TAX
If realized gain from disposition of business equipment exceeds total depreciation or cost recovery, a portion of the gain will receive Sec. 1231 treatment if the equipment's holding period is more than one year. True False
True
What is the maximum child and dependent care credit available to an employed individual who has $8,000 of qualifying child care expenses and two or more qualifying dependents? The maximum amount of child and dependent care expenses that qualify for the credit for a taxpayer with two or more qualifying individuals is $*blank* . A taxpayer who has $8,000 of eligible expenses may claim a maximum credit of $*blank* The credit rate decreases to a minimum of *blank* % as the taxpayer's AGI increases from $15,000 to $43,000. If the taxpayer's AGI exceeds $43,000, the maximum credit is $*blank* .
1. 6,000 2. 2,100 3. 20% 4. 1,200
Hank sells equipment used in a trade or business for $25,000. The equipment costs $30,000 and has an adjusted basis of $25,500. Why is it important to know the holding period? If the holding period is *blank* or less, the *blank* *blank* If the holding period is more than *blank* *blank*
1. One year 2. 500 3. loss is ordinary 4. one year 5. the loss is a Sec. 1231 loss that may offset other Sec. 1231 gains
Mitchell and Debbie Dixon, a married couple, sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage. To make the sale, the Dixons pay $4,000 in commissions and $1,000 in legal costs. The couple has 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. $170,000 C. $100,000 D. $165,000
A. $0
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.$140,000. C.$120,000. D.$40,000.
A. $0.
Jorge has $150,000 of self−employment earnings from a sole proprietorship. Jorge's self−employment tax for 2019 is A. $20,497. B.$21,194. C.$22,950. D.$19,645.
A. $20,497.
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? A. $5,500 B.$5,000 C.$3,000 D.$6,000
B.$5,000
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 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. D. 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.
Kerry is single and has AGI of $25,000 in 2019. During the year he contributes $5,000 to his Roth IRA. What is the amount of qualified retirement savings contributions credit to which he is entitled? A. $400 B. $1,000 C. $200 D. $800
C. $200
Pierce sold his home this year. He had owned and lived in the house for 10 years. Pierce signed a contract on March 4 to sell his home. Sales price $600,000 Selling expense. 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. $40,000 C. $25,000 D. $275,000
C. $25,000
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. $22,000 B. $10,000 C. $32,000 D. $40,000
C. $32,000
Caitlyn purchases and places in service property costing $1,050,000 in 2019. She wants to elect the maximum Sec. 179 deduction allowed and does not plan to apply bonus depreciation. Her business income is $900,000. What is the amount of her allowable Sec. 179 deduction andcarryover, if any? A. 179 deduction Carryover $1,020,000 $0 B. 179 deduction Carryover $900,000 $150,000 C. 179 deduction Carryover $900,000 $120,000 D. 179 deduction Carryover $900,000 $0
C. 179 deduction Carryover $900,000 $120,000
A taxpayer acquired new machinery costing $50,000 three years ago. The taxpayer had elected Sec. 179 expensing to deduct the full cost in the year of acquisition. The taxpayer sells the machinery this year and realizes a $32,000 gain. Sec. 1245 will not require any ordinary income recapture on the sale of this asset due to the Sec. 179 expensing. True False
False
On its tax return, a corporation will use the same depreciation, amortization and depletion methods used in its financial statements issued to shareholders. True False
False
Qualified tuition and related expenses eligible for the American Opportunity Tax Credit are limited to those incurred the first two years of postsecondary education. True False
False
Section 179 allows taxpayers to immediately expense up to $1,020,000 for 2019 of the cost of real and personal property placed into service in a trade or business, subject to limitations. True False
False
The earned income credit is available only to taxpayers with qualifying children. True False
False
The mid−quarter convention applies to personal and real property. True False
False
Sec. 1231 property must satisfy a holding period of more than one year. True False
True
The MACRS system requires that residential rental property and nonresidential real property be depreciated using the straight−line method. True False
True
The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized. True False
True
The alternative minimum tax applies to individuals only if it exceeds the taxpayer's regular income tax liability. True False
True
Kassandra purchased a computer three years ago for $20,500 to use exclusively in her business. She expensed the entire cost of the computer under Sec. 179. If she sells the computer during the current year for $4,800, what is the amount and character of her recognized gain? (Complete all input fields. Enter a "0" if there is no recognized gain.) Character Amount blank* blank*
character->Sec. 1245 ordinary income amount-> $4,800
During the current year, Rulon's toilet overflowed due to a pipe breaking during a nationally declared earthquake disaster. Rulon was at work when the earthquake hit, and by the time he returned, the water had flooded the basement, causing damage to the carpet, walls, and ceiling. The cost of repairing the damage was $9,000. Rulon has homeowners insurance that will cover half of the damage. However, because he has already had claims this year, Rulon does not want to report the incident to his insurance company for fear of a large increase in insurance rates.Instead, Rulon wants to deduct the loss as a casualty loss on his tax return. His AGI for this year is $50,000, and he has other itemized deductions of $6,000. Rulon is single. What amount of the casualty loss may he deduct? (Enter a "0" if none of the loss is deductible.) The amount of the casualty loss Rulon may deduct is .
