bank earned on his savings account. How much, if any, of the interest is exempt from federal income tax? - $1,165 - $1,600 - $2,400 - $365
$1,600
Alexander is single. His salary is $100,000. In 2021, he contributed $19,500 as an elective deferral to his employer-sponsored 401(k) plan. His employer contributed an additional $1,000. What are Alex's 2021 social security wages from this job? - $101,000 - $100,000 - $81,500 - $80,500
$100,000
The Wagners finalize their divorce during the tax year. Mrs. Wagner transfers her half of the ownership in the family home to Mr. Wagner as part of the divorce agreement. The home is paid off and the current value is $175,000. Additionally, Mrs. Wagner will pay $600 per month in child support to Mr. Wagner beginning August 1. Due to financial hardship from the divorce, Mr. Wagner declares bankruptcy the same year and has $15,000 in debt discharged. How much of the amounts shown may be excluded from Mr. Wagner's gross income for the year? - $193,000 - $105,500 - $102,500 - $190,000
$105,500
For 2021, which of the following must the recipient include in gross income? - Gifts - Child support - Alimony under a pre-2019 divorce - All of the above
Alimony under a pre-2019 divorce
Which of the following constitutes qualified official extended duty? - Serving at a duty station at least 50 miles from the main home - Living in government quarters under government order - Serving for an indefinite period - All of the above
All of the above
Joan received a scholarship for purposes of attending the University of California at Los Angeles. Joan is not a degree candidate. The scholarship consisted of $6,000 for tuition, $1,500 for fees, $500 for books, $800 for required equipment, and $6,000 for room and board. Which of the following amounts should Joan include in her taxable income? - $6,000 - $14,800 - $0 - $6,800
$14,800
The following statements about Coverdell ESAs are true, EXCEPT: - Generally, any assets remaining in a Coverdell ESA must be withdrawn or distributed within 30 days of the time when either the designated beneficiary reaches age 30 or the designated beneficiary dies - Contributions may be made regardless of age for any beneficiary - Contributions must be made in cash - The trustee or custodian must be a bank or an entity approved by the IRS
Contributions may be made regardless of age for any beneficiary Contributions must be made in cash
Interest from private activity bonds is tax-exempt when: - The amount of the proceeds to finance loans to persons other than government units is less than 5% of the proceeds or $5 million - It is designated as a qualified private activity bond - It is used solely to build a sports facility or airport - Private activity bond interest is never tax exempt
It is designated as a qualified private activity bond
Ben Green received three employee achievement awards during the year: a non-qualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. How much of the awards he received must he include in his income? - None, because he received qualified plan awards. - None, because the rewards were all tangible personal property and not cash or cash equivalents. - $250. - $150.
$150
Ronnie received the following payments after an accident. $12,000 compensatory damages from the lawsuit for the injury to his ankle requiring ongoing medical treatment $6,200 in disability benefits for loss of income under a no-fault car insurance policy $15,000 in damages for emotional injury as a result of the damage to his 1971 Plymouth Cuda $700 punitive damages for the ankle injury How much can Ronnie exclude from gross income? - $18,200 - $27,700 - $12,700 - $33,900
$18,200
Jenny received $5,000 as a qualified scholarship. She used it to pay expenses for school. Which of the following items does not qualify as an exclusion item: - $500 paid for enrollment fees - $1,200 paid for books - $2,500 paid for apartment near campus - $3,000 paid for tuition
$2,500 paid for apartment near campus
Anne, who is single, owned and used her house as her main home from January 2016 until January 2021. Her home sold for $240,000, and she had $12,000 in selling expenses. Over the years she claimed $20,000 of depreciation. Using a zero adjusted basis, compute the amount that is excludable from income. - $208,000 - $220,000 - $228,000 - $240,000
$208,000
