Tax 5

In 2022, Rusty paid $5,000 of interest on a qualified education loan. Rusty is not claimed as a dependent by another taxpayer. What is the maximum deduction available to him for the education loan interest?

$2,500

For 2021 and 2022, Malcom and Julie, husband and wife, paid health insurance premiums of $3,000 each year ($1,500 for each person). Malcom was self-employed, and his net profit was $70,000 in 2021 and $80,000 in 2022. Julie was unemployed in 2021 then took a job in January 2022. She had the option to join a subsidized health plan for the family with her employer but declined. Since this expense is not deductible on Schedule C, what amount can they deduct elsewhere as a business expense for the health insurance premiums on their 2021 and 2022 joint tax returns?

2021: $3,000; 2022: $0.

When funds from an Archer MSA are distributed for qualified medical expenses, these funds are

Generally excluded from the income of the taxpayer.

All of the following are true about Health Savings Accounts EXCEPT

The amount that may be contributed to a taxpayer's Health Savings Account does not depend on the nature of the taxpayer's coverage and age.

In which situation must a taxpayer pay the additional 10% tax on a premature distribution from his IRA?

Taxpayer, age 25, used the distribution to pay emergency medical bills for his wife. The medical bills equal 3% of the couple's AGI.

Mr. and Mrs. Smith are both employed and file joint federal income tax returns. Both Mr. and Mrs. Smith are covered by their employers' retirement plans. For 2022, Mr. Smith's salary was $40,000 and Mrs. Smith's was $12,000. They both have IRAs, and their combined modified adjusted gross income was $52,000. Mr. Smith contributed $6,000 to his IRA, and Mrs. Smith contributed $3,000 to her IRA. What is the maximum IRA deduction each is entitled to for 2022?

Mr. Smith $6,000 Mrs. Smith $3,000

Mrs. Domino made deductible contributions to traditional individual retirement accounts for several years. Mrs. Domino decides to withdraw $10,000 from one of her accounts in 2022. Mrs. Domino is 61 years old. How does this transaction affect Mrs. Domino's tax return for 2022?

Mrs. Domino must report the entire amount of $10,000.

During the current year, Amanda, who is single, received $110,000 in salary and realized a $30,000 loss from her rental real estate activities in which she actively participates. She contributed $2,000 to an IRA. What is the amount that Amanda may claim as loss from her current-year real estate activities?

$20,000

Barry is a lawyer. He owns 10 apartment buildings that are managed by his brother's real estate business. At the end of the year, the apartment buildings resulted in a $40,000 loss. Barry earned $80,000 in wages. His wife, Claire, earned $20,000 from her part-time job. Their other income included $5,000 in dividends from their mutual funds. They had no other income. How much of the rental loss can Barry use assuming Barry actively participates in the apartment buildings?

$22,500

Erica received $40,000 in wages, and her husband Paul had a net loss of $2,000 on his Schedule C. Paul materially participated in his Schedule C activity. They had interest income of $500. Paul also had a $28,000 loss from a rental real estate activity in which he actively participates. How much of the rental loss can they deduct on their current-year joint income tax return?

$25,000

Miss Jones owns several rental properties, which she acquired in January of last year, and actively participates in all activities connected with the rentals. She received a salary of $42,300 from her advertising job in the current year. Her net rental loss for the current year was $60,000. What is the amount of rental loss that Miss Jones can deduct in the current year?

$25,000

Tom Brown, who is single, owns a rental apartment building property. This is the only rental property that Tom owns. He actively participates in this rental activity as he collects the rents and performs ordinary and necessary repairs. In the current year, Tom had a loss of $30,000 on this rental activity and had no reportable passive income. His adjusted gross income, without regard to this rental loss, is $60,000. How much of the rental loss may Tom deduct on his current year return?

$25,000

All of the following types of income are considered includible compensation for purposes of deductible contributions to an individual retirement account EXCEPT

Pension distributions.

A payment by a taxpayer to a former spouse pursuant to an agreement executed prior to 2019 may qualify as alimony even though

The payment is to a third party.

With regard to the passive loss rules involving rental real estate activities, which one of the following statements is true?

The term "passive activity" loss limitations does not apply to a rental real estate activity when the individual performs more than 50% of his or her personal services during the year in real property trades or businesses in which (s)he materially participates and at least 750 hours of service are performed in those real property trades or businesses in which (s)he materially participates.

