ITF 2014 - Test 3

Which of the following interest expense amounts is not deductible in 2014? a. Education loan interest of $2,000, assuming the taxpayer is single and has income of $150,000. b. Home equity loan interest of $9,000 on a loan of $100,000, the proceeds of which were used to purchase a motor home. c. Investment interest expense of $10,000, assuming the taxpayer has $15,000 of investment income. d. Points of $2,000 paid on a mortgage loan for the purchase of a new principal residence.

a. Education loan interest of $2,000, assuming the taxpayer is single and has income of $150,000.

Which of the following is not deductible as interest expense on Schedule A? a. Loan fee charged for appraisal service b. Home mortgage interest c. Mortgage interest on a second residence d. Home mortgage prepayment penalties e. All of the above are deductible as interest expense

a. Loan fee charged for appraisal service

Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank's state income taxes is available: State income taxes withheld in 2014 $3,500 Refund of 2012 tax received in 2014 $400 Deficiency assessed and paid in 2014 for 2012: Tax $ 600 Interest $ 100 What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2014 Federal tax return, assuming he elects to deduct state and local income taxes? a. $3,500 b. $3,700 c. $4,100 d. $4,200 e. None of the above

c. $4,100

During 2014, Seth, a self-employed individual, paid the following taxes: Federal income tax $5,000 State income tax $2,400 Real estate taxes on land in South America (held as an investment) $ 900 Personal property taxes based upon value $ 900 Federal self-employment tax $ 800 What amount can Seth claim as an itemized deduction for taxes paid during 2014, assuming he elects to deduct state and local income taxes? a. $2,400 b. $3,300 c. $4,200 d. $5,000 e. None of the above

c. $4,200

Molly and Steve are married and live in Texas. Molly earns a salary of $50,000 and Steve owns a rental property that gives him $35,000 of income. If they filed separate tax returns, what amount of income would Steve report? a. $35,000 b. $85,000 c. $42,500 d. $60,000 e. None of the above

c. $42,500

Which of the following is not deductible as an itemized deduction? a. State income taxes b. Personal property taxes c. Charitable contributions d. Local income taxes e. All of the above may be deductible as itemized deductions

e. All of the above may be deductible as itemized deductions

Which one of the following is a Section 197 intangible? a. Computer software available for purchase by the general public b. A building c. A stock investment d. An interest-earning certificate of deposit e. Goodwill.

e. Goodwill.

Which of the following is not an itemized deduction? a. Medical expenses b. IRA contribution deduction c. Personal property taxes d. Union dues e. All of the above are itemized deductions

b. IRA contribution deduction

During 2014, Mary paid the following expenses: Prescription drugs $490 Aspirin and over the counter cold capsules $130 Hospital and doctors $700 Health insurance $260 What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation of itemized deductions on Mary's 2014 income tax return? a. $700 b. $1,190 c. $1,450 d. $1,580 e. None of the above

c. $1,450

Stewart had adjusted gross income of $24,000 in 2014. During the year, he made the following contributions to qualified charities: ​ 1) $8,000 cash 2) 1,000 shares of Able Corporation common stock, acquired in 1979 (cost and fair market value of $7,000) ​ Considering the charitable contribution deduction limitation, what amount can Stewart claim as a deduction for charitable contributions in 2014? a. $7,200 b. $8,000 c. $12,000 d. $15,000 e. None of the above

c. $12,000 (Only 50% of salary is qualified, the remaining may carry over next year)

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: Cash basis revenue $54,000 Cash basis expenses, except rent $25,000 Rent expense (paid on December 1) for use of a building for 24 months $36,000 What is the amount of Becky's taxable income from her business for this tax year? a. $7,000 loss b. $11,000 c. $27,500 d. $29,000 e. None of the above

c. $27,500

In 2014, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $300 before the earned income credit. What is the amount of Alex's earned income credit for 2014, assuming his 5-year-old dependent son lived with him for the full year? a. $0 b. $1,000 c. $3,274 d. $3,305 e. None of the above

c. $3,274

Which of the following taxes is not deductible as an itemized deduction? a. Property tax on second residence b. Sales tax in a state with no income tax c. Federal income tax d. State income tax

c. Federal income tax

Charles, a corporate executive, incurred business related, unreimbursed expenses in 2014 as follows: Entertainment $ 1,100 Transportation $ 700 Education $ 400 Assuming that Charles itemizes his deductions, how much of these expenses should he deduct on his 2014 Schedule A, before considering the 2 percent of adjusted gross income limitation? a. $400 b. $700 c. $1,100 d. $1,650 e. None of the above

