Taxes Test Chapter 8 and 9

DJ and Gwen paid $3,200 in qualifying expenses for their son, Nikko, who is a freshman attending the University of Colorado. DJ and Gwen have AGI of $170,000 and file a joint return. What is their allowable American opportunity tax credit (AOTC) after the credit phaseout based on AGI is taken into account? $0. $1,150. $2,300. $3,200.

$2,000 + [($3,200 − $2,000) × 0.25] = $2,300 is their pre-limitation credit; but limited due to AGI as: $2,300 × [($180,000 − $170,000)/$20,000] = $1,150. pg. 9-10 of book** phaseout of education credits

Michael paid $3,350 in foreign income taxes to Argentina. His total worldwide taxable income was $75,000, which included $9,800 of income from Argentina. His U.S. tax liability is $18,750. How much can Michael claim as foreign tax credit? $2,450. $2,800. $3,350. $15,400.

$9,800/$75,000 × $18,750 = $2,450 $2,450 < $3,350; so the credit is limited to $2,450

Justin and Janet, whose AGI is $456,000, have one daughter, age 5. How much child tax credit can they take? $0. $1,000. $2,000. $2,800.

($456,000 − $400,000) = $56,000/$1,000 × $50 =$2,800 $2,800>$2,000 so therefore, $0 credit.

On August 1 of the current year, Jennifer and Tyler purchased a cabin for $950,000. Of that amount, $500,000 was for the land. How much depreciation deduction can Jennifer and Tyler take in the current year assuming that the cabin was rented starting on the purchase date? Use Table 6A-6. $16,364. $6,138. $0. $8,865.

($950,000 − $500,000) = $450,000 × 1.364% = $6,138.

Jermaine owns a rental home in Lake Tahoe and traveled there from his home in San Francisco for maintenance and repairs three times this year. The round trip from San Francisco to Lake Tahoe is approximately 167 miles. How much travel cost can Jermaine deduct for the current year related to the rental home in Lake Tahoe? $268. $167. $273. $0.

167 miles × 3 × 54.5 cents = $273.

6) Royalties can be earned from allowing others the right to use: 6) _______ A) Plays B) Books C) Trademarks D) All of these

D

Patricia is single and her son Quinn is age 11. If her AGI is $207,000, what amount of child tax credit can she claim? 49) ______ A) $2,000. B) $350. C) $0. D) $1,650.

D

Dwayne is single with one dependent. He enrolled in a qualified plan through the Marketplace at a cost of $4,200 per year. His household income was $41,890. The SLCSP premium is $4,700. What is Dwayne's premium tax credit? Use Federal Poverty Levels $1,211. $3,489. $4,200. $4,700.

Dwayne's household income is 249% of the Federal Poverty Level for a household of two [$41,890 / $16,020 = 258%]. His factor from appendix B is 0.0833. His contribution amount is $41,890 × 0.0833 = $3,489. His premium tax credit is the lesser of: His health care premium of $4,200 His SLCSP cost of $4,700 minus his contribution amount of $3,489, or $1,211. Thus, his premium tax credit is $1,211.

Flow-through entities are named as such because they are taxed continuously. 10) ______

False

Which of the following credits is never a refundable credit? Earned Income Credit Foreign tax credit Child tax credit American opportunity tax credit

Foreign tax credit All of the other choices above may be fully or partially refundable.

From which of the following flow-through entities is ordinary income (K-1) considered self-employment income? Partnership. S Corporation. Trusts. Estates.

Ordinary income from partnerships is considered self-employment income.

Which of the following statements is incorrect? -Taxpayers who purchased qualified health insurance through the Marketplace may be eligible for a premium tax credit. -Taxpayers must apply the credit towards their health insurance premium. -The premium tax credit is designed to help eligible taxpayers pay some of their health insurance premium. -Taxpayers who receive a credit must file a federal tax return and attach Form 8962.

Taxpayers can choose to apply the credit towards their health insurance premium OR may choose to receive the entire credit when they file their tax return.

