ACC726: Tax Final

For a business, Sec. 1231 property does not include

inventory purchased 24 months ago

Octet Corporation placed a small storage building in service 15 years ago. Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000. This year the building is sold for $1,100,000. The amount and character of the gain are

ordinary gain of $60,000 and Sec. 1231 gain of $540,000

Sanjay is single and has taxable income of $23,000 without considering the sale of a capital asset in November of 2019 for $15,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain is

$0.

Jorge has $150,000 of self-employment earnings from a sole proprietorship. Jorge's self-employment tax for 2019 is

$20,497

Emma owns a small building ($120,000 basis and $123,000 FMV) and equipment ($35,000 adjusted basis and $22,000 FMV). Both assets were acquired three years ago and are used in Emma's business. Both are destroyed by fire. Insurance proceeds were equal to their FMVs. Only one other transfer of an asset occurs during the year, and a $3,000 LTCL is recognized. After considering all transactions, the tax result to Emma is a

$10,000 net ordinary loss and a $3,000 NLTCL

Carlotta has $50,000 foreign-source income and $150,000 total worldwide income. Her U.S. tax on her worldwide income is $30,175, and she paid foreign taxes of $16,000. What is the Carlotta's foreign tax credit?

$10,058

In 2019, Charlton and Cindy have alternative minimum taxable income of $230,000 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

$111,700

Drake and Davina are married and file a joint return for 2019 with taxable income of $100,000 and tax preferences and adjustments of $65,000 for AMT purposes. Their regular tax liability is $13,717. What is the amount of their total tax liability?

$13,858

Rontco Corporation (a C corporation) purchased an office building for $400,000 for use in its business about ten years ago. The building is sold during the current year for $350,000. Total MACRS depreciation allowed for the building was $125,000. This is the only business asset sold by the corporation over the past six years. As result of the sale, how much ordinary gain will Rontco Corporation report?

$15,000

Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah's contribution costs

$16,250

Alex is a calendar-year sole proprietor. He began business on December 1, this year. He uses the accrual method of accounting. Alex had the following collections in December: • Collected $7,000 in December, from clients who paid cash for services to be performed next year. • Collected $5,000 in December, for services performed during December; deposited in an operating account on December 31, this year. • Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2, next year. What is the amount Alex must include in his income for December?

$17,000

Timothy and Alice, who are married with modified AGI of $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to $13,000. In addition, their daughter received a $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is

$2,250

During the current year, Kayla recognizes a $40,000 Sec. 1231 gain on sale of land and a $22,000 Sec. 1231 loss on the sale of land. Prior to this, Kayla's only Sec. 1231 item was a $10,000 loss six years ago. Kayla is in the 24% marginal tax bracket. The amount of tax resulting from these transactions is

$2,700

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

$4,000

Mr. Dennis purchased a machine for use in his business. Mr. Dennis' costs in connection with this purchase were as follows: Note to seller $33,000 Cash paid to seller 5,000 State sales tax 2,400 Freight to place of business 1,500 Wages paid to workers to install machine 4,200 What is the amount of Mr. Dennis' basis in the machine?

$46,100

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?

$5,000

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

$5,000

Terry has sold equipment used in her business. She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use. In order to recognize any Sec. 1231 gain, she must sell the equipment for more than

$50,000

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)?

$6,600

Bud and Stella are married, file a joint return, and have one child, age 3. Their combined AGI is $35,000. Bud and Stella incur $3,500 of child care expenses during the current year. The child and dependent care credit is

$750

Marta purchased residential rental property for $600,000 on January 1, 1985. Total ACRS deductions for 1985 through the date of sale amounted to $600,000. If the straight-line method of depreciation had been used, depreciation would have been $600,000. The property is sold for $750,000 on January 1 of the current year. The amount and character of the gain is

$750,000 Sec. 1231 gain

Caleb's 2019 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

$9,100.

If a taxpayer's AGI is greater than $150,000, no penalty will be imposed if the taxpayer pays estimated tax payments in 2019 equal to what percentage of 2018's income tax liability?

110%

A building used in a business for more than a year is sold. Sec. 1250 will not cause depreciation recapture if

A) the building was placed in service after 1986. B) straight-line depreciation was used. C) the building is fully depreciated. D) All of the above (correct)

Why did Congress establish favorable treatment for 1231 assets?

A) to allow a larger deduction for losses B) to encourage the mobility of capital C) to help business owners replace assets which had declined in value D) all of the above (correct)

Which of the following advance payments cannot qualify for income tax deferral?

Advance collection of rent without associated services

Investment interest expense is deductible

As an itemized deduction.

All of the following statements are true regarding the Lifetime Learning Credit except which one?

In order to qualify for the Lifetime Learning Credit, a student must be enrolled at least 1/2 time.

A wage cap does not exist for which of the following self-employment taxes?

Medicare

All of the following payments for medical items are deductible with the exception of the payment for

Nonprescription medicine for treatment of a specific medical condition.

Jeremy has $18,000 of Sec. 1231 gains and $23,000 of Sec. 1231 losses. The gains and losses are characterized as

Ordinary Income $18,000 Ordinary Loss $23,000

Which one of the following does not affect the adjusted basis of a house held as rental property?

Painting of more than 50% of the rooms in the home

Which of the following items will result in an increase in gross income?

Preparing a mechanic's tax return in exchange for the mechanic replacing the muffler on your car

Which of the following taxes is proportional?

Sales tax

All of the following statements regarding Sec. 1245 are true except

Sec. 1245 applies to assets sold or exchanged at a gain or at a loss

During the current year, Hugo sells equipment for $150,000. The equipment cost $175,000 when placed in service two years ago, and $55,000 of depreciation deductions were allowed. The results of the sale are

Sec. 1245 ordinary income $30,000

Until about 100 years ago, attempts to impose a federal income tax were ruled unconstitutional. The amendment to the U.S. Constitution allowing the imposition of a federal income tax is the

Sixteenth Amendment

Self-employment taxes include components for

Social Security and Medicare hospital insurance

If an individual is liable for self-employment tax, a portion of the self-employment tax is

a for AGI deduction

In computing AMTI, tax preference items are

added only

A taxpayer is paying alternative minimum tax this year. The AMT is primarily due to timing differences, resulting in the creation of a minimum tax credit. The taxpayer will apply the minimum tax credit

against a future year's regular tax liability when regular tax exceeds the tentative minimum tax

All of the following are self-employment income except

dividends received by a corporate shareholder

The following taxes are deductible as itemized deductions with the exception of

federal income taxes

A corporation owns many acres of timber, which it acquired three years ago, and which has a $150,000 basis for depletion. The timber is cut during the current year for use in the corporation's business. The FMV of the timber on the first day of the current year is $280,000. If the corporation makes the appropriate election, the tax result is

recognition of a Sec. 1231 gain of $130,000

All of the following are allowable deductions under the alternative minimum tax except

state income taxes