d. $1,650

Charlie is a single taxpayer with income of $106,000 which includes $22,500 of interest income. Contributions to educational savings accounts are phased out between $95,000 and $110,000. What is the maximum contribution Charlie can make to an educational savings account? a. $2,500 b. $2,000 c. $1,467 d. $533 e. $0

d. $533

Aaron has a successful business with $50,000 of income in 2014. He purchased a new 7-year MACRS property with a cost of $7,000. For tax purposes, what is the largest write-off Aaron can obtain in 2014 for the new asset? a. $500 b. $1,000 c. $3,500 d. $7,000

d. $7,000

Which one of the following taxpayers qualify for the earned income credit? a. A 70-year-old doctor whose practice had a net loss and who has an AGI of $5,000 in 2014. b. An 18-year-old college student who earns $8,000 at a part-time job. c. A couple who have a combined AGI of $17,000 and three children but file separately. d. A 31-year-old construction worker with $22,000 of AGI and two children. e. None of the above qualifies for the earned income credit.

d. A 31-year-old construction worker with $22,000 of AGI and two children.

In the case of the adoption of a child who is not a U.S. citizen or resident of the U.S., the credit for qualified adoption expenses is available: a. In the first year the expenses are paid. b. Each year expenses are paid. c. In the last year expenses are paid. d. In the year the adoption becomes final.

d. In the year the adoption becomes final.

Which of the common deductions below are allowed for both regular tax purposes and for AMT purposes? a. The standard deduction b. Personal and dependency exemptions c. State income taxes, property taxes, and all other taxes deducted on Schedule A d. Mortgage interest from the acquisition of a residence costing less than $1 million e. Miscellaneous itemized deductions taken on Schedule A

d. Mortgage interest from the acquisition of a residence costing less than $1 million

Damage resulting from which of the following would probably not give rise to a casualty loss deduction? a. Automobile accident b. Earthquake c. Flood d. Rust e. Fire

d. Rust

Jon, age 45, had adjusted gross income of $26,000 in 2014. During the year, he incurred and paid the following medical expenses: Drugs and medicines prescribed by doctors $ 300 Health insurance premiums $ 750 Doctors' fees $2,250 Eyeglasses $ 75 Jon received $900 in 2014 as a reimbursement for a portion of the doctors' fees. If Jon were to itemize his deductions, what would be his allowable medical expense deduction after the adjusted gross income limitation is taken into account? a. $0 b. $425 c. $600 d. $1,000 e. None of the above

a. $0 (10% of $26,000 = $2,600. Expenses total = $300+750+2250+75-900= $2475. Expenses < 10% of income, no deductible taken into account).

Harris had adjusted gross income in 2014 of $128,000. During the year his personal summer home was almost completely destroyed by a cyclone. Pertinent data with respect to the home follows: Cost basis $135,000 Value before casualty $147,000 Value after casualty $17,000 Harris was partially insured for his loss and in 2014 he received a $113,000 insurance settlement. What is Harris' allowable casualty loss deduction for 2014? a. $4,100 b. $4,200 c. $9,100 d. $9,200 e. None of the above

a. $4,100

Which of the following is not considered a deductible medical expense? a. A face lift b. Eye exams c. Prescription drugs d. Medical insurance

a. A face lift

Choose the incorrect statement. a. Books and records may be kept on a different year-end basis than the year-end used for tax purposes. b. The choice to file on a fiscal year-end basis must be made with an initial tax return. c. Almost all individuals file tax returns using a calendar year accounting period. d. An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met.

a. Books and records may be kept on a different year-end basis than the year-end used for tax purposes.

Which of the following miscellaneous deductions is subject to the 2 percent of adjusted gross income limitation? a. Unreimbursed employee business expenses b. Gambling losses to the extent of gambling winnings c. Handicapped impairment related work expenses d. None of the above e. All of above

a. Unreimbursed employee business expenses

John purchases residential rental property on September 30, 2014 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2014? a. $5,090 b. $1,485 c. $1,061 d. $370 e. None of the above

b. $1,485

Margo has $2,100 withheld from her wages for state income taxes during 2014. In March of 2014, she paid $400 in additional taxes for her 2013 state tax return. Her state income tax liability for 2014 is $2,600 and she pays the additional $500 when she files her 2014 state tax return in April of 2015. What amount should Margo deduct as an itemized deduction for state income taxes on her 2014 federal income tax return, assuming she elects to deduct state and local income taxes? a. $2,100 b. $2,500 c. $2,600 d. $3,000 e. None of the above