A taxpayer may become ineligible for earned income credit if he/she has excessive disqualified income such as dividends or interest. 38) ______

True

Which of the following is not considered an ordinary expense for a rental activity? 9) _______ A) Property taxes B) Advertising C) Insurance D) All of these are deductible as ordinary expense

D

James owns a home in Lake Tahoe, Nevada, that he rented for $1,600 for two weeks during the summer. He lived there for a total of 120 days, and the rest of the year the house was vacant. The expenses for the home included $6,000 in mortgage interest, $900 in property taxes, $1,300 in maintenance and utilities, and $2,500 in depreciation. How much rental income from the Lake Tahoe home would James report for the current year? $1,600. $9,100. $0. $567.

$0 income is reported since the property is categorized as primarily personal.

Sean and Jenny own a home in Boulder City, Nevada, near Lake Mead. During the year, they rented the house for 40 days for $3,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $14,000 in mortgage interest, $3,500 in property taxes, $1,100 in utilities, $1,300 in maintenance, and $10,900 in depreciation. What is the deductible net loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses. $0. $388. $27,800. $8,090.

$0. No net loss deduction is allowed for personal/rental properties.

Jerry and Ellen are married filing jointly with AGI of $45,000. They made a $1,500 contribution to a qualified retirement plan. How much is their retirement savings contributions credit? Use Table 9-2. $0. $150. $300. $750.

$1,500 × 0.10 = $150.

Joyce has $82,000 worldwide taxable income, which includes $11,000 of taxable income from China. She paid $2,200 in foreign income taxes to China, and her U.S. tax liability is $21,610. Joyce's foreign tax credit is: $0. $2,200. $2,899. $11,000.

$11,000/$82,000 × $21,610 = $2,899 $2,899 > $2,200; so the credit is $2,200.

Dennis receives $11,100 during the current tax year from Blanca for some office space in Anaheim, California. The rent covers eight months, from August 1 of the current year to March 31 of the following year. The amount also includes a security deposit of $1,500. How much should Dennis report as rental income in the current tax year? $9,600. $11,100. $6,000. $1,200.

$11,100 − $1,500 = $9,600.

Darren paid the following expenses during November 2018 for his son Sean's college expenses for the spring 2019 semester, which begins in January 2019: Tuition $12,000 Housing 8,000 Books 1,500 In addition, Sean's uncle paid $500 in fees on behalf of Sean directly to the college. Sean is claimed as Darren's dependent on his tax return. How much of the expenses qualify for the purpose of the AOTC deduction for Darren in 2018? $12,000. $13,500. $14,000. $22,000.

$12,000 + $1,500 + $500 = $14,000. Housing does not qualify.

Nathan paid $2,750 in qualifying expenses for his daughter who attended a community college. How much is Nathan's lifetime learning credit without regard to AGI limitations or other credits? $250. $550. $825. $1,375.

$2,750 × 0.2 = $550.

Allie and Buddy are married, file a joint return, and have one son, Zack, age 5. Buddy has earned an income of $42,000, and Allie was a full-time student for eight months (with no income). They paid a qualified child care center $3,450. How much are Allie and Buddy's child and dependent care credit for the year? Use Child and Dependent Care Credit AGI schedule. $0. $420. $630. $725.

$250 × 8 months × 0.21 = $420.

Juan and Lydia both work, file a joint return, and have one qualifying child. They have AGI of $19,000. What is their EIC? Use Table 9-3. $519. $3,461. $5,716. $10,180.

$3,461; no phase out

Jamison is a single dad with two dependent children: Zoey, age 7, and Conner, age 3. He has an AGI of $69,000 and paid $4,300 to a qualified day care center for the two children. What amount can Jamison receive for the child and dependent care credit? Use Child and Dependent Care Credit AGI schedule. $4,300. $1,505. $860. $430.

$4,300 × 0.2 = $860.

James owns a home in Lake Tahoe, Nevada, that he rented for $4,600 for 40 days during the summer. He lived there for a total of 120 days, and the rest of the year the house was vacant. The expenses for the home included $6,000 in mortgage interest, $900 in property taxes, $1,300 in maintenance and utilities, and $2,500 in depreciation. What is his net income or loss from the rental of his home (without considering the passive loss limitation)? Use the IRS method for allocation of expenses. $1,925 net income. $0. $4,600 net income. $6,100 net loss.

$4,600 − [40/160($6,000 + $900 + $1,300 + $2,500)] = $1,925 net income.

