Chapter 4 Test

Arnold purchased interests in two limited partnerships 6 years ago. During 2021, Arnold had income of $22,000 from one of the partnerships. He had a loss from the other partnership of $32,000, salary income of $35,000, and dividend income of $2,000. What is the amount of net passive losses that Arnold may deduct for 2021? 1. None of these 2. $2,000 3. $8,000 4. $0 5. $10,000

$0

On August 8, 2021, Sam, single, age 62, sold for $210,000 his principal residence, which he has lived in for 10 years, and which had an adjusted basis of $60,000. On November 1, 2021, he purchased a new residence for $80,000. For 2021, Sam should recognize a gain on the sale of his residence of: 1. $130,000 2. $25,000 3. $50,000 4. None of these 5. $0

$0

Warren invested in a limited partnership tax shelter in 2014. During 2021, his losses from the partnership amount to $100,000. If Warren has no passive income, what is the amount of Warren's deduction for passive losses for 2021? 1. $0 2. $20,000 3. None of these 4. $40,000 5. $10,000

$0

Simonne, a single taxpayer, bought her home in Orlando 25 years ago for $55,000. She has lived continuously in the home since she purchased it. In the current year, she sells her home for $405,000. What is Simonne's taxable gain on the sale? 1. $350,000 2. $100,000 3. $0 4. $90,000

$100,000

Nancy has active modified adjusted gross income before passive losses of $125,000. She has a loss of $15,000 on a rental property she actively manages. How much of the loss is she allowed to deduct against the $125,000 of other income? 1. $12,500 2. $2,500 3. $5,000 4. None

$12,500

In December 2021, Ben and Jeri (married filing jointly) have a long-term capital gain of $55,000 on the sale of stock held for 4 years. They have no other capital gains and losses for the year. After the standard deduction, their ordinary income for the year, before the capital gain, is $70,000, making their total income for the year $125,000. In 2021, married taxpayers who file jointly pay tax of $8,005 on the first $70,000 of ordinary taxable income and 15% on long-term capital gains above $80,800. What is their total tax liability? 1. $16,255.00 2. $18,750.00 3. $14,758.00 4. $14,635.00

$14,635.00

An asset has an original basis of $45,000 and depreciation has been claimed for the asset in the amount of $20,000. If the asset's adjusted basis is $40,000, what is the amount of capital improvements that have been made to the asset? 1. $20,000 2. $5,000 3. $10,000 4. None of these 5. $15,000

$15,000

For the current tax year, Morgan had $25,000 of ordinary income. In addition, he had an $1,700 long-term capital loss and a $1,600 short-term capital loss. What will be the amount of Morgan's capital loss carryforward to the next year? 1. $0 2. $3,000 3. $3,500 4. $300 5. $500

$300

For the current year, Susan had salary income of $20,000. In addition, she reported the following capital transactions during the year: Long-term capital gain $7,000 Short-term capital gain 3,000 Long-term capital loss (2,000) Short-term capital loss (5,000) There were no other items includable in her gross income. What is the amount of her adjusted gross income for the current year? 1. $25,000 2. $24,000 3. $23,000 4. None of these 5. $19,000

$23,000

Jessie purchased land as an investment on January 12, 2016 for $80,000. On January 31, 2021, Jessie sold the land for $33,000 cash. In addition, the purchaser assumed the mortgage of $70,000 on the land. What is the amount of the realized gain or loss on the sale? 1. $15,000 gain 2. $47,000 loss 3. $23,000 gain 4. $10,000 loss 5. None of these

$23,000 gain

In the current year, Marc, a single taxpayer, has ordinary income of $35,000. In addition, he has $3,000 in short-term capital gains, short-term capital losses of $8,000, and long-term capital gains of $1,000. What is Marc's adjusted gross income (AGI) for the current year? 1. $34,000 2. $32,000 3. $36,000 4. $39,000