All of the outstanding stock of Bryant Corporation is owned equally by three individuals (i.e., it is a closely held corporation). Bryant is not a personal service corporation. During the current year, Bryant had active rental real estate income of $250,000, a passive loss on the rental of an office building (acquired in 1989) of $300,000, and portfolio income of $150,000. The corporation earns more than 60% of its gross receipts from the rental real estate in which it materially participates. How much of Bryant's income may be offset by the rental loss?

$250,000 rental income and $50,000 portfolio income.

Larry and Marge Strong are married and living together. They have decided to file joint federal income tax returns for 2022. Larry is an active participant in his employer's pension plan. Marge is not an active participant in any plan. Each contributed $6,000 to an individual retirement account (IRA) on February 1, 2023. Larry's adjusted gross income is $134,000 and Marge's is $75,000. The deductible portion of Marge's contribution to her IRA is

$3,000

Consider the following expenditures and determine the total amount that would be deducted as adjustments to income in arriving at adjusted gross income (assuming no income limitations and including appropriate amounts in Gross Income as required) on Form 1040, Individual Income Tax Return:$1,000 interest paid on student loan$2,000 paid to a deductible IRA plan$100 jury duty pay given to the employer$500 nondeductible expenses from the nonbusiness rental of personal property ($500 income received)

$3,100

Sol and Julia Crane are married and filed a joint return for 2022. Sol earned a salary of $131,000 in 2022 from his job at Troy Corporation, where he is covered by his employer's pension plan. In addition, Sol and Julia earned interest of $5,000 in 2022 on their joint savings account. Julia is not employed, and the couple had no other income. On January 15, 2023, Sol contributed $6,000 to an IRA for himself and $6,000 to an IRA for his spouse. The allowable IRA deduction in the Cranes' 2022 joint return is

$6,000

Horace and Matilda are married and filing a joint tax return for the year. Horace teaches a 3rd grade class and Matilda teaches a 6th grade class at Oak Elementary School. What is the maximum amount of qualified educator expenses they may deduct on their tax return for the year?

$600

Julie and Frank were married on March 10. Both are full-time third-grade teachers, and they equally incurred a total of $400 in expenses for books and supplies used in the classroom and were not reimbursed by the school. What amount are they entitled to deduct as an education expense on their joint income tax return?

$600

James (33) and his wife Erica (31) established a Health Savings Account (in conjunction with a high-deductible health plan) on February 1, 2022. The annual health plan deductible is $10,000. What is the maximum amount that can be contributed to the Health Savings Account?

$7,300

John divorced Lisa in 2017. During 2022, per the divorce decree, John made the following payments:The entire mortgage payment on house (jointly owned)$10,800Tuition for their child6,000Child support4,500Life insurance premiums on policy owned by Lisa3,000What is the amount John can deduct as alimony on his 2022 tax return?

$8,400

Which of the following is NOT a qualified education expense for purposes of the student loan interest deduction?

All of the choices are qualified education expenses.

Clarence, a real estate professional, owned 10 rental properties. Clarence's real estate activities are his sole occupation, which he works at all year. Throughout 2022, Clarence was involved in the operation of all properties on a regular, continuous, and substantial basis. At the end of the year, his real estate operations resulted in a $75,000 net loss. Clarence's spouse, Carlette, had received $90,000 in wages in 2022. Their only other income during the year was $5,000 interest. Which of the following statements is true?

Clarence and Carlette may fully offset their $95,000 income with their $75,000 real estate loss on their 2022 joint tax return.

Passive activity rules apply to

Closely held corporations.

Archer MSA contributions are subject to an annual limitation, which is

A percentage of the required "high deductible" health plan amount.

Which of the following is a true statement concerning losses from passive activities?

Losses from one passive activity may offset income from another passive activity.

Henry, a single taxpayer, completed his graduate degree in April of 2017 with a significant amount of student loan debt but now makes a modified adjusted gross income of $115,000 per year. Each year, Henry makes payments toward his debt. In 2022, Henry paid $16,000 toward the principal of his debt and $4,000 of interest. How much interest may Henry deduct on his 2022 tax return?