What is the total amount of the following that an employee should include in gross income? employer-provided health insurance premiums of $6,000 debts forgiven of $21,000 - $6,000 - $21,000 - $27,000 - None
$21,000
A married couple, who are both self-employed, and work out of their home, purchased a new home in July 20X1 for $420,000. In September 20X1, they converted two bedrooms into office space where they meet clients in their home. In April 20X3, they sold their home, on which they had taken $40,000 depreciation. Their home sold for $600,000. What amount of the gain is includable in their income on their joint return? - $0 - $40,000 - $180,000 - $220,000
$220,000
What amount from the following items is NOT included in gross income in determining an individual's taxable income: Unemployment compensation of $8,800 and Workers' compensation benefits of $24,000? - $8,800 - $24,000 - $32,800 - None
$24,000
Adrian has the following income during the tax year. Calculate the amount Adrian can exclude from gross income: $5,200 for services provided as a contractor; reported on 1099-NEC $12,000 of credit card liability forgiven in bankruptcy $24,000 wages paid by her employer $6,000 in child support $7,000 cash received as a gift from Adrian's mom - $36,200 - $25,000 - $29,200 - $30,200
$25,000
Laurie is a sophomore in the University of Nebraska's undergraduate degree program. During the year, Laurie paid $3,000 in tuition, $500 for books, and $250 to rent dental equipment that was required for a class. Laurie also paid $3,500 for room and board. Of these expenses, what is the maximum amount that could count as qualified education expenses for purposes of calculating the American Opportunity credit for Laurie? - $3,500 - $3,750 - $7,000 - $3,000
$3,750
Ann received the following cash payments during the current tax year: Partnership income $15,000 Interest on a certificate of deposit $800 Alimony $12,000 (based on last modification of agreement in September 2018, Ann will receive the alimony payments until she remarries) Child support $8,000 Life insurance collected when her mother died $50,000 What is the amount that would be included in taxable income on her current year tax return? - $27,800 - $85,800 - $35,800 - $15,800
$35,800
Group term life insurance is provided to all the employees of the ABC Corporation. The CEO of the company has a policy with a benefit of $95,000. The annual premium on this policy is $8.50 per thousand. What is the taxable income for the CEO? - $80.75 - $382.50 - $807.50 - None of it is taxable
$382.50
Frank, a welder, had wages of $42,000. He paid $2,500 in qualified parking expenses for which he was reimbursed. He also received a $400 watch as an award for the implementation of safety procedures when he put out a small fire on work property. How much must he include in gross income in 2021? - $44,500 - $42,000 - $42,400 - $44,900
$42,000
A taxpayer received the following for sickness or injury: $1,000 disability benefits received for loss of income or earning capacity because of injuries under a no-fault car insurance policy $2,500 compensation for permanent loss (or loss of use) of a part or function of the body, or for permanent disfigurement $3,000 compensatory damages received from a lawsuit for physical injury or physical sickness $5,000 punitive damages related to a physical injury or sickness What amount should the taxpayer include as income on their tax return? - $0 - $5,000 - $10,500 - $11,500
$5,000
Ray sold his main home in 2021 at a $30,000 gain. He has no gains or losses from the sale of property other than the gain from the sale of his home. He meets the ownership and use tests to exclude the gain from his income. However, he used part of the home as a business office in 2020 and claimed $500 depreciation. What is the taxable amount of Ray's gain, and where must he report it? - $500 Form 4797 - $500 Schedule D - $30,000 Form 4797 - $30,000 Schedule D
$500 Schedule D
Peggy and John, married taxpayers, sold their main home. How much of the gain can be excluded from gross income, assuming they meet the ownership and use tests? - $250,000 ($125,000 for each spouse) - $300,000 ($150,000 for each spouse) - $500,000 ($250,000 for each spouse) - $1,000,000 ($500,000 for each spouse)
$500,000 ($250,000 for each spouse)
