Exam 17: Tax Consequences of Personal Activities

Ted and Alice divorced in 2014.Pursuant to the divorce decree,Ted pays $5,000 alimony and $7,500 child support to Alice every month.Alice is the custodial parent.Which of the following statements is true?

Sue,a single taxpayer,purchased a principal residence in 2001 for $415,000.In 2005,she paid $18,000 to add a sunroom.This year,Sue sold the residence for $686,000.Her selling expenses were $5,000.How much gain must Sue recognize on the sale?

This year,Mr.and Mrs.Franklin paid $93,000 interest on a mortgage incurred in 2008 to build their home in Santa Fe.The average principal balance of the mortgage was $1.43 million.The home has an appraised FMV of only $1.2 million.Compute the Franklins' itemized deduction for their home mortgage interest.

Unemployment benefits are excluded from gross income.

Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.

Three years ago,Suzanne bought a new personal automobile for $26,900.This year,she sold it for $19,000.What is the amount and character of Suzanne's recognized loss?

Damage to a personal residence caused by a hurricane that is a federally declared disaster is an example of a casualty loss.

Which of the following events could result in a deductible casualty loss?

Which of the following tax payments is allowed as an itemized income tax deduction?

Losses realized on the sale of personal use assets are deductible.

Which of the following items is not included in the recipient's gross income?

Gains realized on the sale of personal use assets are generally taxable.

Mr.and Mrs.McGraw received $50,160 Social Security benefits this year.They also received $108,000 taxable pension payments and earned $47,300 interest and dividends from their investment portfolio.How much of the McGraws' Social Security is included in gross income?

Tax return preparation fees are itemized deductions.

Mr.Haugh owns a sporting goods store as a sole proprietorship.This year,he donated baseball equipment (bats,gloves,balls)to the local YMCA to use in their community sports programs.His cost basis in the inventory items was $45,700,and their retail value was $68,200.Which of the following statements about this donation is true?

Mr.and Mrs.Frazier recognized a $723,000 gain on sale of a home that had been their principal residence for 29 years.They moved into a rented condominium in Naples,Florida.What are the tax consequences of the sale to the Fraziers?

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Mr.and Mrs.Perry own three homes,each of which is subject to a mortgage incurred to purchase the home.The mortgage on their principal residence is $290,000,the mortgage on the second home is $100,000,and the mortgage on the third home is $317,000.Which of the following statements is true?

For federal income tax purposes,a taxpayer may elect to deduct state and local sales taxes ($10,000 maximum)as itemized deductions.

Ben received a $5,000 tuition scholarship from his local community college.He can exclude the $5,000 from gross income.