Question 1

Which of the following is a true statement?

Accepted Answer

A) For purposes of the deduction for educational interest, expenses do not include expenses for room, board, and travel. 
B) For purposes of the deduction for educational interest, qualified education expenses are those paid for the education of the taxpayer, the taxpayer's spouse, or the taxpayer's dependent. 
C) The maximum deduction for interest expense on qualified education loans is $6,000. 
D) A penalty paid for prematurely withdrawing a certificate of deposit or similar deposit is deductible from AGI as an investment expense. 
E) All of the choices are incorrect. 
A) For purposes of the deduction for educational interest, expenses do not include expenses for room, board, and travel. 
B) For purposes of the deduction for educational interest, qualified education expenses are those paid for the education of the taxpayer, the taxpayer's spouse, or the taxpayer's dependent. 
C) The maximum deduction for interest expense on qualified education loans is $6,000. 
D) A penalty paid for prematurely withdrawing a certificate of deposit or similar deposit is deductible from AGI as an investment expense. 
E) All of the choices are incorrect.

Question 2

Which of the following statements regarding the home office expense deduction is correct?

Accepted Answer

A) Taxpayers may allocate expenses of the home to the home office based on the size of the office relative to the size of the home. 
B) A taxpayer is not allowed to deduct any home office expenses unless the taxpayer has no other place to do business. 
C) A taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense. 
D) A taxpayer must own a home in order to claim home office expenses. 
A) Taxpayers may allocate expenses of the home to the home office based on the size of the office relative to the size of the home. 
B) A taxpayer is not allowed to deduct any home office expenses unless the taxpayer has no other place to do business. 
C) A taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense. 
D) A taxpayer must own a home in order to claim home office expenses.

Question 3

The profit motive distinguishes "business" activities from "personal" activities.

Accepted Answer

A) True 
 B)False

Question 4

Lewis is an unmarried law student at State University, a qualified educational institution.Last year Lewis borrowed $30,000 and used the proceeds to pay his university tuition.This year Lewis paid $1,500 of interest on the loan.Which of the following is a true statement if Lewis reports $40,000 of salary and no other items of income or expense?

Accepted Answer

A) Lewis can deduct all the interest on his student loan for AGI. 
B) Lewis can deduct all the interest on his student loan as an itemized deduction. 
C) Lewis can only deduct $1,000 of the interest on his student loan for AGI. 
D) Lewis can only deduct $1,000 of the interest on his student loan as an itemized deduction. 
E) All of the choices are incorrect. 
A) Lewis can deduct all the interest on his student loan for AGI. 
B) Lewis can deduct all the interest on his student loan as an itemized deduction. 
C) Lewis can only deduct $1,000 of the interest on his student loan for AGI. 
D) Lewis can only deduct $1,000 of the interest on his student loan as an itemized deduction. 
E) All of the choices are incorrect.

Question 5

Ryan, age 48, received an $8,000 distribution from his traditional IRA to pay for medical expenses.Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent.What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?

Accepted Answer

$2,240 tax; $0 penalty.
The full distrib

Question 6

Jamison is self-employed and he works out of an office in his home.After allocating the home-related expenses between the business office and the rest of the home, which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct?

Accepted Answer

A) Depreciation expense, other expenses, property taxes and interest expense. 
B) Other expenses, depreciation expense, property taxes and interest expense. 
C) Property taxes and interest expense, depreciation expense, other expenses. 
D) Other expenses, property taxes and interest expense, depreciation expense. 
E) None of the choices are correct. 
A) Depreciation expense, other expenses, property taxes and interest expense. 
B) Other expenses, depreciation expense, property taxes and interest expense. 
C) Property taxes and interest expense, depreciation expense, other expenses. 
D) Other expenses, property taxes and interest expense, depreciation expense. 
E) None of the choices are correct.

Question 7

Kaylee is a self-employed investment counselor who also owns a rental property.This year, she collected $85,000 in fees and paid the following expenses:
 $\begin{array}{llcc}
  \text {Health insurance premiums  } &\$4,200  \
 \text {  Life insurance premiums (whole life)} &1,900\
 \text {Books on investing  } &200\
 \text {Repairs of the rental property  } &450\
 \text { Advertising for investment clients } &1,770\
 \text { State income taxes } &4,300\
\text {Self-employment tax (half is employer share)  } &11,732
\end{array}$
 Kaylee files single with one personal exemption.Calculate her adjusted gross income.