Robert purchased his home for $150,000 in 2010. He sold it for $350,000 (including $100,000 for the land) in 2021. This was his primary residence until it was sold. However, Robert claimed one-fifth of his home as an office for his self-employed business. He claimed a total of $6,000 depreciation over the years. The $150,000 purchase was assessed at $90,000 building and $60,000 land. Calculate Robert's taxable income as a result of the sale of this primary residence. - $6,000 - $38,000 - $200,000 - None
$6,000
When he first started working at the age of 22, Allen Jackson bought $25,000 in U.S. Series EE savings bonds. Three years later, he received a large bonus and bought another $10,000 of these bonds. During the current year, he cashed in all of these bonds. He received $33,000 for the first group and $15,000 for the second. As he had intended, he used this money to finance the qualifying education expenses of his dependent son Theodore. Mr. Jackson's only other income for the year was his salary of $54,000. What is the total amount of his income subject to taxation this year? - $54,000 - $59,000 - $62,000 - $67,000
$62,000
Identify which of the following is a qualified employee achievement award: - A $1,000 necklace given to an employee on their 10th anniversary. No other anniversary years are celebrated, and the award is given at the annual holiday party - A $400 hotel voucher awarded for perfect attendance in the 3rd quarter - $800 cash given to each department manager whose department meets established safety goals - Two tickets to an NFL game valued at $500 for winning the company chili cook-off
A $1,000 necklace given to an employee on their 10th anniversary. No other anniversary years are celebrated, and the award is given at the annual holiday party
Section 121 excludes gain from the sale of ______? - S corporation stock - A main home - A vacation home - Inherited land
A main home
Which of the following military or government pensions is taxable? - Disability from active service in the Canadian Army - Disability pension received from National Oceanic and Atmospheric Administration - Disability compensation from the Department of Veterans Affairs (VA) - A pension from the US armed forces based on years of service
A pension from the US armed forces based on years of service
Which of the following compensation types for sickness or injury may NOT be excluded from gross income? - Disability benefits paid with after-tax wages - Compensatory damages awarded in a lawsuit for physical injury - Punitive damages awarded in a lawsuit as punishment - Compensation solely paid for the loss of a part or function of the body
Punitive damages awarded in a lawsuit as punishment
Which amount received for sickness or injury is NOT exempt from tax? - Benefits under an accident insurance policy where taxpayer paid the premiums - Punitive damages related to a physical injury or sickness - Compensatory damages related to a physical injury or sickness - Reimbursements for medical care
Punitive damages related to a physical injury or sickness
Andy's employer provides life insurance for each employee that is equal to the employee's annual salary (under a qualified plan). If Andy makes $60,000 per year, how much of the premium paid by the employer to the insurance company is taxable to Andy as income? - All of the premium paid - None - The amount of the premium paid for the first $50,000 of coverage - The amount of the premium paid on coverage in excess of $50,000
The amount of the premium paid on coverage in excess of $50,000
Mr. and Mrs. Pigg live in a brick house for 24 months. Then, for the next 24 months, they live in a traditional wood house. Then, for the next 12 months, they live in a contemporary house made of stone. At that time, they sell the brick house with a tax basis of $300,000 and receive $420,000. After another 12 months, they sell the traditional wood house. It had a tax basis of $400,000 and is sold for $490,000. What of the following statements is true? - The gain on both the brick house and the traditional wood house are taxable because they were not serving as their principal residence at the time of sale. - The gain on one of the two houses can be tax free but not the gain on both. - The gain on both of these houses is tax free because the total is less than $500,000. - The gain on the traditional wood house can be tax free but the gain on the brick house cannot be tax free.
The gain on one of the two houses can be tax free but not the gain on both.
