Question 1

Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.

Accepted Answer

A) True 
 B)False

Question 2

A wash sale occurs when a taxpayer realizes a loss on the sale of stock or securities and the taxpayer acquires substantially identical stock or securities within a 61-day period after the date of sale.

Accepted Answer

A) True 
 B)False

Question 3

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as

Accepted Answer

A) neither a residence nor rental property.Because it is rented a nominal number of personal-use days,both revenue and expenses (other than those otherwise allowable)are ignored. 
B) rental property.Expenses in excess of income may be deducted although net income or loss is subject to the passive activity rules. 
C) property that is treated as a hobby,not allowing any deductions. 
D) a combination of the taxpayer's residence and rental property.The deduction for expenses is limited to the amount of income generated by the property. 
A) neither a residence nor rental property.Because it is rented a nominal number of personal-use days,both revenue and expenses (other than those otherwise allowable)are ignored. 
B) rental property.Expenses in excess of income may be deducted although net income or loss is subject to the passive activity rules. 
C) property that is treated as a hobby,not allowing any deductions. 
D) a combination of the taxpayer's residence and rental property.The deduction for expenses is limited to the amount of income generated by the property.

Question 4

An accrual-basis taxpayer may elect to accrue real property taxes ratably over the period to which the taxes relate.

Accepted Answer

A) True 
 B)False

Question 5

Shauna sells 100 shares of UTP Inc.common stock on December 28,2019 for $10,000.She had purchased these shares three years earlier for $7,000.Shauna again purchases 100 common shares on January 20,2020 for $9,000.Shauna will not recognize any loss or gain on the stock sale in 2019.

Accepted Answer

A) True 
 B)False

Question 6

Generally,deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

Accepted Answer

A) incurred in gambling activities. 
B) incurred in a trade or business. 
C) incurred in the production of rent income. 
D) incurred in the production of royalty income. 
A) incurred in gambling activities. 
B) incurred in a trade or business. 
C) incurred in the production of rent income. 
D) incurred in the production of royalty income.

Question 7

Leigh pays the following legal and accounting fees during the year: $\begin{array}{|l|c|}
\hline \text { Legal fees in connection with a contract dispute in her trade or business } & \$ 8,800 \
\hline \text { Legal fees related to resolving a tax deficiency related to business } & 4,000 \
\hline \text { Tax return preparation fees: Allocable to Schedules A and B } & 1,000 \
\hline \text { Tax return preparation fees: Allocable to Schedule C } &  1,200 \
\hline \text { Legal fees incident to a divorce } &5,000 \
\hline
\end{array}$ What is the total amount of her for AGI deduction for these fees?

Accepted Answer

A) $10,800 
B) $14,000 
C) $15,000 
D) $20,000 
A) $10,800 
B) $14,000 
C) $15,000 
D) $20,000

Question 8

On July 1 of the current year,Marcia purchases a small office building to use in her business and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the property and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Accepted Answer

A) $0 
B) $160 
C) $3,200 
D) $6,400 
A) $0 
B) $160 
C) $3,200 
D) $6,400

Question 9

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Accepted Answer

A) The expenditure improves the property,adding to the value of the property. 
B) The expenditure provides a betterment,adding to the value of the property. 
C) The expenditure restores the property. 
D) All of the above 
A) The expenditure improves the property,adding to the value of the property. 
B) The expenditure provides a betterment,adding to the value of the property. 
C) The expenditure restores the property. 
D) All of the above

Question 10

Deductions for AGI may be located

Accepted Answer

A) Schedule 1 of Form 1040. 
B) on Schedule C as a deduction. 
C) on Schedule E as a deduction. 
D) All of the above are true. 
A) Schedule 1 of Form 1040. 
B) on Schedule C as a deduction. 
C) on Schedule E as a deduction. 
D) All of the above are true.

Question 11

During 2019 and 2020,Danny pays property taxes of $3,500 each year on a piece of land.During 2019,the land is vacant and unproductive.In 2020,Danny uses the land as a parking lot and generates $16,000 in income.Which of the following is true regarding the property taxes?

Accepted Answer

A) Capitalize $3,500 each year. 
B) Deduct $3,500 each year. 
C) Capitalize $3,500 in 2019 and deduct $3,500 in 2020. 
D) Either B or C is acceptable. 
A) Capitalize $3,500 each year. 
B) Deduct $3,500 each year. 
C) Capitalize $3,500 in 2019 and deduct $3,500 in 2020. 
D) Either B or C is acceptable.