zero
Kayla reported the following amounts in her 2019 tax return: Interest income $ 6,000 Loss from sole proprietorship (20,000) AGI (14,000) Standard deduction (12,200) ($26,200) Kayla has generated an NOL of A.($20,000). B.($14,000). C.$0. D.($26,000).
($20,000)
The maximum amount of the American Opportunity Tax Credit for each qualified student is A. $2,500. B. $2,000. C. $3,000. D. $1,500.
A. $2,500.
Jeffery and Cassie, who are married with modified AGI of $90,000, are sending their son to his first year of college. Their total tuition and related payments during 2019 amounted to $5,500. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit for 2019 is A.$5,000. B.$2,000. C.$1,500. D.$2,500.
D.$2,500.
Mark owns an unincorporated business and has $20,000 of Sec. 1231 gains and $22,000 of Sec. 1231 losses. He must report a net capital loss of $2,000 on his tax return. True False
False
The purpose of Sec. 1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec. 1231 treatment when the asset was sold. True False
True
Under the MACRS rules, salvage value is not considered in the computation of the cost−recovery or depreciation amount. True False
True
All of the following losses are deductible except A. abandonment of business property. B. a net operating loss. C. total worthlessness of securities. D. decline in value of securities.
decline in value of securities.
Which of the following is most likely not considered a casualty? A. water damage caused by the bursting of a water heater B. death of pine trees on a Christmas tree farm due to a two−day infestation of pine beetles C. water damage to the walls and ceiling of a building as the result of gradual deterioration of the roof D. fire loss
water damage to the walls and ceiling of a building as the result of gradual deterioration of the roof
A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years. True False
False
See Excel sheet
*
See excel
*
A casualty gain is realized when the *blank* For personal-use property, all the casualty gains and losses realized during the year are *blank* If the losses exceed the gains, the excess is *blank* of the taxpayer's AGI and the remainder is deductible as a *blank* AGI deduction if the *blank* However, if the casualty gains exceed the casualty losses for the year, the gain is treated as a *blank*
*insurance proceeds received exceed the taxpayer's adjusted basis in the property. *netted together. *reduced by 10% *from *loss is due to a federally declared disaster. *long-term capital gain.
Dinah owned land with a FMV of $130,000 (adjusted basis $120,000) which is investment property (a capital asset). Dinah owned a second tract of land, a 1231 asset, with a FMV of $46,000 (adjusted basis $50,000). Both tracts were acquired in 2001 and condemned by the state this year. The state paid an amount equal to FMV. If there are no other transactions involving capital assets or 1231 assets, Dinah must report on her current year return A. $6,000 net Sec. 1231 gain treated as a net capital gain. B. a LTCG of $10,000 and a 1231 loss of $4,000. C. $6,000 net ordinary income. D. a LTCG of $10,000 and a nondeductible loss of $4,000.
A. $6,000 net Sec. 1231 gain treated as a net capital gain.
Why is it important to identify exactly what constitutes an activity for purposes of the passive activity rules? A. The rental losses allowed under the special real estate exceptions must not be mixed in with losses from other types of passive activities. B.Suspended losses are deductible only upon the complete disposition of the passive activity. C. A taxpayer's material participation in an activity is determined separately for each activity. D.All of the above.
All of the above.
Jake and Christina are married and file a joint return for 2019 with taxable income of $100,000 and tax preferences and adjustments of $30,000 for AMT purposes. Their regular tax liability is $13,717. What is the amount of their total tax liability? A.$18,475 B.$13,717 C.$4,758 D.$15,158
B. $13,717
Dean exchanges a business storage facility with a $120,000 adjusted basis for $40,000 cash and a parking lot with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange? A. $0 B. $40,000 C. $60,000 D. $20,000
B. $40,000
Does the AMT apply if an individual's tax liability as computed under the AMT rules is less than his or her regular tax amount? A Yes. B. No.