$0

Mr. K paid $500 a month for 3 months to his estranged wife while they were negotiating a written separation agreement. Mr. K filed a separate return for the current year. An agreement reached June 1 of the current year required Mr. K to pay $300 a month as alimony. Mr. K made payments of $2,100 for the period June 1 to December 31 of the current year. What is Mr. K's correct alimony deduction for the current year?

$0

Rick and Stacy were divorced in February of the current year. Requirements of the divorce decree and Stacy's performance follow:Transfer title to their residence to Rick. Stacy's basis was $95,000, the fair market value was $105,000, and the residence was subject to a mortgage of $90,000.Make the mortgage payments of $1,000 per month (beginning in March) for the remaining 20 years or until Rick dies, if sooner.Pay Rick $500 per month (beginning in March) for 6 years or until Rick dies, if sooner. Of this amount, $200 is designated as child support. Stacy's current-year alimony deduction is

$0

Starting in 2022, Mr. West must pay his former spouse $20,000 annually under a 2022 divorce decree in the following amounts:$1,000 a month for mortgage payments (including principal and interest) on a jointly-owned home$250 a month for tuition fees paid to a private school until their son attains the age of 18 or leaves the school prior to age 18$5,000-a-year cash payment to the former Mrs. WestIn addition to the above amounts, the former Mrs. West also received in 2022 a lump-sum amount of $150,000 from the sale of their other marital assets Assume the parties did not file a joint return and were not members of the same household. Also, assume that there were no written statements between the parties as to how the amounts should be treated. What is the amount of Mr. West's 2022 alimony deductions?

$0

Todd and Susan divorced on September 1, 2022. As part of the divorce decree, beginning in September, Todd was to make payments of $2,000 a month for the balance of the year to Susan's doctor for recent medical expenses, child support payments of $500 per month, and $1,500 a month for the mortgage payment on a jointly owned home. Susan and the children will continue to live in the home. What is the amount that Todd can deduct as alimony for 2022?

$0

Your divorce decree, which became final in 2018, requires that you pay $400 a month, of which $250 is specified as child support. During 2022, you pay only $4,000, although in no month did you pay less than $250. What amount may you deduct and must your former spouse report as alimony?

$1,000

Mr. Jones had a student loan for qualified higher education expenses on which interest was due. The loan payments were required from July 1, 2017, until December 31, 2022. The interest payments were $1,200 per year. How much may he deduct in arriving at adjusted gross income in 2022?

$1,200

Dr. J has adjusted gross income for the current year of $130,000 before the deduction for a $6,000 contribution to his IRA, and before any potential deduction for $40,000 of losses from rental real estate activities in which he actively participates. How much of the rental losses may he deduct if the rental real estate activities were acquired in the current year?

$10,000

Joe divorced Renee in 2018. During the current year, per the divorce decree, Joe made the following payments to Renee:The entire mortgage payment on house jointly owned$9,600Tuition for their child2,800Child support6,000Life insurance premiums on policy owned by Renee5,400What is the amount Joe can deduct as alimony on his tax return?

$10,200

Fern is a self-employed florist. In 2022, she paid self-employment tax of $5,000 ($2,500 employer's portion) and $8,000 in medical insurance premiums. What amount of these expenses may Fern deduct in arriving at adjusted gross income?

$10,500

Bonnie received $30,000 in wages, and her husband Clyde had a net loss of $2,500 on his Schedule C (the loss was not a hobby loss under the tax code). Clyde materially participated in his Schedule C activity. They had dividend income of $1,500. Clyde also had a $20,000 loss from a rental real estate activity in which he actively participated. How much of the rental loss can they deduct on their current-year joint income tax return?

$20,000

Harry and Sally are married and both are under age 50. During 2022, Harry earned $1,500 and Sally earned $38,000. Neither is covered by an employer retirement plan. What is the maximum amount they can contribute to their individual retirement accounts for 2022?

$12,000

In the current year, Heidi, a self-employed individual, had net profits from her Schedule C business of $125,000. Besides her Schedule C deductions, Heidi took a $9,563 deduction for her self-employment taxes, and her deduction for self-employed health insurance was $650. Heidi also realized a $30,000 loss from her rental real estate activity in which she actively participated. What is Heidi's deductible rental real estate loss for the current year?

