Test# 5
a. Edwin's $20,000 basis in the IRA may be treated as basis to Donna upon Edwin's death The basis in a traditional IRA, along with the untaxed income in respect of a decedent (IRD) transfers to the beneficiary. The spouse of the decedent is the only beneficiary that can roll an inherited IRA into their own traditional IRA account. Distributions due to death are not subject to a 10% penalty.
Edwin and Donna were married. Edwin had established a traditional IRA to which he made contributions, and had taken no distributions. The total value of the IRA was $50,000 of which $20,000 was non-deductible contributions. As the spousal beneficiary, which of the following applies to Donna? a. Edwin's $20,000 basis in the IRA may be treated as basis to Donna upon Edwin's death b. When Donna receives the distribution she may not roll it over to her own traditional IRA c. Donna must begin receiving periodic distributions by December 31 of the fifth year following Edwin's death d. Donna must pay a 10% penalty on the funds in the IRA if she receives an immediate distribution after Edwin's death
c. 118,000 If you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. An example of changing property held for personal use to business use would be renting out your former main home. The basis for depreciation is the lesser of the following amounts. -The FMV of the property (home) on the date of the change -Your adjusted basis on the date of the change. In this case the FMV is $120,000 and the basis is $118,000 (original construction cost of $100,000 plus improvements of $20,000 less casualty loss $2,000). Therefore the basis for depreciation is $118,000.You cannot depreciate land.
A couple of years ago Mason paid $100,000 to have his home built on a lot that cost him $10,000. Before changing the property to rental use last year, he paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. On the date of change in use, his property has an FMV of $150,000, of which $30,000 is for the land and $120,000 is for the house. His depreciable basis for the house is: a. 120,000 b. 140,000 c. 118,000 d. 138,000
b. Commuting expenses if you work during the commuting trip using your telephone to make business calls or have business associates ride with you to and from work and you have a business discussion in the car. Commuting to your main work location is not a transportation expense.
All of the following may be deducted by a taxpayer as a transportation expense except: a. Getting from one workplace to another in the course of your business or profession. b. Commuting expenses if you work during the commuting trip using your telephone to make business calls or have business associates ride with you to and from work and you have a business discussion in the car. c. Visiting clients or customers after going to your office. d. Going to a business meeting away from your regular workplace.
d. Individual savings bonds clearly designated as an IRA The sale of individual retirement bonds issued by the federal government ceased after 1982.
All of the following types of accounts are permitted for Individual Retirement Arrangements except: a. A trust or custodial account at an IRS approved entity b. An individual retirement annuity c. An employer and employee association trust account d. Individual savings bonds clearly designated as an IRA
d. B and C A taxpayer must include early distributions of taxable amounts from his traditional IRA in his gross income. And early distributions, which are amounts distributed from a taxpayer's traditional IRA account or annuity before he is age 59 1/2, are subject to an additional 10% tax. The 10% additional tax applies to the part of the distribution that the taxpayer has to include in gross income. It is in addition to any regular income tax on that amount. Among the several exceptions to the 59 1/2 rule, which permit a taxpayer who receives an early distribution from the 10% additional tax, are provisions for exception if the distributions are not more than the cost of his medical insurance (if unemployed and collecting benefits for more than 12 consecutive weeks) or his qualified higher education expenses. There are other exceptions to the age 59 1/2 rule.
Are there exceptions to the 10% penalty on early distributions from a traditional IRA? a. No b. Yes, if the taxpayer uses the distribution to pay for his college tuition c. Yes, if an unemployed taxpayer uses the distribution to pay for his health insurance premiums d. B and C
c. Both the expenses paid so they can work and the expenses paid so they could look for work To qualify for the Child and Dependent Care Credit, expenses must be workrelated. Expenses are considered work-related if they allow you (and your spouse, if filing jointly) to work or look for work. Both the expenses Dave and Kathy paid while they were working and those paid to allow them to actively look for work qualify.
Both Dave and Kathy were laid off from their jobs on June 1st. They began looking for work immediately, but were unable to find new jobs by the end of the year. Their daughter Cindy attends day care at a cost of $250 per month. How much of the day care expenses can Dave and Kathy use to figure the child and dependent care credit? a. Only the expenses paid while they were employed b. Only the expenses paid while they were looking for new work c. Both the expenses paid so they can work and the expenses paid so they could look for work d. Up to 35% of the total amount paid, depending on AGI
a. $1,200 Jen can deduct the $1,200 paid for Bubba's medical expenses. For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Either parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption. Because Jen's brother treats her mother as a dependent under the multiple support agreement, Jen cannot deduct any of her expenses. Only her brother is entitled to deduct medical expenses he paid.
Brad and Jen were divorced in 2014. Their son, Bubba, lived with Jen for all of 2015 and qualifies as her dependent. However, the divorce decree states that Brad is entitled to take Bubba as an exemption for 2015. Bubba incurred some medical expenses in 2015. Jen paid $1,200 of the medical expenses and Brad paid $2,000. In 2015, Jen entered into a multiple support agreement with her brother to assist with their mother's care. Under the agreement, her brother takes their mother as a dependent for 2015. Jen's one-half of her mother's medical expenses in 2015 totaled $1,500. How much is Jen's medical expense deduction for 2015 (without regard for income limitations). a. $1,200 b. $0 c. $1,500 d. $2,700
b. Yes, regardless of the shareholder's participation in the business. For S-corporations and partnerships, the DPAD is applied at the shareholder or partner level and the information the shareholder or partner requires to claim the deduction is provided to him. Other S corporations and partnerships can figure the QPAI and Form W-2 wages at the entity level and allocate and report these amounts to shareholders and partners on their K-1s.
Can an S-corporation shareholder who receives a K-1 that shows an allocation for QPAI and Form W-2 wages be eligible to take the Domestic Production Activities Deduction? a. Yes, if the shareholder materially participated in the business. b. Yes, regardless of the shareholder's participation in the business. c. No, because the corporation will take the DPAD deduction on its own tax return. d. No, because those figures on the K-1 for information purposes only.
c. short-term capital loss on Schedule D All non-business bad debts are short term capital losses and are claimed on Schedule D. The amount of time the money has been owed does not matter.
Donald declared bankruptcy in 2015 and had a liability discharged consisting of a $5,000 from his friend, Maria, who made the loan to Donald three years ago. Maria reports the uncollectable loan on her 2015 tax return as a: a. loss on Form 4797 b. long-term capital loss on Schedule D c. short-term capital loss on Schedule D d. investment expense on Schedule A subject to the 2% AGI limitation
a. $9,000 capital gain Calculate this gross profit percentage by dividing the gross profit from the sale by the contract price. The gross profit percentage is 50% ($50,000 / $100,000). Calculate the basis in an installment obligation by multiplying the unpaid balance on the obligation by the gross profit percentage. Subtract that amount from the unpaid balance. The result is the basis in the installment obligation. When the note is sold, the difference between the $19,000 sales price and $10,000 basis is the amount of gain. If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. It is considered gain or loss on the sale of the property for which you received the installment obligation. If the original installment sale produced ordinary income, the disposition of the obligation will result in ordinary income or loss. If the original sale resulted in a capital gain, the disposition of the obligation will result in a capital gain or loss.
Donald owned a lot with a basis of $50,000 that he sold in 2006 for $100,000. He financed the entire sales price by accepting a note from the purchaser. In 2015, he sold the note for $19,000 cash when the remaining balance was $20,000. How does Donald report the sale of the note on his 2015 tax return? a. $9,000 capital gain b. $9,000 ordinary income c. $1,000 capital gain d. $1,000 ordinary income
a. $1,000 long-term capital gain Nicholas's sale of land to his brother is a related party transaction so he cannot claim a loss on his return. He must report the stock sale as a $1,000 long term capital gain.
During the year, Nicholas made the following dispositions of property: Sold publicly traded stock, which cost $2,000 and had been held for 2 years, for $3,000 Sold land, which cost $20,000 and had been held for 9 months, to his brother for $16,000. How should Nicholas report these dispositions on his return? a. $1,000 long-term capital gain b. $3,000 long-term capital loss c. $3,000 short-term capital loss d. $3,000 ordinary loss
c. $75,000 Eugene paid $25,000, and received $60,000 (3/4 of the FMV when Peter died) for a total of $85,000. Subtract 1/2 of the $20,000 claimed in depreciation at time of death and Eugene's adjusted basis in the property as of Peter's death is $75,000.
Eugene and Peter owned a building, as joint tenants with the right of survivorship, which they used as a storefront. Eugene provided $25,000 and Peter provided $75,000 when they purchased the building. Peter died in 2015. $20,000 of depreciation was taken before Peter's death. According to local law, both Eugene and Peter had a one half interest in the income from the property. At the time of Peter's death, the fair market value of the property was $80,000, three fourths of which is includable in Peter's estate. What is Eugene's basis in the property at the date of Peter's death? a. $80,000 b. $60,000 c. $75,000 d. $65,000
d. No reporting required His adjusted basis in his old home is $225,000. The transaction does not qualify as a nontaxable exchange under Sec. 1031. It is treated as a separate sale and purchase. The value received for the house is $325,000, and $75,000 is cash, totaling $400,000 for the new house. He must allocate $325,000 of the purchase price to the sale of his prior home. This produces a gain of $100,000. Assuming that George lived in the house as his primary residence during his ownership, he qualifies to exclude the entire amount of gain and therefore does not need to report this transaction at all.
George bought his first home in 2011 for a price of $200,000 plus $10,000 of closing costs. In 2012, he adds a room over the garage for a cost of $15,000. He lives in the house until 2015, before trading the house to a real estate investor. George also pays $75,000 in that transaction, acquiring the new house for $400,000. How should George report this transaction on his 2015 tax return? a. $75,000 long-term capital gain b. $100,000 long-term capital gain c. $0 taxable gain and reduces his basis in the new house by $75,000 d. No reporting required
b. Lew must report the entire gain on his return, but he can claim a section 121 exclusion on Schedule D for his main home. Lew met the ownership and use tests for the house but did not meet the use test for the stable. Since the business part was separate from his home, Lew must allocate the basis of the property and the amount realized between the part of the property he used for his home and the part he used for his business. Lew reports the gain on the business part of his property on Form 4797. He can exclude the gain on the part of the property that was his main home. He does not report the gain from the part used as his home because he can exclude all of it.
In 2011, Lew bought property that consisted of a house, a stable, and 35 acres. He used the house and 7 acres as his main home and used the stable and 28 acres in his business for the next 4 years. He sold the entire property in 2015 at a $10,000 gain. Which of the following statements is incorrect? a. Lew met the ownership and use tests for the house but did not meet the use test for the stable. b. Lew must report the entire gain on his return, but he can claim a section 121 exclusion on Schedule D for his main home. c. Lew reports the gain on the business part of his property on Form 4797. d. He can exclude the gain on the part of the property that was his main home.
c. $6,650 The amount a taxpayer can contribute to his HSA depends on the type of HDHP coverage he has, his age, the date he became an eligible individual, and the date he ceased to be an eligible individual, if applicable. For 2015, a taxpayer with self-only HDHP coverage, can contribute up to $3,350. If a taxpayer has family HDHP coverage, he can contribute up to $6,650. Eligible taxpayers who are over age 55 can contribute an additional $1,000.
In 2014 Brad obtained a high deductible health insurance plan for himself and his family and set up a health savings account (HSA). The deductible for his plan is $4,950. The annual premiums are $6,950. In 2015, what is the maximum deductible contribution he can make to his HSA? a. $3,050 b. $4,950 c. $6,650 d. $6,950
d. All of the above A taxpayer does not file Form 9465 if he can pay the full amount he owes within 120 days. The taxpayer must call or apply online to establish a request to pay in full. The taxpayer will avoid paying a set-up fee on an installment agreement under this method. Also, a taxpayer does not file Form 9465 if he is in bankruptcy or if the IRS has accepted an offer-in-compromise. IRS Form 9465.
In which of the following circumstances should a taxpayer not request an installment agreement on Form 9465? a. The taxpayer can pay the amount in full within 120 days b. The taxpayer is currently in bankruptcy status c. The taxpayer's offer in compromise has been accepted d. All of the above
c. Jack and Jill must file separate gift tax returns and report one-half of each gift on each return before applying the $14,000 annual exclusions. Married taxpayers can each give gifts valued at up to $14,000 to the same person in 2015 without making a taxable gift. If one spouse gives more than the $14,000 exclusion to a person in 2015, the spouses can treat the gift as made one-half by each spouse. This is known as gift splitting. Both must consent (agree) to split the gift, and all other gifts for the year. In 2015, gift splitting allows married couples to give up to $28,000 to a person without making a taxable gift. Taxpayers who wish to split gifts must each file a separate gift tax return (Form 709).
Jack and Jill are married and agree to split the gifts that they made during 2015. Jack gives his nephew, James, $17,000, and Jill gives her niece, Janice, $12,000. Which statement is true regarding Jack and Jill's gifts? a. Jack and Jill can combine their gifts of $29,000 on one gift tax return and take a $14,000 annual exclusion for each recipient. b. Jack and Jill must file separate gift tax returns and each take a $10,000 annual exclusion for their gift. c. Jack and Jill must file separate gift tax returns and report one-half of each gift on each return before applying the $14,000 annual exclusions. d. None of the above.
b. should remit equal estimated payments totaling at least $2,000. Estate with tax years ending two or more years after the date of the decedents death must pay estimated tax in the same manner as individuals. Generally, estimated tax is required if the estate is expected to owe at least $1,000 after subtracting any withholding and credits. However, there is no underpayment penalty if the estimated payments, withholdings, and credits total at least 90% of the tax shown on the return for the tax year or 100% of the tax on the prior year return (assuming that return covered 12 months). 100% of prior year tax = $2,000 90% of current year = $2,700 The general rule is that the first estimated tax payment is required by April 15. All of the estimated tax is paid at that time or it is paid in four equal amounts that are due by April 15, June 15, September 15, January 15 (of the subsequent year). This topic is best classified in Part 1 of the exam; however, relevant information appears in CH 16 of the study guide.
Jack died on December 1, 2014. The executor of his estate chose a calendar year. In 2015, the estate had a tax liability of $2,000. The estate expects adjusted gross income of $43,000 and a tax liability of $3,000 for 2016. All of the income is from interest and dividends from which no tax is withheld. To avoid penalty for underpayment of estimated tax for 2016, the executor: a. does not have to remit estimated tax payments. b. should remit equal estimated payments totaling at least $2,000. c. should remit equal estimated payments totaling at least $3,000. d. should remit $2,000 of estimated tax payment for 2016 by January 15, 2017.
d. $6,667 Basis starts at $100,000. She claims depreciation of $6,667. This depreciation reduces basis to $93,333. She realizes a gain on the sale of $206,667 (sales price - basis). Taxpayers may be able to exclude gain from the sale of a home that they have used for business or to produce rental income if they meet the ownership and use tests. If a taxpayer is entitled to take depreciation deductions because the main home was used for business purposes or as rental property (even if they were not actually claim them), the part of the gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997 may not be excluded. Unrecaptured Section 1250 Gain is due to depreciation, which is recaptured in the year the property is disposed and taxed at a maximum rate of 25%. Her recognized gain is $6,667.
Jan and Peter purchased their home in 2003 for $100,000 and lived in it as their primary residence until selling the property for $300,000 in 2015. Jan is a writer and used 1/6 of the house as an office. She deducted 1/6 of all costs including depreciation since she purchased the property. The original value of the house assessed $40,000 for the land and $60,000 for the house. Jan used the straight-line method to claim $6,667 in depreciation. What is the recognized gain on the sale? a. None b. $200,000 c. $206,667 d. $6,667
b. $0 The Credit for Qualified Retirement Savings Contributions is not available to any taxpayer with income over $61,000 in 2015. IRS Form 8880.
Jason and Margaret report AGI of $62,000 on their 2015 joint tax return. They each contribute $5,000 to a qualified retirement plan for 2015. What is the amount of their Credit for Qualified Retirement Savings Contributions? a. $5,000 b. $0 c. $2,000 d. $1,000
c. Report a $3,000 gain While an exchange was made, it is not of a like kind. Bartering is an exchange of property or services. The taxpayer must report the fair market value of property or services received in bartering as income. Jeff's basis in the given property was $1,000 and the corporation's given property was $4,000. He has a $3,000 gain to report. (4,000 - 1,000 = 3,000)
Jeff collects baseball cards and exchanges a portion of his collection for a motorcycle owned by Cards Corporation. The fair market value of the cards is $4,000 but Jeff paid only $1,000 for them. Jeff owns all of the outstanding stock of Cards Corporation, which has an adjusted basis of $2,000 in the motorcycle. The fair market value of the motorcycle is $4,000. What amount should Jeff report on his tax return for the year of the exchange? a. Attach a non-taxable exchange disclosure statement to his return b. No reporting required c. Report a $3,000 gain d. Report a $1,000 gain
b. $500 Taxpayers who claimed the first-time homebuyer credit on their 2008 returns must repay at least 1/15 of the credit with every tax return during the repayment period until the year the credit is paid in full. A taxpayer may choose to repay more than the minimum amount with his return. Jim repaid more than the minimum amount on his 2010 return. He must continue to repay the minimum amount (1/15 of the credit = $500) on his 2011 return. If Jim continues to pay the minimum amount on his future returns, his last payment will be reduced by $500, his additional payment from 2010.
Jim claimed a $7,500 first-time homebuyer credit on his 2008 return. He repaid $1,000 on his 2010 return. How much must he repay on his 2011 return? a. $0 b. $500 c. $1,000 d. $6,500
d. 50%. Distributions must begin by April 1 of the year following the year the taxpayer reaches age 70.5. The amount of the distribution is the required minimum distribution (RMD). An individual must make the RMD for any year after the year attaining age 70 1/2 by December 31 of that later year. If distributions are less than the RMD for the year, taxpayers may have to pay a 50% excise tax on the amount not distributed as required. The penalty on early withdrawals (pre 59 1/2) is 10%. The tax on excess contributions is 6%.
John failed to take required minimum distributions from his IRA (traditional). The excess accumulation is subject to a penalty of: a. 6%. b. 10%. c. 15%. d. 50%.
a. $6,000 A taxpayer must file a claim for refund (or credit) by the later of 3 years after filing the original return, or 2 years after paying the tax. Payments made before the due date are considered paid on the due date (without regard to extensions). If a claim is filed within 3 years after the date of filing the return, the credit or refund cannot be more than the part of the tax paid within the 3- year period (plus any extension of time for filing your return) immediately before you filed the claim. Joshua files the claim for refund on November 1, 2015. The tax payments totaling $7,000 are considered paid on April 15, 2013, and the payment of $1,000 occurs on October 15, 2013. Both payments are within three years of November 1, 2015, and therefore eligible for a refund. Joshua is able to request the full $6,000 he is seeking as a refund.
Joshua had income tax withheld from his wages during 2012 in the amount of $5,000. Joshua paid an additional $2,000 with his timely filed 6 month extension. Joshua filed his tax return on October 15, 2013, and paid the balance shown to be due on the return of $1,000 on that date. Joshua discovered an error in his return on November 1, 2015. On that same date he filed a claim for refund in the amount of $6,000. Assuming the grounds set forth in the claim are proper, what refund can Joshua recover for tax year 2012? a. $6,000 b. $2,000 c. $-0- d. $7,000
d. $0 Total non-Social Security income is $18,000. Total Social Security income is $15,000, one-half of which is $7,500. If total non-Social Security income plus half of the Social Security income is less than $32,000 if married filing joint, none of benefits are taxable. $18,000 + $7,500 = $25,500 which is below the base amount of $32,000; so none of the Social Security benefits are taxable
Mr. and Mrs. Clark are both 72 years of age, married, filing jointly. They received social security benefits of $7,500 each. Additional income for the year included taxable pensions of $12,000 for Mr. Clark and $6,000 for Mrs. Clark. What is the taxable portion of the social security benefits received by the Clarks? a. $15,000 b. $7,500 c. $3,750 d. $0
a. $2,000 His basis in the 500 shares before the split is $3,000 ($6 per share). After the split he has 1500 shares with a basis of $2 each. He sells 500 of those 1,500 shares, which does not affect the basis of his remaining shares. His remaining 1,000 shares still have a basis of $2 each for a total of $2,000.
Mystical Max was hired to perform his magic show for the Lead Paint Toy Company's annual Flag Day employee celebration. His contract with the company lists his fee at $6,000 in cash and/or stock. When Mystical Max performed his services in 2013 their stock was at $6 per share. Mighty Mystical Max chose to take 500 shares of stock and $3,000 in cash. In 2014, the stock split 3 for 1 taking Max's shares up to 1500. In 2015, Mightily Mystical Max sold 500 shares to his stage partner Larry for $50 per share. What is Max's basis in the Toy Company stock he still owns? a. $2,000 b. $3,000 c. $4,000 d. $6,000
d. On her timely filed 2015 return or by amending her 2015 return within seven years. Patsy loaned out her own cash under a valid loan agreement. The borrower declared bankruptcy as evidenced by the item in the newspaper (Patsy should keep a copy of it with her copy of the loan agreement). Patsy can deduct the remaining unpaid balance on the loan on her 2015 return if she became aware of the bankruptcy in 2015, or within 7 years after filing her 2015 return by amending it (but the Form 1040X must be filed in the tax year in which she became aware of Scarlett's bankruptcy). Form 1040x based on a bad debt or worthless security generally must be filed within 7 years after the due date of the return for the tax year in which the debt or security became worthless. See Sec 6511 for more details. This is an exception to the 3 year rule.
Patsy loaned money to Scarlett in 2013. Scarlett signed a loan agreement and made the agreed-upon monthly payments until May 2015 when she stopped making payments. Patsy called Scarlett and wrote her a letter requesting payment but received no response. Then Patsy ready in the newspaper that Scarlett had filed bankruptcy with no assets. Patsy can take a deduction for a bad debt: a. Only on her timely filed 2015 return. b. By amending her 2015 return within three years. c. By amending her 2013 return. d. On her timely filed 2015 return or by amending her 2015 return within seven years.
c. It is not necessary for Pradeep to file a U.S. income tax return. The factor determining the source of Pradeep's income is the country where he performs the services. Pradeep's income from his personal services is not U.S. source income, and accordingly he does not need to file a U.S. income tax return. A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income.
Pradeep lives and works in Bangalore, India as a self-employed contractor where he helps U.S. companies outsource computer programming projects to Indian software designers. He is not a U.S. citizen or resident at any time during the year. All of Pradeep's income is from his U.S. contracts. Which of the following is true regarding Pradeep's tax obligations to the United States? a. He has U.S. source income, and must report it on Form 1040NR. b. His customers must withhold 30% of the payments made to him. c. It is not necessary for Pradeep to file a U.S. income tax return. d. Pradeep must file Form 1040-SS to report his income from self-employment.
b. Capital gains Rachel has a basis of $500 and received $5,000, so she has a capital gain of $4,500. It is a long term capital gain because she has owned the stock for more than a year.
Rachel purchased 100 shares of Comet Corporation stock for $500 in 2012. In 2015, Rachel received $5,000 in a distribution from the partial liquidation of Comet Corporation. On her personal 2015 income tax return, Rachel must report income from this transaction as: a. Dividends b. Capital gains c. Other d. None of the above
c. $4,425 Any expenses paid by a tenant on behalf of the owner are considered income to the owner. A cash basis taxpayer must report income in the year of constructive receipt (when he actually receives it) regardless of when it is earned. Fred and Wilma are considered to pay $575 in rent to Ralph in December. The payment of $4,425 is income in January, upon constructive receipt. This is an interesting question. The landlord agrees to allow the rental deduction which brings the income into that year, and he could not claim the expenses until reimbursement occurs, which is arguably the following year.
Ralph rents a house to Fred and Wilma. During a cold winter week in December, a pipe burst at the house. Ralph was on a ski vacation in Aspen and asked Fred and Wilma to get a plumber to repair the damage. They paid the plumber $575, which Ralph asked them to deduct from their next monthly rental payment of $5,000 in January. How much rental income does Ralph have for January? a. $5,000 b. $5,575 c. $4,425 d. $5,745
c. $7,500 Robert cannot report the loss (related party transaction). Karen's basis is the $8,000 she paid her brother. She received $15,500 and has a realized gain of $7,500. Karen recognizes the gain only to the extent it is more than the loss previously disallowed to the related party. Karen must recognize $500 of the gain. The question asked for the amount realized.
Robert sold his Lebec Corporation stock to his sister Karen for $8,000. Robert's cost basis in the stock was $15,000. Karen later sold this stock to Dana, an unrelated party, for $15,500. What is Karen's realized gain? a. $500 b. $7,000 c. $7,500 d. $0
c. $82,000. The inheritance and the municipal bond interest are not taxable and not included in AGI. The correct answer is $82,000. Law firm income of $80,000 + savings account interest $2,000 = AGI of $82,000.
Scott and Marie, husband and wife, are equal partners in a law firm. They had gross receipts of $120,000, less expense of $40,000 resulting in net income of $80,000 for the law firm. Marie received an inheritance of $20,000. In addition, they had municipal bond interest of $3,000 and savings account interest of $2,000. Without considering the deduction for 1/2 self-employment tax, what is their adjusted gross income on a married filing joint return? a. $105,000. b. $142,000. c. $82,000. d. $102,000.
c. Scott can receive an automatic 6-month extension to file his return by telephone if he pays his tax due with a debit card. A taxpayer may request an automatic 6-month extension without form 4868 by paying part or all of the estimate of tax due by using a credit or debit card. This can be executed by phone or the internet. To request an automatic 2-month extension to file and pay federal income tax, the taxpayer must either live outside the US and have a main place of business outside the US or be on active military duty outside the US and Puerto Rico. Qualified taxpayers must attach statements to their return explaining which situation applies. Form 4868 is used to request an automatic 6-month extension to file a tax return. This is not an extension of time to pay any tax due.
Scott is a US citizen on vacation in Argentina on April 15th. He is a calendar year taxpayer who has not filed his tax return. Which of the following is correct about Scott's extension request? a. Scott may request an automatic 2-month extension to file his return because he is out of the country on the due date of his return. b. Scott can request an automatic 6-month extension to file and pay his taxes using form 4868. c. Scott can receive an automatic 6-month extension to file his return by telephone if he pays his tax due with a debit card. d. If Scott files an extension by April 15, he will not owe interest on unpaid amounts prior to the extended due date.
d. Both A and B The following is a partial list of the types of organizations that are 50% limit organizations: 1. Churches and conventions or associations of churches 2. Educational organizations with a regular faculty and curriculum that normally have a regularly enrolled student body attending classes on site 3. Hospitals and certain medical research organizations associated with these hospitals 4. Publicly supported charities Kiwanis, Rotary, and Lions Club are 30% organizations.
Some contributions may be limited to 50% of the taxpayer's adjusted gross income. Deductions to the following organizations are subject to the 50% limitation on deductible contributions: a. Churches and conventions of organizations of churches and educational organizations with regular faculty and curriculum and regularly enrolled students. b. Hospitals and certain medical research organizations associated with these hospitals. c. Kiwanis, Rotary, and Lions Club who raise money for public causes. d. Both A and B
a. $6,000 A taxpayer may exclude gain from the sale of a home used for business or to produce rental income. However, the taxpayer must meet the ownership and use tests. If a taxpayer is entitled to take depreciation deductions because the primary residence was used for business purposes or as rental property, the part of the gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997 is not excluded.