Thomas and Stephani are married, file a joint return with four qualifying children. Their AGI is $27,500. Calculate their EIC using the EIC formula. Use Table 9-3. $6,431. $5,792. $5,768. $5,053.

$6,431 − [($27,500 − $24,350) × 0.2106] = $5,768

Marcia is a single filer and has AGI of $26,000. During the year, she contributed $800 to a Roth IRA. What amount of retirement savings contributions credit can Marcia take? Use Table 9-2. $0. $80. $160. $400.

$800 × 0.10 = $80.

Darren and Nikki own a cabin in Mammoth, California. During the year, they rented it for 45 days for $9,000 and used it for 12 days for personal use. The house remained vacant for the remainder of the year. The expenses for the house included $8,000 in mortgage interest, $2,000 in property taxes, $1,200 in utilities, $750 in maintenance, and $4,000 in depreciation. What is their net income or loss from their cabin rental (without considering the passive loss limitation)? Use the IRS method for the allocation of expenses. $9,000 net income. $3,592 net loss. $6,950 net loss. $0.

$9,000 − [45/57($8,000 + $2,000 + $1,200 + $750 + $4,000)] = $3,592 net loss.

Nicolette and Brady own a cabin in Lake Arrowhead, California, that they rent out during the winter and use the rest of the year. The rental property is categorized as personal/rental property, and their personal use is determined to be 68% (based on the IRS method). They had the following income and expenses for the year (after allocation): Gross rental income$9,500 Interest and taxes 6,000 Utilities and maintenance 2,500 Depreciation 4,300 How much can Nicolette and Brady deduct for depreciation expense related to this property for the year on their tax return? $0. The answer cannot be determined. $4,300. $1,000.

$9,500 − $6,000 − $2,500 = $1,000; only $1,000 is left to offset depreciation expense since no loss is allowed for personal/rental properties.

Which of the following statements is correct? 33) ______ A) The premium tax credit is designed to help eligible taxpayers pay some of their health insurance premium. B) The premium tax credit is only available when the taxpayer files his or her tax return. C) Taxpayers who receive a credit are not required to file a federal tax return. D) Taxpayers with household income which is more than 400% of the Federal Poverty Level are eligible to claim the premium tax credit.

A

A property that has been rented for 120 days and used for personal use for 13 days should be categorized as: 15) ______ A) Primarily rental B) Personal/rental C) Primarily personal D) None of these

A

Alex, Ellen and Nicolas are equal partners in a local restaurant. The restaurant reports the following items for the current year: Business revenue $770,000 Business expenses 470,000 Investment expenses 150,000 Each partner receives a Schedule K-1 with one-third of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040? 23) ______ A) $100,000 income on Schedule E; $50,000 investment expense on Schedule A B) $300,000 income on Schedule E; $150,000 investment expense on Schedule A C) $300,000 income on Schedule E; $50,000 investment expense on Schedule A D) $257,667 income on Schedule E; $50,000 investment expense on Schedule A

A

Chris and Sarah are married with three qualifying children. Their AGI is $26,000. How much is their EIC (use the EIC formula)? (Round your answer to the nearest dollar) 43) ______ A) $6,084. B) $6,431. C) $1,650. D) $3,461.

A

Kevin paid $2,550 in qualifying expenses for his daughter, Jasmine, who attended a community college. What is Kevin's lifetime learning credit without regard to AGI limitations or other credits? 47) ______ A) $510. B) $2,000. C) $2,550. D) $1,650.

A

Lori and Donald own a condominium in Colorado Springs, Colorado, that they rent out part of the time and use during the summer. The rental property is classified as personal/rental property and their personal use is determined to be 75% (based on the IRS method). They had the following income and expenses for the year (before any allocation): Gross rental income $2,000 Interest and taxes 3,200 Utilities and maintenance 2,200 Depreciation 4,000 How much net loss should Lori and Donald report for their condominium on their tax return this year? 7) _______ A) $0. B) $9,000 loss. C) $7,400 loss. D) $3,350 loss.

A

Maria and Vincent, whose modified AGI is $169,000, adopted a little girl from Mexico which was finalized in 2018. They incurred a total of $16,000 in qualified adoption expenses. What is the amount of adoption credit they can claim in 2018? 35) ______ A) $13,810. B) $16,000. C) $0. D) $16,900.