$12,825

Ms. Seabreeze had the following during the current year: Alimony received (post-2018 divorce) $ 6,000 Wages 14,000 Net loss from self-employment (10,000) Interest income 5,000 For the purpose of an IRA, Ms. Seabreeze had compensation for the current year of

$14,000

Heathcliff and Gertrude file a joint income tax return for the current year. During the current year, Heathcliff received wages of $120,000 and taxable Social Security benefits of $5,000. Gertrude actively participated in a rental real estate activity in which she had a $30,000 loss. They had no other income during the current year. How much of the rental loss may they deduct on their current-year income tax return?

$15,000

Bernie is a self-employed accountant in 2022. He reported net income of $54,150 on his Schedule C for 2022. During the year, Bernie paid the following: $5,200 in child support, $5,000 in alimony (pre-2019 divorce), $6,000 in medical insurance premiums, self-employment tax of $7,650, and $2,000 to his IRA plan. What amounts are deductible in arriving at adjusted gross income?

$16,825

Joanna completed 4 years of higher education in 2019 and makes a payment on her student loan debt each year. In 2022, Joanna paid $11,000 on her student loans, of which $8,400 is attributable to principal. What amount of the interest may be deducted as an above-the-line deduction for 2022?

$2,500

Kathy paid $8,000 of interest on qualified education loans in 2022. Kathy is not claimed as a dependent by another taxpayer. Since she graduated from medical school 7 years ago, she has faithfully paid the minimum interest due each month. What is the maximum deduction available to her for education loan interest in 2022?

$2,500

Rebecca graduated from college in 2021. She refinanced her qualified education loans in 2022 with another loan. She is not claimed as a dependent by another taxpayer. What is the maximum deduction available to her for the $3,000 paid for education loan interest in 2022?

$2,500

Chris, age 35, contributes the following amounts to his self-only Health Savings Account:$500 on April 30, 2022$300 on September 16, 2022$750 on December 31, 2022$1,000 on February 5, 2023$1,600 on April 30, 2023 What amounts are considered contributions to the Health Savings Account for 2022?

$2,550

Caitlin served as a kindergarten aide for 1,000 hours. She incurred $400 in expenses for books and supplies used in the classroom and was not reimbursed by the school. What amount is Caitlin entitled to as the educator's expense deduction on her income tax return?

$300

The following items are reported on Mr. and Mrs. Spice's 2022 joint return:Net profit on Mrs. Spice's Schedule C of $40,000Mr. Spice's paid court-ordered alimony of $5,000 for a pre-2019 divorceSelf-Employment Tax of $5,650 on Mrs. Spice's Schedule C profit ($2,825 employer's portion) Compute their adjusted gross income for 2022.

$32,175

Maria received $40,000 in wages, and her husband Scott had a net gain of $8,500 on a passive partnership interest. Scott also had a $35,000 loss from a rental real estate activity in which he actively participated. How much of the rental loss can they deduct on their current-year joint income tax return?

$33,500

Cole earned $40,000 in wages, incurred $1,000 in unreimbursed employee business expenses, paid $400 as interest on a student loan, and spent $100 on supplies for use in his kindergarten classroom, which was not reimbursed. Cole is single and does not itemize. What is Cole's adjusted gross income?

$39,500

Alex started his own welding business this year. He paid $8,000 for a truck, contributed $15,000 cash and paid $20,000 for tools for the business. His bank loaned $50,000 to buy a building for the business. The building secures the loan. What is Alex's at-risk amount for this activity?

$43,000

A taxpayer who materially participates in rental real estate activities in the current year may offset some losses and credits from the activity against nonpassive income (salary, self-employment earnings, etc.) provided that the taxpayer performs more than 50% of his or her personal services for the year in real property trades or businesses in which (s)he materially participates and the number of service hours performed in those real property trades or businesses in which (s)he materially participates is more than

750

Who is eligible for an Archer MSA in 2022?

A maximum of only 750,000 individuals who have elected coverage in a high-deductible health plan and are either self-employed or employed by a small employer with no more than 50 workers when the Archer MSA is established (Publication 969).

Which of the following is NOT an example of a passive activity?

A working interest in oil and gas property, when the taxpayer-owner has unlimited liability, and does not materially participate in the activity.