b. $2,500

On June 1, 2014, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business. The auto, with a cost basis of $22,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken for 2014, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation? a. $2,100 b. $3,160 c. $4,400 d. $4,900 e. None of the above

b. $3,160

On January 1, 2014, Sandy, a sole proprietor, purchased for use in her business a used production machine (7-year property) at a cost of $4,000. Sandy does not purchase any other property during 2014 and has net income from her business of $80,000. If the standard recovery period table would allow $572 of depreciation expense on the $4,000 of equipment purchased in 2014, what is Sandy's maximum depreciation deduction including the Section 179 election to expense (but not bonus depreciation) for 2014? a. $572 b. $4,000 c. $4,572 d. $25,000 e. None of the above

b. $4,000

Bob and Carol file their tax returns using the married filing jointly status. Their AGI is $132,500. They have two children, ages 11 and 7. How much child tax credit can Bob and Carol claim for their two children? a. $0 b. $850 c. $875 d. $1,150 e. None of the above is correct.

b. $850

Choose the correct statement: a. A taxayer may receive a 30-percent credit for installing energy-efficient window shades. b. A taxpayer may receive a 30-percent credit for installing a windmill, which generates electricity, at his vacation home. c. A taxpayer may receive a 30-percent credit for installing a solar water-heating panel for his swimming pool. d. A taxpayer may receive a 30-percent credit for the purchase of a plug-in electric vehicle.

b. A taxpayer may receive a 30-percent credit for installing a windmill, which generates electricity, at his vacation home.

Which of the following is a miscellaneous itemized deduction? a. Casualty losses b. Job hunting expenses c. Auto registration fees d. Property taxes

b. Job hunting expenses

Mark the correct answer. Section 197 intangibles: a. Are amortized based on current fair market value rather than their actual cost. b. Must be amortized over a 15 year life, regardless of their actual life. c. Include intangible assets created and not purchased by the taxpayer. d. Do not include purchased goodwill or going-concern value.

b. Must be amortized over a 15 year life, regardless of their actual life.

Which of the following statements with respect to the depreciation of real property under MACRS is correct? a. Real property is depreciated using a mid-quarter convention. b. Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service. c. Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year. d. In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property. e. None of the above.

c. Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year.

Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college. What are the options Karen has for filing her tax return? a. Karen must file a separate tax return and report all of her interest income at her separate rate of tax. b. Karen must file a separate tax return and report all of her interest income at her parents' rate of tax. c. Karen can file a separate tax return or her parents can elect to include her in their tax return, paying tax on $500 of her interest income at their rate of tax. d. Karen can file a separate return or her parents can elect to include her in their tax return, paying tax on the full $2,500 of her interest income at their rate of tax.

c. Karen can file a separate tax return or her parents can elect to include her in their tax return, paying tax on $500 of her interest income at their rate of tax.

For 2014, which of the following is a tax adjustment or tax preference item for the individual AMT computation? a. Deduction of charitable contribution of tangible personal property b. IRA contribution deduction c. Miscellaneous itemized deductions d. Moving expense deduction e. None of the above

c. Miscellaneous itemized deductions

Mark the correct statement. a. Residential real property is depreciated over 39 years. b. Nonresidential real property is depreciated over 27.5 years. c. Nonresidential real property is depreciated over 39 years. d. Depreciation on real property starts at the beginning of the year in which the property is placed in service.

c. Nonresidential real property is depreciated over 39 years.

Which of the following types of income is not subject to the "kiddie tax?" a. Interest income b. Dividend income c. Salary income d. Capital gains on stock sales e. All of the above are subject to the "kiddie tax"

c. Salary income

Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car. Which of the following statements is correct? a. She can take a tax deduction large enough on an after-tax basis to equal the amount she would have received if she sold the car directly. b. She can take a deduction greater than the amount for which the charity actually sells the vehicle. c. She can claim an estimated value for the auto if the charity uses it rather than selling it. d. The charity is not required to provide her with any information about what they do with the auto.

c. She can claim an estimated value for the auto if the charity uses it rather than selling it.

Which of the following charitable contributions is not tax deductible? a. Cash donated to a qualified church. b. Clothing donated to a qualified veterans' organization. c. Time donated to a qualified veterans' organization. d. Donation of a car to a qualified non-profit organization. e. All of the above are tax deductible.

c. Time donated to a qualified veterans' organization.