A

Sam is a single father with two dependent twin daughters, Amy and Amanda, ages 4. He has AGI of $31,000 and paid $5,300 to a qualified day care center. What amount of credit can Sam receive for child and dependent care credit? 42) ______ A) $1,431. B) $3,000. C) $5,300. D) $1,060.

A

Which of the following statements is not true regarding the education credits? 39) ______ A) Payments made using borrowed funds are not considered qualified expenses. B) If a dependent pays for qualified expenses, the expenses are deemed paid by the taxpayer. C) If a student receives a scholarship that is excluded from gross income, that amount should reduce qualified expenses. D) If a relative makes payments for qualified expenses directly to the institution on behalf of the student, the expenses are deemed paid by the student.

A

Which of the following entity(ies) is (are) considered flow-through? All are considered flow-through entities. LLC. Partnership. S Corporation.

All are considered flow-through entities. Partnership, limited liability company (LLC), S Corporations, and certain types of trusts and estates are considered flow-through entities.

Which of the following conditions must be met for a taxpayer to be able to claim the foreign tax credit (FTC) without filing Form 1116? -All of the foreign-source income is passive income. -All of the foreign-source income was reported on Form 1099. -Total foreign taxes paid were less than $300 (or $600 if married filing jointly). -All of the choices must be met to claim the FTC without Form 1116.

All of the conditions must be met to claim FTC without the Form 1116.

Jackson owns a condominium in Las Vegas, Nevada, and he rents it to Joanne for $1,500 per month, payable on the 1st of each month. While he was out of town in August, the condominium's air conditioning broke and Joanne had it replaced for $1,350. How much rental income does Jackson report for September if Joanne deducts the repair cost from her rent for September? 4) _______ A) $150. B) $1,500. C) $0. D) $1,350.

B

Jeremiah is a full-time professor of psychology at the University of Washington and an author of a psychology textbook. The royalty income he receives from the publisher should be reported on: 12) ______ A) Schedule C. B) Schedule E. C) Schedule K-1. D) Form 1099-MISC.

B

Mindy and Xavier have a total tax liability of $475 before EIC. Their EIC for the current year is $2,578. What is their total tax refund or tax liability for the current year (assume they have no other credits or additional tax liability)? 44) ______ A) $2,578 tax refund. B) $2,103 tax refund. C) $0. D) $475 tax liability.

B

Rudy and Rebecca have AGI of $446,000. They have twin daughters, Ashley and Amy, ages 5. What amount of child tax credit can they claim? 26) ______ A) $4,000. B) $1,700. C) $2,300. D) $0.

B

Dennis and Vera are ages 69 and 59, respectively, and file a joint return. They have an AGI of $28,000 and received $2,000 in nontaxable social security benefits. How much can Dennis and Vera take as a credit for the elderly or the disabled? $0. $1,125. $2,000. $7,500.

Because Vera is 59 years old, Dennis is the only qualifying taxpayer, you have to be 65 years or older. [$5,000 − $2,000 − (1/2 [$28,000 − $10,000])] = ($6,000) and therefore, the credit is $0.

Which of the following expenses are qualifying expenses for the purposes of the education credits? -Books (purchased at the institution as a condition of enrollment). -Tuition. -Room and board. -Both Books (purchased at the institution as a condition of enrollment) & tuition.

Books and tuition are qualifying expenses for the education credits. Room and board however, are not qualifying expenses for the purposes of education credits deduction.

In the current year, Marnie rented her vacation home for 75 days, used it for personal reasons for 22 days, and left it vacant for the remainder of the year. Her income and expenses are as follows: Rental income $18,000 Property taxes 2,500 Mortgage interest 3,500 Utilities 1,100 Repairs and maintenance 1,000 Depreciation 5,200 What is Marnie's net income or loss from the activity? Use the Tax Court method. (Round your answer to the nearest whole dollar) 22) ______ A) $4,700 net income B) $18,000 net income C) $11,123 net income D) $0

C

Jacqueline owns a condominium on an island in Washington that was rented out all year for $30,000. She incurred the following expenses: Mortgage interest $1,300 Property taxes 800 Insurance 1,500 Utilities 1,800 Repairs 300 Depreciation 4,000 What amount of net income or loss does Jacqueline report from this rental property? 3) _______ A) $9,700 net loss B) $30,000 net income C) $20,300 net income D) $0

C

Katie and Mike own a home in Newport Beach, California. During the year, they rented the house for 80 days for $24,000 and used it for personal use for 30 days. The expenses for the house included $20,000 in mortgage interest, $8,500 in property taxes, $6,000 in utilities, $2,000 in maintenance, and $12,000 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the IRS method for allocation of expenses. 16) ______ A) $27,500 net loss. B) $5,000 net income. C) $0. D) $17,414 net loss.