Bill took out a $100,000 non-recourse loan and bought an apartment building. The building is not security for the loan. Bill spent $25,000 of his own money on repairs before he rented the apartment building to the public. Bill is single, works full-time, and earns $80,000 per year. Bill's loss from the rental real estate activity, in which he actively participates, is $30,000. He has no passive income. For what amount is Bill at-risk, and how much of Bill's passive loss from his rental activity is deductible?

At-Risk $25,000 Passive Loss $25,000

Which one of the following is NOT an adjustment to total income in arriving at adjusted gross income?

Contributions to a Roth IRA.

Susie was paid $150 for serving as a juror. Susie's employer continued to pay Susie her salary while she served on the jury, so she is required to turn the jury duty pay over to her employer. How should Susie account for the jury duty pay?

Deduct the $150 from gross income.

Which IRA distributions made to a taxpayer before age 59 1/2 are NOT subject to the 10% penalty tax?

Distributions made to pay medical expenses in excess of 7.5% of AGI.

An individual starts paying student loan interest in the current year. For how many years may the individual deduct a portion of the student loan interest?

Duration of time that interest is paid.

Which of the following is NOT a payment deductible as alimony for pre-2019 divorces?

Payments for child support required by the divorce decree.

Which of the following items may be considered alimony for pre-2019 divorces?

Payments made to a third party on behalf of the former spouse for the former spouse's medical expenses.

The at-risk rules

Limit a taxpayer's deductible losses from investment activities.

Which of the following would be considered passive activity income?

None of the answers are correct.

Each of the following would be one of the requirements for a payment to be alimony under instruments executed after 1984 but before 2019 EXCEPT

Payments are from spouses filing a joint return.

All of the following are requirements for a payment to be alimony (under instruments executed after 1984 but before 2019), EXCEPT

Payments can be in cash or property.

In the current year, Ms. Smith withdrew her funds from a time-savings account before maturity and was charged a penalty of $2,000 for early withdrawal. The interest earned on the account in the current year was $1,600. Ms. Smith had no other interest income. How should Ms. Smith report this transaction on her current-year individual income tax return?

Report $1,600 interest income; deduct penalty of $2,000 as an adjustment to gross income to arrive at adjusted gross income.

In the current year, the Aloha Gardens apartment complex had rental losses of $40,000. Which of the following is true?

Steve and his wife Barbara each have a 5% interest in the property and manage the apartments. They had nonpassive income of $30,000 for the year. They may offset their share of the rental loss against their nonpassive income.

Sunnie is single and under the age of 50 and does not actively participate in her employer's pension plan. She received taxable compensation of $5,500 in 2021 and $6,000 in 2022. Her modified adjusted gross income was $25,000 in both years. For 2021, she contributed $6,000 to her IRA but deducted only $5,500 on her income tax return. For 2022, she contributed $5,500 but deducted $6,000 on her income tax return. Based on this information, which of the following statements is true?

Sunnie must pay an excise tax for 2021 on the $500 excess contribution made in 2021, but since she properly treated the 2021 excess contribution as part of her 2022 deduction, she does not owe the excise tax for 2022.

All of the following are true about Archer MSAs EXCEPT

The Archer MSA deduction is included with other medical expenses.

Which of the following would NOT be considered alimony with respect to payments to or for a spouse under a divorce or separation instrument executed prior to 2019?

Transfer of services or property (including a debt instrument of a third party or an annuity contract).

Larry purchased 100 shares of ABC stock on May 31, Year 1, for $100 per share. On October 28, Year 1, he sold the 100 shares for $90 per share. On November 22, Year 1, his wife, Vickie, purchased 100 shares of ABC stock for $80 per share. Vickie held the stock until September 30, Year 2. On that date, she sold the stock for $110 per share. They filed married filing separately on all returns.

Vickie will have a long-term gain of $2,000 on her Year 2 tax return and Larry will not have any capital loss on his Year 1 tax return.

All of the following statements relating to net operating losses and the at-risk limits are true EXCEPT

You are considered at-risk for the amount of money you borrow to contribute to an activity, other than activities involving the holding of real property, if the lender's recourse is only to your interest in the activity.

Under the rules governing the existence of a passive activity, which of the following would NOT constitute material participation in a trade or business activity for the current tax year?

You participated in the activity for less than 100 hours, but you participated on a regular, continuous, and substantial basis.