B. No.
Rhonda acquires and places into service 5-year and 7-year property to use in her sole proprietorship. Rhonda's marginal tax rate currently is 24%, but she expects it to increase to 37% because her business' income is rapidly increasing. Explain why Rhonda may prefer to elect the alternative depreciation system, rather than claiming regular MACRS depreciation. A. MACRS depreciation would be preferable to straight-line (ADS) depreciation in this case because it will give Rhonda lower deductions and higher taxable income in the years when her marginal tax rate is low. ADS would accelerate deductions into the low-rate years and reduce deductions in the high rate years, causing higher taxable income. B. Rhonda expects her marginal tax rate to be higher after the current year, so a depreciation deduction saves her more taxes in the future than in the current year. The alternative depreciation system (ADS) uses the straight-line method of depreciation, while MACRS uses the200%-declining balance method for 5-year and 7-year property. By electing the ADS, Rhonda deducts less of the property's cost in the current year (which would otherwise save taxes at a 24% rate) and more of the cost in the future (expected to save taxes at a 37% rate). Also, the ADS often uses a depreciable life that is longer than that under MACRS, which further reduces the portion of the property's cost Rhonda deducts in the first year. Although Rhonda's use of the ADS is expected to result in greater tax savings, she should consider the time value of money because the tax savings are deferred. This is the correct answer. C. Straight-line (ADS) depreciation would be preferable to MACRS in this case because it will give Rhonda a consistent deduction over the life of the asset to assist with better tax planning in future years. D. MACRS depreciation would be preferable to straight-line (ADS) depreciation in this case because Rhonda wants to generate net operating losses that she can then use to offset taxable income when the tax rate increases causing lower taxable income.
B. Rhonda expects her marginal tax rate to be higher after the current year, so a depreciation deduction saves her more taxes in the future than in the current year. The alternative depreciation system (ADS) uses the straight-line method of depreciation, while MACRS uses the200%-declining balance method for 5-year and 7-year property. By electing the ADS, Rhonda deducts less of the property's cost in the current year (which would otherwise save taxes at a 24% rate) and more of the cost in the future (expected to save taxes at a 37% rate). Also, the ADS often uses a depreciable life that is longer than that under MACRS, which further reduces the portion of the property's cost Rhonda deducts in the first year. Although Rhonda's use of the ADS is expected to result in greater tax savings, she should consider the time value of money because the tax savings are deferred. This is the correct answer.
Which of the following assets is 1231 property? A. items held for resale by a retailer B. a machine used in the company's manufacturing operations C. land held for investment D. an investment in corporate stock
B. a machine used in the company's manufacturing operations
All of the following qualify as a like−kind exchange except A. improved real estate held for investment for unimproved real estate held for investment. B. a printer used in trade or business for a computer used in trade or business. This is the correct answer. C. an apartment building held for investment for a warehouse used in a trade or business. D. all of the exchanges qualify as like−kind exchanges.
B. a printer used in trade or business for a computer used in trade or business.
Nonrefundable tax credits A. may only be used if the taxpayer is receiving a refund. B. only offset a taxpayer's tax liability in the current year. C. allow the excess over the taxpayer's tax liability to be paid to the taxpayer. D. can be carried back tone year and carried forward 15 years if they exceed tax liability in the current year.
B. only offset a taxpayer's tax liability in the current year.
Which of the following statements is false regarding involuntary conversions? A. 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. B. A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. C. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. D. If deferral of gain is elected, the holding period of the converted property carries over to the replacement property.
C. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.
Why is it unlikely that gains due to the sale of equipment will be treated as Sec. 1231 gains? A. Equipment is Sec. 1245 property and generally all of the gain is ordinary income. Taxpayers must sell the equipment within 30 days to have any of the gain treated as Sec. 1231 gain. B. Only equipment that is used in a trade or business for more than 10 years qualifies for Sec. 1231 gains. C. Equipment is Sec. 1245 property and gain to the extent of total depreciation is ordinary income but limited to the amount of realized gain. Generally, the amount of depreciation is greater than the gain realized. Taxpayers must sell the equipment for more than the original basis to have any of the gain treated as Sec. 1231 gain. D. Equipment is Sec. 1250 property and generally all of the gain is ordinary income. Taxpayers must sell the equipment within 1 year to have any of the gain treated as Sec. 1231 gain.