Accepted Answer

$72,514 = $85,000 − $12,486.
The books o

Question 8

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI)because:

Accepted Answer

A) employers are allowed to deduct Social Security (FIC
A) taxes as a business expense. 
B) self-employed taxpayers need an alternate mechanism for reducing the cost of health care. 
C) this deduction provides a measure of equity between employees and the self-employed. 
D) health insurance premiums cannot be deducted otherwise. 
E) None of the choices are correct. 
A) employers are allowed to deduct Social Security (FIC
A) taxes as a business expense. 
B) self-employed taxpayers need an alternate mechanism for reducing the cost of health care. 
C) this deduction provides a measure of equity between employees and the self-employed. 
D) health insurance premiums cannot be deducted otherwise. 
E) None of the choices are correct.

Question 9

Generally, losses from rental activities are considered to be active losses.

Accepted Answer

A) True 
 B)False

Question 10

Tyson (48 years old)owns a traditional IRA with a current balance of $50,000.The balance consists of $30,000 of deductible contributions and $20,000 of account earnings.Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA and he immediately contributes the $50,000 to a Roth IRA.Assuming his marginal tax rate is 25 percent, what amount of penalty, if any, must Tyson pay on the distribution from the traditional IRA?

Accepted Answer

A) $0. 
B) $1,250. 
C) $3,750. 
D) $5,000. 
A) $0. 
B) $1,250. 
C) $3,750. 
D) $5,000.

Question 11

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days.Jorge is not required to allocate expenses associated with the home between rental and personal use.

Accepted Answer

A) True 
 B)False

Question 12

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

Accepted Answer

Tax basis-limits the amount of deductibl

Question 13

Careen owns a condominium near Newport Beach in California.This year, she incurs the following expenses in connection with her condo:
 $\begin{array}{llcc}
  \text { Insurance } & \$1,500 \
 \text {  Mortgage interest} &8,500\
 \text {  Property taxes} &4,000\
 \text { Repairs and maintenance } &950\
 \text {  Utilities} &1,900\
 \text {Depreciation  } &5,500\
\end{array}$
  During the year, Careen rented the condo for 90 days, receiving $20,000 of gross income.She personally used the condo for 50 days.Assume Careen uses the IRS method of allocating expenses to rental use of the property.What is Careen's net rental income for the year? (Assume there are 365 days in the year.)

Accepted Answer

$5,633.
Se

Question 14

Which of the following statements regarding Roth IRAs is false?

Accepted Answer

A) Contributions to Roth IRAs are not deductible. 
B) Qualifying distributions from Roth IRAs are not taxable. 
C) Whether or not they participate in an employer-sponsored retirement plan, taxpayers are allowed to contribute to Roth IRAs as long as their AGI does not exceed certain thresholds. 
D) Taxpayers who are married and file separately are not allowed to contribute to a Roth IRA. 
A) Contributions to Roth IRAs are not deductible. 
B) Qualifying distributions from Roth IRAs are not taxable. 
C) Whether or not they participate in an employer-sponsored retirement plan, taxpayers are allowed to contribute to Roth IRAs as long as their AGI does not exceed certain thresholds. 
D) Taxpayers who are married and file separately are not allowed to contribute to a Roth IRA.

Question 15

Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?

Accepted Answer

A) The Tax Court approach allocates more property tax and interest expense to rental use than does the IRS approach. 
B) The Tax Court and the IRS approaches allocate the same amount of expenses other than interest expense and property taxes to rental use. 
C) The IRS approach allocates interest expense and property taxes to rental use based on the ratio of the number of days of rental use to the total days of the year. 
D) None of the choices are correct. 
A) The Tax Court approach allocates more property tax and interest expense to rental use than does the IRS approach. 
B) The Tax Court and the IRS approaches allocate the same amount of expenses other than interest expense and property taxes to rental use. 
C) The IRS approach allocates interest expense and property taxes to rental use based on the ratio of the number of days of rental use to the total days of the year. 
D) None of the choices are correct.

Question 16

Kenneth lived in his home for the entire year except when he rented his home (near a very nice ski resort)to a married couple for 14 days in December.The couple paid Kenneth $14,000 in rent for the two weeks.Kenneth incurred $1,000 in expenses relating to the home for the 14 days.Which of the following statements accurately describes the manner in which Kenneth should report his rental receipts and expenses for tax purposes?

