Exam 22: Deductions and Losses

Charles is a single person,age 35,with no dependents.In 2019,Charles has gross income of $75,000 from his sole proprietorship.Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship.He has interest and dividend income of $22,000.Charles has $7,000 of itemized deductions.Charles's taxable income is

Emeril borrows $340,000 to finance taxable and tax-exempt investments.He incurs $18,000 investment interest expense,allocated equally between the taxable and tax-exempt investments.Ignore any possible investment interest expense limitation.How much of the interest expense is deductible,and where is it deductible?

Deductions for adjusted gross income include all of the following except

Expenses paid with a credit card are deductible at the time a cash-basis taxpayer pays for the charge.

In 2019,Sean,who is single and age 44,received $55,000 of gross income and had $5,000 of deductions for AGI and $5,600 of itemized deductions.Sean's taxable income is

Troy incurs the following expenses in his business,an illegal gambling establishment: Salaries to employees \ 200,000 Insurance expense 60,000 Utilities expense 70,000 Bribes to police 50,000 His deductible expenses are

Expenses related to a hobby are deductible only to the extent of the gross income from the hobby.

Jason sells stock with an adjusted basis of $66,000 to JJ Inc.,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be

The Super Bowl is played in Tasha's home town.Tasha moves out of her house for 10 days and stays with her parents.She rents her house for a very high fee to a crew from ESPN.With respect to this rental activity,Tasha will

A single taxpayer has adjusted gross income of $325,000 and has total itemized deductions in various categories totaling $20,000.The taxpayer discovers some additional deductions for AGI.The extra deductions can not affect his itemized deductions.

Brienne sells land to her brother,Abe,at a loss.A few years later,Abe sells the land to an unrelated party for a substantial gain.Brienne can recognize her realized loss on the land when Abe sells the land to an unrelated party.

On July 1 of the current year,Marcia purchases a new home and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the residence 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?

Jones,Inc.,a calendar-year taxpayer,is in the air conditioner repair business.The business uses the cash method.In December of the current year,Jones charged $100 of supplies at Refrigeration,Inc.,(he will pay the credit card bill in January)and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January).What is the amount that is deductible by Jones,Inc.,in the current year?

Generally,expenses incurred in an investment activity other than those incurred to produce rent and royalties are deductions from AGI.

Victor,a calendar-year taxpayer,owns 100 shares of AB Corporation stock,which was purchased three years ago for $5,000.Victor sells all 100 shares on December 27,of the current year,for $4,000 and on January 5,of the following year,purchases 60 shares of AB Corporation stock.Victor's recognized loss will be

Business investigation expenses incurred by a taxpayer who is already involved in a similar business and who enters the new business are deductible currently.

A taxpayer opens a new business this year.Prior to opening,she incurred $45,000 of business investigation and preopening costs.The taxpayer can elect to currently deduct $5,000 and amortize the balance over 180 months.

Expenses incurred in connection with conducting a trade or business activity or in connection with production of income are generally deductible,but personal expenses are generally not deductible.

If an activity produces a profit for at least two years during a consecutive five-year period,the burden of proof shifts to the IRS to show that the activity is not profit-motivated.

Efrain owns 1,000 shares of RJ Inc.common stock which he purchased three years ago for $36,000.Efrain sells the 1,000 shares on October 15,2019,for $10,000.On November 12,he purchases 400 shares of RJ Inc.preferred stock for $8,000.Efrain's recognized loss on the sale of the 1,000 shares will be