C. Equipment is Sec. 1245 property and gain to the extent of total depreciation is ordinary income but limited to the amount of realized gain. Generally, the amount of depreciation is greater than the gain realized. Taxpayers must sell the equipment for more than the original basis to have any of the gain treated as Sec. 1231 gain.
If an individual is not employed and has no earned income, is it possible to take a child and dependent care credit for otherwise qualifying child and dependent care expenses? Explain. A. If an individual is unemployed and has no earned income, it is not possible to receive a child and dependent care credit because eligible expenses are limited to earned income. B. If an individual is unemployed and has no earned income, it is generally not possible to receive a child and dependent care credit because eligible expenses are limited to earned income. One exception to this rule applies to married taxpayers. A spouse who is either a full-time student or incapacitated is deemed to have earned income of $500 per month (one qualifying dependent) or $1,000 per month (two or more qualifying dependents). Your answer is not correct. C. If an individual is unemployed and has no earned income, it is generally not possible to receive a child and dependent care credit because eligible expenses are limited to earned income. One exception to this rule applies to married taxpayers. A spouse who is either a full-time student or incapacitated is deemed to have earned income of $250 per month (one qualifying dependent) or $500 per month (two or more qualifying dependents). This is the correct answer. D. If an individual is unemployed and has no earned income, it is not possible to receive a child and dependent care credit because the individual is not employed.
C. If an individual is unemployed and has no earned income, it is generally not possible to receive a child and dependent care credit because eligible expenses are limited to earned income. One exception to this rule applies to married taxpayers. A spouse who is either a full-time student or incapacitated is deemed to have earned income of $250 per month (one qualifying dependent) or $500 per month (two or more qualifying dependents). This is the correct answer.
Self−employment taxes include components for A. Medicare hospital insurance and SUTA. B.Social Security and FUTA. C.Social Security and Medicare hospital insurance. D.FICA and FUTA.
C. Social Security and Medicare hospital insurance.
If an individual is liable for self−employment tax, a portion of the self−employment tax is A. a Schedule C business expense. B. nondeductible. C. a for AGI deduction. D. from AGI as an itemized deduction.
C. a for AGI deduction.
Why did Congress establish favorable treatment for 1231 assets? A. to encourage the mobility of capital B. to allow a larger deduction for losses C. to help business owners replace assets which had declined in value D. All of the above.
D. All of the above.
Why are most taxpayers not subject to the alternative minimum tax (AMT)? A. There is a generous exemption amount to reduce the tax base on which the AMT is calculated. B. Most taxpayers do not have substantial tax preferences and AMT adjustments. C. The AMT system only applies to corporations. D. Both A and B.
D. Both A and B.
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 A. LTCG of $30,000. B. Sec. 1231 gain of $30,000. C. Sec. 1250 ordinary income of $30,000. D. Sec. 1245 ordinary income $30,000.
D. Sec. 1245 ordinary income $30,000.
In recent years, Congress has enacted provisions in the tax law that permitted bonus depreciation for certain assets. a. What types of assets typically qualified for bonus depreciation? (Select all that apply.) A. MACRS property with a recovery period of 20 years or less B. Qualified leasehold improvement property. The property can be acquired new or used. C. Computer software (other than computer software that must be amortized under Sec. 197) D. Computer software that must be amortized under Sec. 197 E. MACRS property with a recovery period of 20 years or more F. Qualified improvement property. Prior to 2018, the original use of the property must have begun with the taxpayer. G. Land purchased for farming b. How does bonus depreciation interface with Sec. 179 first-year expensing? A. Sec. 179 depreciation and bonus depreciation can never be taken together. A taxpayer may only elect Sec. 179 expensing or bonus depreciation, not both. B. Bonus depreciation is always taken before Sec. 179 depreciation. C. Sec. 179 depreciation and bonus depreciation are always taken in equal amounts. D. Sec. 179 depreciation is taken before any bonus depreciation.
Question a. A. MACRS property with a recovery period of 20 years or less C. Computer software (other than computer software that must be amortized under Sec. 197) F. Qualified improvement property. Prior to 2018, the original use of the property must have begun with the taxpayer. Question b. D. Sec. 179 depreciation is taken before any bonus depreciation.