The foreign earned income exclusion and foreign housing exclusion provide some tax relief for US citizens living and working abroad. Which of the following is NOT a requirement to qualify for the foreign housing exclusion? - Foreign housing expenses may not be more than total foreign earned income for the tax year - The taxpayer must have qualified housing expenses in a foreign country - The taxpayer's employer pays a housing stipend that is excluded from gross income - The taxpayer files Form 2555 to claim the foreign housing exclusion
The taxpayer's employer pays a housing stipend that is excluded from gross income
A taxpayer with a life insurance policy may sell or assign all or a part of the policy death benefit to a provider whose business is buying policies from chronically ill or terminally ill individuals. What is the sale or assignment of a life insurance policy for this purpose called? - Endowment Contract - Accelerated Benefit Contract - Viatical Settlement - Terminal Illness Buyout
Viatical Settlement
All of the following are calculated as gross income, EXCEPT: - Foreign income - Severance pay - FMV of property received for services - Workers' compensation
Workers' compensation
Deborah Dow purchased several Series EE U.S. Savings Bonds in 2007 and used the interest earned in 2021 to purchase textbooks for her dependent daughter who is a sophomore at State College. Does Deborah have income from these bonds in 2021? - No, because interest earned on series EE bonds is tax free - No, because she used the interest on qualified educational expenses - Yes, because she did not use the interest on qualified educational expenses - Yes, because she is not the student
Yes, because she did not use the interest on qualified educational expenses
Warren's investments in municipal bonds earned $500 of interest. He is required to file a federal income tax return because of his other sources of income. Is he required to report the interest on the municipal bonds? - Yes, because it's taxable. - Yes, but municipal bond interest is generally not taxable. - No, because it's not taxable. - No, because it's less than $600.
Yes, but municipal bond interest is generally not taxable.
Janine and Scott moved into their current house in 20X1. It was the first house that they had ever owned and they held it until it was sold in February of 20X4. It had a tax basis of $200,000 but was sold for $460,000. In November of that same year, they buy a new house 63 miles away for $290,000. What impact does the selling of their personal residence have on their taxable income for 20X4 jointly filed tax return? - Zero - $90,000 gain - $170,000 gain - $260,000 gain
Zero
Mr. and Mrs. Stremble were married at the age of 30 and lived together until the current year when Mrs. Stremble died at the age of 70. Mr. Stremble received $100,000 in cash from a life insurance policy. They had paid, as a couple, a total of $40,000 in premiums over the years on this policy. What amount of income must he include in his current tax return as a result of receiving the $100,000 payment? - Zero - $60,000 - $80,000 - $100,000
Zero
Sal Graziano began to buy US Series EE bonds when he got a new job at the age of 29. A number of years later, he cashed in bonds that had cost him $11,000 and received $17,000. He used this money to pay the tuition for his daughter when she started college as a freshman. His daughter was still his dependent for tax purposes. Without including these bonds, his income was $64,000. What amount of taxable income did Graziano have to report on his 2021 income tax return in connection with the redemption of these bonds? - Zero - $6,000 - $11,000 - $17,000
Zero
Norman lost his job as an investment banker and has been unemployed. He stopped making the mortgage payments on his primary residence and the lender foreclosed in 2021. His outstanding mortgage debt was $250,000 and the lender sold the property after foreclosure to a new owner for $150,000 during the same year. If the lender forgives Norman's deficiency, does he have to include the $100,000 as income? - Yes - Yes, because the lender is required to forgive the debt - No, because the foreclosed house was the taxpayer's principal residence - No, because a lender does not issue a 1099 for mortgages
No, because the foreclosed house was the taxpayer's principal residence
In December, Bubba Corporation provided a free turkey or ham to every employee who asked for one. Do the employees who received a turkey or ham have any tax consequence? - No, because these are holiday gifts of nominal value. - No, because these gifts are part of a qualified plan. - Yes, the fair market value of the turkey or ham is added to the W-2 wages of each recipient. - Yes, recipients have to report the fair market value of the turkey or ham as other income on their tax returns.
No, because these are holiday gifts of nominal value.