Question 12

A taxpayer owns a cottage at the beach for family vacations,but also rents it out for one month of the summer.Expenses attributable to the rental use of a taxpayer's vacation home are limited to the gross income generated by the property.The residence is considered to fall into the mixed personal and rental dimension.

Accepted Answer

A) True 
 B)False

Question 13

All of the following deductible expenses are deductions for AGI except

Accepted Answer

A) deductions reported on Schedule A. 
B) deductions reported on Schedule C. 
C) deductions reported on Schedule E. 
D) All of the above are deductions for AGI. 
A) deductions reported on Schedule A. 
B) deductions reported on Schedule C. 
C) deductions reported on Schedule E. 
D) All of the above are deductions for AGI.

Question 14

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?

Accepted Answer

A) purchase 
B) refinance 
C) construction 
D) improvement 
A) purchase 
B) refinance 
C) construction 
D) improvement

Question 15

Pamela was an officer in Green Restaurant which subsequently went bankrupt.Pamela started a new restaurant and,to establish goodwill,paid off the debts of $100,000 of Green Restaurant.She was under no obligation to do so.The $100,000 is

Accepted Answer

A) deductible currently as an itemized deduction. 
B) capitalized because the expenses are not ordinary. 
C) deductible currently as a trade or business expense since the expenses are considered ordinary and necessary business expenses. 
D) none of the above. 
A) deductible currently as an itemized deduction. 
B) capitalized because the expenses are not ordinary. 
C) deductible currently as a trade or business expense since the expenses are considered ordinary and necessary business expenses. 
D) none of the above.

Question 16

In order for an expense to be ordinary,it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income-producing activity or property.

Accepted Answer

A) True 
 B)False

Question 17

For the years 2015 through 2019 (inclusive)Max,a surgeon,has been involved in bowling competitions.Only in 2018 and 2019 did his revenue exceed the expenses from the activity.Which statement is correct?

Accepted Answer

A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Max cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Max may prove it is a business. 
A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Max cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Max may prove it is a business.

Question 18

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.

Accepted Answer

A) True 
 B)False

Question 19

Interest expense on debt incurred to purchase or carry tax-exempt securities is not tax deductible.

Accepted Answer

A) True 
 B)False

Question 20

Tory considered opening a cupcake store in Denver.Tory is currently a full-time dentist.After spending $8,600 on a market study,he decided against opening the store on August 1.What is the maximum amount of deduction for the current year attributable to this expenditure?

Accepted Answer

A) $0 
B) $5,000 
C) $5,600 
D) $6,800 
A) $0 
B) $5,000 
C) $5,600 
D) $6,800

Exam 22: Deductions and Losses

Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.

A wash sale occurs when a taxpayer realizes a loss on the sale of stock or securities and the taxpayer acquires substantially identical stock or securities within a 61-day period after the date of sale.

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as

An accrual-basis taxpayer may elect to accrue real property taxes ratably over the period to which the taxes relate.

Shauna sells 100 shares of UTP Inc.common stock on December 28,2019 for $10,000.She had purchased these shares three years earlier for $7,000.Shauna again purchases 100 common shares on January 20,2020 for $9,000.Shauna will not recognize any loss or gain on the stock sale in 2019.

Generally,deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Deductions for AGI may be located

During 2019 and 2020,Danny pays property taxes of $3,500 each year on a piece of land.During 2019,the land is vacant and unproductive.In 2020,Danny uses the land as a parking lot and generates $16,000 in income.Which of the following is true regarding the property taxes?

All of the following deductible expenses are deductions for AGI except

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?

Pamela was an officer in Green Restaurant which subsequently went bankrupt.Pamela started a new restaurant and,to establish goodwill,paid off the debts of $100,000 of Green Restaurant.She was under no obligation to do so.The $100,000 is

In order for an expense to be ordinary,it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income-producing activity or property.

For the years 2015 through 2019 (inclusive)Max,a surgeon,has been involved in bowling competitions.Only in 2018 and 2019 did his revenue exceed the expenses from the activity.Which statement is correct?

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.

Interest expense on debt incurred to purchase or carry tax-exempt securities is not tax deductible.

Tory considered opening a cupcake store in Denver.Tory is currently a full-time dentist.After spending $8,600 on a market study,he decided against opening the store on August 1.What is the maximum amount of deduction for the current year attributable to this expenditure?

Tax Research

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