Virginia is entitled to five allowances, but she claims only one withholding allowance on Form W-4. a. Is it permissible to claim fewer allowances than an individual is entitled to? *blank*claim fewer allowances than allowed. b. Why would an individual claim fewer allowances? A. An individual might claim fewer allowances to increase the amount of tax withheld, if they anticipate that taxes will be owed at the end of the year and they do not wish to make quarterly estimated tax payments. For example, this situation occurs for taxpayers earning both wage and nonwage income. B. An individual might claim fewer allowances because they have high deductions, losses, or credits. C. An individual might claim fewer allowances because they are an unmarried taxpayer and qualify for head of household filing status. D. An individual might claim fewer allowances to decrease the amount of tax withheld, if they anticipate that they will receive a large refund at the end of the year. For example, this situation occurs for taxpayers earning both wage and nonwage income. c. Is it possible for Virginia to claim more than five withholding allowances? A. Virginia can claim more than five withholding allowances in a tax year if she has larger than average deductible expenses (for example, mortgage interest expenses on a newly-financed house) relative to the average for a family of Virginia's income amount. B. Virginia cannot claim more than five withholding allowances because the IRS imposes a limitation on the amount of withholding allowances an individual can claim. C. Virginia can claim more than five withholding allowances in a tax year if she takes the standard deduction, is married, and her spouse is employed and has earned income. D. Virginia can claim more than five withholding allowances in a tax year if she takes the standard deduction and works two jobs.
Question a. Yes, Virginia may Question b. A. An individual might claim fewer allowances to increase the amount of tax withheld, if they anticipate that taxes will be owed at the end of the year and they do not wish to make quarterly estimated tax payments. For example, this situation occurs for taxpayers earning both wage and nonwage income. Question c. A. Virginia can claim more than five withholding allowances in a tax year if she has larger than average deductible expenses (for example, mortgage interest expenses on a newly-financed house) relative to the average for a family of Virginia's income amount.
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 $90,000 with a $30,000 passive loss carryover. B.reports AGI of $80,000. C.reports AGI of $90,000 with a $10,000 passive loss carryover. D.reports AGI of $110,000 with a $30,000 passive loss carryover.
Reports AGI of $90,000 with a $10,000 passive loss carryover.
What is the closed transaction doctrine, and why does it exist for purposes of recognizing a loss realized on holding property? A. The closed transaction doctrine states that a realized loss must be evidenced by a notarized statement that the transaction is to be completed within 12 months of the close of the tax year. This doctrine exists to give taxpayers a window of time to complete pending transactions. B. The closed transaction doctrine recognizes that a property could decline in value and be worthless in the future. This doctrine exists to allow taxpayers to recognize a loss as a result of fluctuating prices prior to the disposition of the property. C. The closed transaction doctrine states that a realized loss must be evidenced by a completed transaction or identifiable event. This doctrine exists to prevent taxpayers from recognizing a loss as a result of fluctuating prices prior to the disposition of the property. D.The closed transaction doctrine states that a realized loss for the sale or exchange of commercial real estate property must be completed within 30 days of the close of the tax year. This doctrine exists to give taxpayers a window of time to complete pending real estate transactions.
The closed transaction doctrine states that a realized loss must be evidenced by a completed transaction or identifiable event. This doctrine exists to prevent taxpayers from recognizing a loss as a result of fluctuating prices prior to the disposition of the property.
A taxpayer exchanges an office building held as an investment asset for an office building to be used in her business. The exchange will qualify as like−kind. True False
True
A taxpayer who paid AMT in prior years, but is not subject to the AMT in the current year, may be entitled to an AMT credit against his regular tax liability in the current year. True False
True
In an involuntary conversion, the basis of replacement property is its cost reduced by the gain deferred. True False
True
Is a deduction allowed under the MACRS rules for depreciable real estate (used in a business or held for investment) in the year the property is sold? If so, explain how it is calculated. A. Yes, depreciation for real estate is computed using tables that follow the mid-month convention, so depreciation is allowed in the year of sale. The amount of depreciation is computed by taking one-half month for the month the asset is sold plus the number of full months held prior to the month of sale, divided by 12 months. B.No, there is no deduction allowed under the MACRS rules for depreciable real estate in the year the property is sold. C.Yes, a deduction is allowed under the MACRS rules for depreciable real estate in the year the property is sold. It is assumed that the asset is held for the entire year. The amount of depreciation is computed by taking 100% of the annual depreciation. D.Yes, a is deduction allowed under the MACRS rules for depreciable real estate in the year the property is sold. It is assumed that the asset is held for half the year. The amount of depreciation is computed by taking 6/12's of the annual depreciation.
Yes, depreciation for real estate is computed using tables that follow the mid-month convention, so depreciation is allowed in the year of sale. The amount of depreciation is computed by taking one-half month for the month the asset is sold plus the number of full months held prior to the month of sale, divided by 12 months.