$32,000

Mort is the owner of an apartment building containing ten identical apartments. Mort resides in one apartment and rents out the remaining units. For 2021, the following information is available: Gross rents $110,600 Utilities for total building 25,000 Maintenance and repairs (rental apartments only) 10,500 Advertising for vacant apartments 3,000 Depreciation of building (all ten units) 40,000 What amount should Mort report as net rental income for 2021? 1. $32,100 2. $35,000 3. $38,600 4. None of these 5. $39,950

$38,600

Donald owns a two-family home. He rents out the first floor and resides on the second floor. The following expenses attributable to the total building were incurred by Donald for the year ended December 31, 2021: Real estate taxes $1,800 Mortgage interest 1,600 Utilities 1,200 Repairs (first floor) 1,400 Painting (second floor) 400 In addition, the depreciation attributable to the entire building would be $2,000. What is the total amount of the expenses that Donald can deduct on Schedule E of Form 1040 (before any limitations)? 1. $3,300 2. $3,850 3. None of these 4. $4,000 5. $4,700

$4,700

Thelma works at a retail store in 2021 and makes $44,000. She also has dividend income of $12,000 and interest income of $1,000. She owns a beach house that gives her $11,000 in net rental income and she owns a stake in a limited partnership that generates a $15,000 loss. What is her adjusted gross income in 2021? 1. $69,000 2. $58,000 3. $53,000 4. $57,000 5. $45,000

$57,000

Job purchased land as an investment on January 12, 2018, for $80,000. On January 31, 2021, Job sold the land for $33,000 cash. In addition, the purchaser assumed the mortgage of $62,000 on the land. What is the amount realized (not gain realized) on the sale of the land? 1. $10,000 2. None of these 3. $103,000 4. $23,000 5. $95,000

$95,000

Selma owns a beach cottage that she rents to tourists. In the current year she rented the cottage for 90 days. What is the maximum number of days Selma can use the cottage before her expense deduction will be limited to her gross rental income? 1. 14 days 2. 0 days 3. 18 days 4. 9 days

14 days

Karen has a net operating loss in 2021. What is the earliest year to which Karen can carryback or carry forward the net operating loss? 1. None of these 2. 2019 3. 2018 4. 2020 5. 2016

2020

Which of the following sales results in a short-term gain/loss? 1. All of these are long-term gains/losses. 2. A capital asset bought on June 30, 2020 and sold June 20, 2021. 3. A capital asset bought on July 25, 2020 and sold August 19, 2021. 4. A capital asset bought on September 12, 2014 and sold August 19, 2021. 5. A capital asset bought on August 15, 2020 and sold August 16, 2021.

A capital asset bought on June 30, 2020 and sold June 20, 2021.

Which of the following is a capital asset? 1. Accounts receivable held by a dentist 2. Inventory held by a manufacturer 3. All property owned by a taxpayer other than property specifically noted in the law as not a capital asset 4. Depreciable property and real estate used in a trade or business

All property owned by a taxpayer other than property specifically noted in the law as not a capital asset

The net operating loss (NOL) provisions of the Internal Revenue Code 1. Apply only to individuals with wages and itemized deductions. 2. Allow the deduction for home mortgage interest to create an NOL. 3. Are primarily designed to provide relief for trade or business losses. 4. Would not be necessary if tax rates were progressive. 5. Require the use of a 2-year carryback in all cases.

Are primarily designed to provide relief for trade or business losses.

For purposes of determining the adjusted basis of a capital asset at the time of its sale, 1. Capital improvements are added to the basis. 2. The basis does not include costs such as title insurance and escrow fees related to the initial purchase. 3. Accumulated depreciation is added to the basis. 4. Ordinary repairs reduce the adjusted basis.

Capital improvements are added to the basis.