Accepted Answer

A) Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI. 
B) Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI. 
C) Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year. 
D) Kenneth would exclude the rental receipts, and he would not deduct the rental expenses. 
A) Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI. 
B) Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI. 
C) Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year. 
D) Kenneth would exclude the rental receipts, and he would not deduct the rental expenses.

Question 17

When a taxpayer experiences a net loss from a nonresidence (rental property):

Accepted Answer

A) the taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources. 
B) the loss is fully deductible against the taxpayer's ordinary income no matter the circumstances. 
C) if the taxpayer is not an active participant in the rental, the taxpayer can deduct the loss even if the taxpayer does not have any sources of passive income. 
D) if the taxpayer is not allowed to deduct the loss due to the passive activity limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property. 
A) the taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources. 
B) the loss is fully deductible against the taxpayer's ordinary income no matter the circumstances. 
C) if the taxpayer is not an active participant in the rental, the taxpayer can deduct the loss even if the taxpayer does not have any sources of passive income. 
D) if the taxpayer is not allowed to deduct the loss due to the passive activity limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

Question 18

Which of the following is a true statement?

Accepted Answer

A) For purposes of the deduction for educational interest, an educational loan must be used to pay tuition to any type of school. 
B) The maximum deduction for educational interest is $5,000 for married taxpayers filing jointly. 
C) Self-employed taxpayers are not allowed to deduct health care premiums if the taxpayer is eligible to participate in their spouse's employer-provided health plan. 
D) Self-employment taxes paid by self-employed taxpayers are deductible as business expenses. 
E) All of the choices are true. 
A) For purposes of the deduction for educational interest, an educational loan must be used to pay tuition to any type of school. 
B) The maximum deduction for educational interest is $5,000 for married taxpayers filing jointly. 
C) Self-employed taxpayers are not allowed to deduct health care premiums if the taxpayer is eligible to participate in their spouse's employer-provided health plan. 
D) Self-employment taxes paid by self-employed taxpayers are deductible as business expenses. 
E) All of the choices are true.

Question 19

Judy, a single individual, reports the following items of income and loss:
 $\begin{array}{llcc}
  \text { Salary } &  \$120,000\
 \text {  Loss from rental property} &(40,000)\
\end{array}$
 Judy owns 100 percent of the rental property and actively participates in the rental of the property.Calculate Judy's AGI.

Accepted Answer

$105,000.
$120,000 AGI before

Question 20

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years.When her account balance was $32,000, she transferred the entire $32,000 out of her traditional IRA and immediately into a Roth IRA.Her current marginal tax rate is 25 percent.What amount of tax and penalty is she required to pay on this rollover?

Accepted Answer

$8,000 tax; $0 penalty.
She is taxed on

Which of the following is a true statement?

Which of the following statements regarding the home office expense deduction is correct?

The profit motive distinguishes "business" activities from "personal" activities.

Ryan, age 48, received an $8,000 distribution from his traditional IRA to pay for medical expenses.Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent.What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI)because:

Generally, losses from rental activities are considered to be active losses.

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days.Jorge is not required to allocate expenses associated with the home between rental and personal use.

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

Which of the following statements regarding Roth IRAs is false?

Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?

When a taxpayer experiences a net loss from a nonresidence (rental property):

Which of the following is a true statement?

Judy, a single individual, reports the following items of income and loss: Salary \1 20,000 Loss from rental property (40,000) Judy owns 100 percent of the rental property and actively participates in the rental of the property.Calculate Judy's AGI.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters

Exam 6: Individual for Agi Deductions

Which of the following is a true statement?

Which of the following statements regarding the home office expense deduction is correct?

The profit motive distinguishes "business" activities from "personal" activities.

Ryan, age 48, received an $8,000 distribution from his traditional IRA to pay for medical expenses.Ryan has made only deductible contributions to the IRA and his marginal tax rate is 28 percent.What amount of taxes and early distribution penalties will Ryan be required to pay on the distribution?

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI)because:

Generally, losses from rental activities are considered to be active losses.

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days.Jorge is not required to allocate expenses associated with the home between rental and personal use.

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

Which of the following statements regarding Roth IRAs is false?

Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?

When a taxpayer experiences a net loss from a nonresidence (rental property):

Which of the following is a true statement?

Judy, a single individual, reports the following items of income and loss: Salary \1 20,000 Loss from rental property (40,000) Judy owns 100 percent of the rental property and actively participates in the rental of the property.Calculate Judy's AGI.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters