Exam 2: Gross Income and Exclusions

As part of the property settlement related to their divorce, Stella must give Peter the house that they have been living in, while she gets 100 percent of their savings accounts. The house was purchased in Texas 15 years ago for $100,000 and is now worth $110,000. How much gain must Stella recognize on the transfer of the house to Peter? What is Peter's tax basis in the house for calculating any future sale of the house?

Curt's tax client, Terry, is employed at a large company that offers medical flexible spending accounts to its employees. Terry must decide at the beginning of the year whether he wants to put as much as $2,500 of his salary into the medical flexible spending account. Terry has excellent insurance through the company and is very healthy. He does not expect to have any medical expenses during the year. Terry does not itemize deductions. Should Curt recommend that Terry put the maximum in his medical flexible spending account? Why or why not?

Disability benefits are generally taxable to the individual receiving the amounts.

Arthur, age 19, is a full-time student at Gordon College and is a candidate for a bachelor's degree. During 2015, he received the following amounts: What is his adjusted gross income for 2015?

Under the terms of a property settlement executed during the current year, Cindy transferred a house worth $350,000 to her ex-husband, Carl. The property has a tax basis to Cindy of $300,000. a.How much taxable gain or loss must be recognized by Cindy at the time of the transfer? b.What is Carl's tax basis in the property he received from Cindy?

When calculating the exclusion ratio for an annuity, the ratio should be revised when there is a significant change in the taxpayer's status or health.

Toby transfers to Jim a life insurance policy with a face value of $25,000 and a cash value of $5,000 in payment of a personal debt. Jim continues to make premium payments on the policy until Toby's death. At that time, Jim had paid $1,500 in premiums. a.How much income must Jim report when he receives the $25,000 in proceeds? b.Would your answer be different if Toby and Jim were partners in a partnership? Why?

Anthony is a marine biologist who spends months living on a boat in the ocean studying the impact of runoff water a hundred miles off the coast as a part of his job. Which of the following sentences is the most accurate?

Interest income received by a cash basis taxpayer is generally reported in the tax year it is received.

If an annuitant, whose annuity starting date was January 1, 2001, dies before recovering his or her investment in the annuity, any unrecovered investment is recognized as a loss on the annuitant's tax return for the year of death.

Mary received the following items during 2015: What is the total amount of the above items that must be included in Mary's 2015 gross income?

The value of lodging provided to a professor to enable him to live near the campus is excluded from gross income.

Bob is a machinist in a remote Alaskan crab-freezing plant. The plant is accessible only by boat or airplane and has no available lodging for rent. Bob's employer provides him with lodging at the plant and pays for all of his electricity, gas, and other utilities, valued at $700 per month. Is the value of the lodging taxable to Bob? Explain.

Barry has a successful methamphetamine laboratory. Producing methamphetamine is illegal under federal law. Is Barry required by law to report the income from his lab on his tax return? Why?

Rob is 8 years old and won a sports car valued at $30,000 in a drawing at Disneyland. How much income, if any, must Rob report on his 2015 tax return? Why?

Payments made by an employer for health insurance on behalf of an employee are considered income to the employee at the time the payments are made.

All of the following amounts are taxable income to the recipient except:

Employer-provided spending accounts:

The receipt of an inheritance is excluded from the taxable income of the recipients.

Dr. J's outstanding player award is not includible in income, since the award is in recognition of his outstanding performance.