Dividend income is considered "passive income." True or False

False

If a residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, no allocation of expenses is required and the taxpayer may claim a deduction for the full amount of the expenses. True or False

False

If not entirely used in one sale, the unused portion of the $250,000 exclusion on the sale of a single taxpayer's principal residence may be used to reduce the recognized gain on the sale of the taxpayer's next residence. True or False

False

If property is received from a decedent, the taxpayer who inherits the property has the same basis in the property as the decedent. True or False

False

In 2021, the basis of a taxpayer's replacement residence is equal to the cost of the replacement residence less the gain which was deferred on the sale of the old residence. True or False

False

Net losses on the rental of vacation homes are limited to 15 percent of total gross income. True or False

False

The exclusion of gain on the sale of a personal residence may be elected only by a taxpayer who has owned three or more residences. True or False

False

The expenses associated with the rental of a residence used for both personal and rental purposes are subject to three possible tax treatments. Which of the following is not included as one of the three? 1. If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as rental property. 2. If the residence is rented for 15 days or more and is used for personal purposes for more than 14 days or 10 percent of the days rented, whichever is greater, allocable rental expenses are allowed only to the extent of rental income. 3. If a residence is rented for fewer than 15 days during the year the rental period is disregarded and the residence is regarded as a personal residence for tax purposes. 4. If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.

If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.

Sol purchased land as an investment on January 12, 2018 for $85,000. On January 31, 2021 Sol sold the land for $90,000 cash. What is the nature of the gain or loss? ​ 1. Long-term capital gain 2. Long-term capital loss 3. Short-term capital loss 4. Short-term capital gain 5. None of these

Long-term capital gain

Which of the following is true about capital gains? 1. None of these 2. Short-term capital gains are not netted with other capital gains and losses. 3. Net short-term capital gains are not netted with net long-term capital losses. 4. Long-term capital gains are never taxed. 5. Long-term capital gains are subject to special tax treatment.

Long-term capital gains are subject to special tax treatment.

Ned has active modified adjusted gross income before passive losses of $160,000. He has a loss of $15,000 on rental property he actively manages. How much of the loss is he allowed to deduct against his other income? 1. None 2. $15,000 3. $10,000 4. $5,000

None

Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2021. The gross rental income from the home is $4,500. For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000. What is Lester's allowable net loss from renting his vacation home? 1. None of these 2. $500 loss 3. $250 loss 4. $3,000 loss 5. $5,500 loss

None of these

Which of the following statements is true? 1. A taxpayer's personal residence qualifies for a like-kind exchange. 2. A one-time election is available to taxpayers 55 years of age or older which allows them to sell their personal residences and to exclude all of the realized gain. 3. None of these statement are true. 4. A taxpayer who sells a personal residence may always exclude the realized gain from taxable income.

None of these statement are true.

Which of the following can be used to offset a passive loss? 1. Dividend income from stock held as an investment 2. Pension income 3. Active income such as wages 4. Passive income such as income from a limited partnership

Passive income such as income from a limited partnership

Which one of the following is a capital asset? 1. Inventories 2. Copyright held by the author 3. Securities held for investment 4. Accounts receivable 5. All of these are capital assets

Securities held for investment

Sol purchased land as an investment on February 12, 2020 for $85,000. On January 31, 2021, Sol sold the land for $90,000 cash. What is the nature of the gain or loss? 1. None of these 2. Short-term capital gain 3. Long-term capital gain 4. Long-term capital loss 5. Short-term capital loss

Short-term capital gain

A taxpayer's personal automobile is a capital asset. True or False

True

An artist's painting is not a capital asset when held by the artist. True or False

True

Currently, long-term capital gains are afforded preferential tax treatment to individuals. True or False

True

If a capital asset acquired August 5, 2020 is sold on February 6, 2021, any gain is a short-term capital gain. True or False

True

If a capital asset acquired on October 27, 2019 is sold on April 30, 2021 for a gain, the gain is a long-term capital gain. True or False

True

If a taxpayer is relieved of a liability on the disposition of property, the amount of the liability should be included in the amount realized on the sale or other disposition. True or False

True

Net short-term capital gains may be offset by net long-term capital losses. True or False

True

Taxpayers are required to offset net short-term capital losses with net long-term capital gains. True or False

True

The qualified business income deduction is limited to 20% of taxable income not including long-term capital gains and qualified dividends. True or False

True

Under the passive loss rules, real estate rental activities are specifically defined as passive, even if the taxpayer actively manages the property. True or False

True

Wages are considered "active income." True or False

True

When a residence is rented for less than 15 days during the year, the rental income is excluded from gross income. ​True or False

True

Accounts receivable are capital assets.

True or False