C

Kobe is a single dad with two dependent children, Lizzie, age 7 and Leslie, age 3. He has AGI of $51,000 and paid $3,700 to a qualified day care center. What amount of credit can Kobe receive for the child and dependent care credit? 28) ______ A) $4,000. B) $3,700. C) $740. D) $0.

C

Presley and Jake are married filing joint taxpayers. They have twin sons, ages 7. If their AGI is $416,950, what amount of child tax credit can they claim? 27) ______ A) $4,000. B) $0. C) $3,150. D) $850.

C

Richard owns a cabin in Utah that he rented for $4,000 for 21 days. He lived there for a total of 120 days. The expenses for the home included $8,000 in mortgage interest, $1,200 in property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much net income or loss from the Utah home would Richard report for the current year (use the IRS method)? (Round your answer to the nearest whole number) 13) ______ A) $10,000 net loss. B) $4,000 net income. C) $1,915 net income. D) $0.

C

Which of the following is not considered a flow-through entity? 14) ______ A) Partnership. B) S corporation. C) Limited liability company. D) Sole proprietorship.

D

What is the proper tax treatment of capital improvements for a residential or commercial rental property? 1) _______ A) Must be depreciated using the double-declining balance method. B) IRC section 179 may be claimed. C) Can be deducted as ordinary expenses. D) Must be depreciated using straight-line over 27-1/2 or 39 years.

D

Ariel, Bob, Candice and Dmitri are equal partners in a local ski resort. The resort reports the following items for the current year: Business revenue $1,200,000 Business expenses 750,000 Short-term capital gains 107,000 Short-term capital losses (103,000) Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040? 20) ______ A) $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D B) $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D C) $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D D) $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D

D

Charles and Sarah own a home in Palm Springs, CA. During the year, they rented the house for 40 days for $5,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $16,000 in mortgage interest, $4,500 in property taxes, $1,000 in utilities, $1,200 in maintenance, and $9,800 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses. 18) ______ A) $17,414 net loss B) $27,500 net loss C) $5,000 net income D) $0

D

Ian and Jolene are ages 70 and 72, respectively, and file a joint return. They have AGI of $15,000 and received $1,000 in nontaxable social security benefits. How much can Ian and Jolene take as a credit for the elderly or the disabled? 29) ______ A) $1,000. B) $2,250. C) $225. D) $600.

D

Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business reports the following results: Business revenue $225,000 Business expenses 88,000 Investment expenses 16,000 How do Owen and Jessica report these items for tax purposes? 8) _______ A) $68,500 income on Schedule E; $16,000 investment expense on Schedule D B) $137,000 income on Schedule E; $88,000 investment expense on Schedule A C) $225,000 income on Schedule E; $16,000 investment expense on Schedule A D) $68,500 income on Schedule E; $8,000 investment expense on Schedule A

D

Stephen and Joy own a duplex in Newport Beach, CA. They live in one unit and rent the other to another couple. Their rental income for the year was $24,000. They incurred the following expenses for the entire duplex: Insurance $8,000 Maintenance 800 Utilities 1,800 Depreciation 4,000 What amount of net income from the duplex should Stephen and Joy report for the current year? 2) _______ A) $7,300 B) $9,400 C) $24,000 D) $16,700

D

Which of the following statements is not true regarding the credit for the elderly or the disabled? 48) ______ A) The maximum allowable credit is based on 15% of the taxpayer's base amount. B) Base amount for the credit calculation for a joint individual where only one spouse qualifies is $5,000. C) Base amount for the credit calculation for a single individual is $5,000. D) Base amount for the credit calculation for joint returns is $5,000.