Larry tripped and fell at work. He was injured and his medical bills were paid by his employer's workers' compensation insurance plan. Does Larry have reportable income as a result of the paid medical bills? - Yes, because the accident was not his employer's fault. - Yes, because he was compensated. - No, because workers' compensation payments are excluded from taxable income. - No, because Larry could not work.
No, because workers' compensation payments are excluded from taxable income.
Ray sold his main home at a $30,000 gain. He has no gains or losses from the sale of property other than the gain from the sale of his home. He meets the ownership and use tests to exclude the gain from his income. He used part of the home as a business office but is not entitled to claim depreciation for the business use of his home. How does Ray report this gain? - He does not report it since he qualifies for the full exclusion - He must report the business use portion as Unrecaptured Section 1250 gain on Schedule D - He must report the gain from the business use portion as ordinary income on Form 4797 - He writes SECTION 121 EXCLUSION and subtracts $30,000 on Schedule D
He does not report it since he qualifies for the full exclusion
Ray sold his main home in 2021 at a $30,000 gain. He has no gains or losses from the sale of property other than the gain from the sale of his home. He meets the ownership and use tests to exclude the gain from his income. However, he used part of the home as a business office the prior year and claimed $500 depreciation. Which of the following statements is incorrect? - He reports a $30,000 capital gain on Form 8949 - He enters code H and subtracts $29,500 on Form 8949 - He does not report the $29,500 portion of excluded gain on Form 8949 - He reports a $500 Unrecaptured Section 1250 gain on Schedule D
He does not report the $29,500 portion of excluded gain on Form 8949
Jack was a resident of England. He may claim an exclusion from U.S. income tax on all his foreign source income under the following conditions, EXCEPT: - Tax home must be in a foreign country - Must have foreign earned income - He was a resident of England for a period of 6 months. - He is a US citizen or US resident alien
He was a resident of England for a period of 6 months.
Sonya Wilson returns to college to earn a PhD. which will enable her to do research in chemistry. The tuition for the first year is $19,000 but she receives a scholarship of $12,000 to offset part of that cost. In return, she must teach two introductory classes in chemistry to freshmen students. What is the impact on her taxable income as a result of this scholarship? - There is no impact on her taxable income - Her taxable income will decrease by $7,000 - Her taxable income will decrease by $19,000 - Her taxable income will increase by $12,000
Her taxable income will increase by $12,000
In which of the following scenarios is municipal bond interest included in taxable income? - Interest received on a bond to finance construction of a toll road - Interest received on a bond to finance a volunteer fire department - Interest received on a private activity bond - Interest received on a bond to finance utility service expansion
Interest received on a private activity bond
Room and board may be considered a qualified education expense under which of the following plans? - 529 plan - Education savings bond program - Scholarship - Fellowship
529 Plan
Of the following amounts, which is considered compensation for sickness or injury that is exempt from tax? - $5,000 damages awarded to the taxpayer which was assessed as punishment against the defendant in a lawsuit - $7,500 benefits paid to taxpayer from an accident policy, the premiums of which were paid by the employer and then included in the taxpayer's gross income - $3,000 paid to compensate an employee for 4 weeks of lost work after cutting off his finger. A separate amount was paid to compensate the taxpayer for his permanent disfigurement. - $500 paid to taxpayer from a disability policy, the premiums of which are paid 100% by the employer, and not included in employee income.
$7,500 benefits paid to taxpayer from an accident policy, the premiums of which were paid by the employer and then included in the taxpayer's gross income
Gene and Claire, a married couple filing jointly are partners in a consulting business. The partnership had gross receipts of $60,000 and a net profit of $45,000. In addition, Gene had wages of $25,000. They also received dividends of $2,000 from stock investments, City of Birmingham Bond interest of $4,000 and savings account interest of $1,000. Ignoring any SE tax adjustments, what is their adjusted gross income? - $77,000 - $92,000 - $88,000 - $73,000
$73,000
Geraldo receives a government pension based on his years of service in the amount of $1,000 per month. He would be entitled to $200 per month disability compensation from the VA if he files an application, but he does not file because it would offset his other pension and he would receive the same income. What is the amount that Geraldo must report as income per month? - $0 - $800 - $1,000 - $1,200
$800
Sam, a degree candidate at OSU, has the following education-related expenses: Tuition $3,000 School fees $300 Books and supplies $900 Room and board $3,500 Sam received financial assistance as follows: Academic scholarship $2,500 VA subsistence payments $1,000 Scholarship from a civic organization $2,500 How much income, if any, must Sam report? - $5,000 - $0 - $4,200 - $800
$800
Mark is an engineer for the Peterson LTD Partnership. Peterson has an accountable travel expense plan. Mark incurred $375 in travel expenses on a two-day business trip. When he returned to his tax home, he worked late and incurred $90 for meals. Mark gave his employer an adequate accounting for all of these expenses within a reasonable time and did not have any excess reimbursement. What amount, if any, must be included in Mark's W-2? - $375 - $465 - $0 - $90
$90
The foreign housing exclusion is subject to limitations. In general, taxpayers cannot consider housing expenses in excess of - 30% of the maximum foreign earned income exclusion (may vary by location) - 25% of the maximum foreign earned income exclusion (may vary by location) - 70% of the maximum foreign earned income exclusion (may vary by location) - 75% of the maximum foreign earned income exclusion (may vary by location)
30% of the maximum foreign earned income exclusion (may vary by location)
Archie, a US citizen whose abode remains in Florida, takes a year-long sabbatical from his job as an aerospace engineer and spends 345 days living abroad. While away, he works various jobs to finance and enrich his stay. Identify the statement below about the foreign earned income exclusion that is correct? - Archie's tax home is in Florida; Archie does not qualify for the foreign earned income exclusion - Archie must earn at least $108,700 before any foreign income can be excluded - If Archie is married, only the spouse with the higher foreign earned income may use the exclusion - Archie satisfies the bona fide residence test
Archie's tax home is in Florida; Archie does not qualify for the foreign earned income exclusion
Which of the following is NOT a condition that must be met for the accumulated interest received on United States Series EE Savings bonds to be viewed as tax exempt? - Bonds must have been issued after December 31, 1989. - The purchaser must be the sole owner (or a joint owner with spouse). - Proceeds must be used to pay the tuition and fees incurred by the taxpayer, spouse, or dependent to attend college, university, or vocational school. - Bonds must list the name of the eventual recipient of the proceeds.
Bonds must list the name of the eventual recipient of the proceeds.
In 2009, Joe and Peg refinanced the $275,000 remaining balance on loan used to build their principal residence and took cash out amounting to $50,000 to pay off their credit cards. The bank forgave the entire loan in 2021 when they became insolvent. Which statement is correct? - The entire amount of the discharged debt is included in income for 2021. - The entire amount is qualified principal residence indebtedness and is excluded from income. - They may recognize the amount included in income over a 5-year period. - Cash taken during refinancing is not qualified principal residence indebtedness.
Cash taken during refinancing is not qualified principal residence indebtedness.
What age restrictions limit contributions and distributions to a Coverdell Education Savings Account (ESA) for a beneficiary who is not a special needs beneficiary? - Contributions must be made before the beneficiary is 16 years old; distributions must be made before the beneficiary is 25 years old. - Contributions must be made before the beneficiary is 16 years old; distributions must be made before the beneficiary is 30 years old. - Contributions must be made before the beneficiary is 18 years old; distributions must be made before the beneficiary is 25 years old. - Contributions must be made before the beneficiary is 18 years old; distributions must be made within 30 days after the beneficiary reaches age 30.
Contributions must be made before the beneficiary is 18 years old; distributions must be made within 30 days after the beneficiary reaches age 30.