Steve is single and purchased his St. Louis home in 2004 for $150,000. The house was his primary residence until he sold it for $350,000 in 2014. Steve used 1/5 of his home as an office for his business. Over the years he claimed $6,000 of depreciation. Upon his purchase, the assessed value for the land was $60,000 and $90,000 was allocated to the house. Steve's taxable income as a result of the sale in 2015 is: a. $6,000 b. $206,000 c. $200,000 d. $0
b. $500 Sue cannot deduct a loss in a related party transaction (Sue sold to her brother). But Sam can claim a loss of $500 ($6,000 basis less $5,500 sales price). If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party.
Sue sold land to her brother Sam for $6,000. Sue's basis in the land was $7,000. She cannot deduct the $1,000 loss. Sam sold the same land to an unrelated party for $5,500, realizing a loss of $500. What amount of loss can Sam deduct? a. $0 b. $500 c. $1,500 d. $1,000
c. $404,000 depreciation, $4,000 amortization. Cost basis for depreciation includes the purchase price (cash and mortgage $400,000), title search and bank fees ($4,000). Points paid for the loan for business property are business expenses that must be amortized over the life of the loan. Points do not increase basis.
Terry Hogan purchases a strip mall in Miami for $400,000 that he plans to rent to a supermarket chain. He pays $265,000 cash and obtains a mortgage for $135,000. He pays closing costs of $8,000, which includes $4,000 in points on the mortgage and $4,000 for bank fees and title costs. The basis in the property is: a. $273,000 depreciation, $135,000 amortization. b. $408,000, depreciation only. c. $404,000 depreciation, $4,000 amortization. d. $400,000 depreciation, $8,000 Amortization.
d. All of the above A direct deposit request will be rejected and a check will be sent instead if a financial institution rejects a direct deposit, the taxpayer requests a deposit into an account that is not in the taxpayer's name, or the taxpayer files a return after the close of the following year. IRS Form 8888.
The Service will reject a request for allocation of refund and issue a paper check if _________? a. The taxpayer does not request the deposit to an account in his name. b. The taxpayer file's a 2015 return after December 31, 2016. c. The financial institution rejects the deposit. d. All of the above
c. Ordinary income. Distributions from traditional IRAs that a taxpayer includes in income are taxed as ordinary income.
When a taxpayer receives a taxable distribution from an IRA, what sort of income has he received? a. Interest income. b. Capital gain income. c. Ordinary income. d. A or B or both.
c. Payments Diego made to Tacoma Hospital on behalf of Patricia for her medical expenses. Property settlements, payments to keep up the payer's property, and payments made after the recipient's death are not alimony.
Which of the following items between Diego and his ex-wife Patricia may be considered alimony? a. The family minivan that Diego is allowed to keep in the divorce that belonged to his ex-wife. b. Mortgage payments Diego made under a written separation agreement for the mortgage and real estate taxes on a home he owned by himself and in which Patricia lived rent-free. c. Payments Diego made to Tacoma Hospital on behalf of Patricia for her medical expenses. d. Payments made by Diego to Patricia's estate for six-months after her death.
b. Ricky and Lucy, a married couple with each spouse using a different accounting method. Different accounting methods are allowable for those filing jointly. However, both must use the same accounting period and are generally required to sign the return. In general, filing status depends on marital status. A person is considered unmarried for the whole year if, on the last day of the tax year, he is unmarried or legally separated from a spouse under a divorce or separate maintenance decree. You cannot use MFJ if you are not married on the last day of the year unless your spouse died during the year. If a spouse dies during the year, the IRS considers the surviving spouse married for the whole year and allows married filing joint as the status only for that year if otherwise qualifying for that status. The year of death is the last year to file jointly with a deceased spouse.
Which of the following taxpayers can file a tax return using status as Married Filing Jointly? a. Fred and Wilma, a married couple with each spouse using a different accounting period. b. Ricky and Lucy, a married couple with each spouse using a different accounting method. c. Greg and Marsha, a married couple that are legally separated prior to the last day of the year but agree to file jointly. d. Carol, the surviving spouse of Mike, filing a return for the tax year after his death.