D

A personal/rental property (that is not a trade or business) may report its income and expenses on Schedule A. 19) ______

False

A qualifying child for the child tax credit must be a dependent and under the age of 14. 30) ______

False

Alexis's cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property. 17) ______

False

The earned income credit (EIC) is only available for taxpayers with children. 34) ______

False

The maximum allowable credit for the elderly or the disabled is equal to 30% of the taxpayer's base amount. 45) ______

False

The maximum lifetime learning credit per taxpayer is $3,000 per year. 41) ______

False

After two and one-half years of working with the orphanage and the government, Jake and Nikki adopted a two-year-old girl from Korea. The adoption process, which became final in January 2018, incurred the following qualified adoption expenses. For how much and in which year can Jake and Nikki take the adoption credit? (Assume no limitation of the credit due to AGI.) Year 2017 . $6,000 . Year 2018 . $1,000 Multiple Choice $6,000 in 2017. $1,000 in 2018. $7,000 in 2017. $7,000 in 2018.

For foreign adoptions, credit is only allowed in the year in which the adoption becomes final.

Julian is a single father with a son, Alex, who is 8 years old. If Julian's AGI is $187,000, what is his child tax credit for Alex? $0. $500. $1,000. $2,000.

Julian's AGI is less than the phaseout threshold of $200,000 so the child tax credit it not limited.

Which of the following items is not deductible as rental expense? Insurance. Repairs and maintenance. New bathroom addition. Advertising.

New bathroom addition would be considered a capital improvement and therefore capitalized and depreciated and not deductible as rental expense. Depending on the cost, the taxpayer may be able to elect to expense the improvement but it would be limited to 2% of the basis of the rental property or $10,000.

What is the maximum amount of passive losses from a rental activity that a taxpayer can deduct against active and portfolio income per year (assuming no passive loss limitation due to AGI or personal use of the property)? $15,000. $50,000. $25,000. $0.

Passive losses from rental activity are limited to $25,000 per year before AGI limitations apply.

Ginny owns a house in northern Wisconsin that she rents for $1,600 per month. Ginny does not use the property personally. While she was in Europe for Christmas, the water heater on the property failed, and her tenants repaired it for $1,200. For the following month's rent (January), her tenants paid her $400 for rent ($1,600 − $1,200). What amounts should Ginny include for rental income and repair expense, respectively, for January? $400; $0. $1,200; $400. $1,600; $1,200. $1,600; $400.

Report gross rent and all expenses.

Sally is a full-time author and recently published her third mystery novel. The royalty income she receives from the publisher this year should be reported on what schedule? Schedule D. Schedule A. Schedule C. Schedule E.

Schedule C is used to report income earned from a trade or a business.

Colin is a high school chemistry teacher who owns some land in Oklahoma that produces oil from its small oil reserve. On what schedule should Colin report the royalty income he receives? Schedule C. Schedule SE. Schedule A. Schedule E.

Schedule E is used to report royalty income from investments.

Under which of the following situations would a taxpayer most likely take the foreign taxes paid as an itemized deduction rather than as a foreign tax credit? The foreign tax paid was less than 15%. The foreign tax was paid to a European country. The foreign tax paid was a property tax. The foreign tax paid was a tax on dividend income.

The foreign tax credit is only available for foreign taxes paid based on income. Therefore, foreign taxes paid based on property value can only be deducted as an itemized deduction.

If a taxpayer materially participates in his/her rental activity as a real estate professional, the activity is considered a trade or business and not a passive activity. 25) ______

True

In the case of personal/rental property, a taxpayer can deduct expenses only to the extent that there is rental income. 11) ______

True

The American opportunity tax credit phases out beginning at $80,000 of modified AGI for single taxpayers. 31) ______

True

Avril and John are ages 70 and 72, respectively, and file a joint return. They have an AGI of $18,000 and received $1,000 in nontaxable social security benefits. How much can Avril and John take as a credit for the elderly or the disabled? $2,700. $1,000. $525. $375.

[$7,500 − $1,000 − (1/2 [$18,000 − $10,000])] × 0.15 = $375. 7,500 is basis-> pg. 9-7 in book

Abel and Loni adopted a boy (a U.S. citizen), during the current tax year and incurred a total of $14,675 in qualified adoption expenses. Abel and Loni have modified AGI of $225,000. What is the amount of adoption credit they can take? $6,166. $7,644. $13,810. $14,675.

[($247,140 − $225,000)/$40,000] × $13,810 = $7,644.