Which amount received as workers' compensation for an occupational sickness or injury is fully exempt from tax? - A. Workers' compensation paid to the victim - B. Workers' compensation paid to the victim's survivors - C. Workers' compensation benefits received based on length of service - D. Both A and B are correct
D. Both A and B are correct
Lance received several different awards from his employer during the tax year. Which of the following statements is true? - Lance can exclude the full value of a $500 watch he received for his 3rd employment anniversary because anniversary awards are qualified employee achievement awards. - Lance can exclude the full value of a $400 gift card awarded for his department achieving their annual safety goals. - Lance can exclude up to $2,000 for employee achievement awards received; $1,600 for qualified achievement awards plus $400 for non-qualified awards - Lance received an Ipad worth $300 as a non-qualified plan award. Lance can exclude the $300 award from income.
Lance received an Ipad worth $300 as a non-qualified plan award. Lance can exclude the $300 award from income.
In 2017, Lew bought property that consisted of a house, a stable, and 35 acres. He used the house and 7 acres as his main home and used the stable and 28 acres in his business for the next 4 years. He sold the entire property in 2021 at a $10,000 gain. Which of the following statements is incorrect? - Lew met the ownership and use tests for the house but did not meet the use test for the stable. - Lew must report the entire gain on schedule D, but he can claim a section 121 exclusion on Schedule D for his main home. - Lew reports the gain on the business part of his property on Form 4797. - He can exclude the gain on the part of the property that was his main home.
Lew must report the entire gain on schedule D, but he can claim a section 121 exclusion on Schedule D for his main home.
Lucinda enjoys water sports and owns a jet ski with an FMV of $4,600. Her AGI is $40,000. While away on business her jet ski is stolen. The insurance company issues Lucinda a check for $4,600. Which of the following statements is true about treatment of the insurance reimbursement? - Lucinda may exclude the entire $4,600 from income because insurance settlements that compensate for damaged or stolen property are excluded from income when they don't exceed the value of the property - Lucinda may exclude $4,000 of the insurance reimbursement from her income because insurance reimbursements may be excluded up to 10% of taxpayer's AGI - Lucinda must include all $4,600 in her income and will be subject to federal income tax on the full amount - Lucinda must include $500 in her income. The reimbursement up to 10% of her income is excluded from gross income. She may also exclude $100 of each reimbursement, per casualty event.
Lucinda may exclude the entire $4,600 from income because insurance settlements that compensate for damaged or stolen property are excluded from income when they don't exceed the value of the property
Which of the following statements is true about an education IRA (also known as a Coverdell Education Savings Account)? - Amounts placed in such plans, if properly constructed, provide a reduction in current year income taxes. - The beneficiary must be a blood relative. - Money that is withdrawn and properly used to pay the beneficiary's educational expenses is tax-free. - All taxpayers are allowed to create and fund education IRAs.
Money that is withdrawn and properly used to pay the beneficiary's educational expenses is tax-free.
Distributions are made from a qualified tuition program directly to a student beneficiary. If applicable, where does a taxpayer report the taxable earnings from a qualified tuition program (QTP) distribution? - On the parent's 1040, as Other Income - On the parent's 1040, as Taxable Interest - On the student's 1040, as Other Income - On the student's 1040, as Taxable Interest
On the student's 1040, as Other Income
When determining gain on the sale of a main home, a taxpayer must meet certain ownership and use tests. Which of the following is NOT a consideration? - Taxpayer must have owned the house a minimum of two years - Taxpayer must have occupied the home for a minimum of 24 months out of the five years ending on date of sale - Owner occupancy must be consecutive - Members of the military may suspend the five year test by up to 10 years if on qualified official extended duty
Owner occupancy must be consecutive
Qualified education expenses exclude amounts paid for any sports, games, or hobbies unless _________? - Required by the degree program. - The amount of payment is de minimis. - The student applies for an exemption. - The expenses are health-related.
Required by the degree program.
Which of the following items does not reduce qualified education expenses? - Tax-free scholarship - Educational-expense refunds - Employer-funded assistance - Student loans
Student loans
