Exam 17: Tax Consequences of Personal Activities

In 2009,Mr.and Mrs.Violet took out a $900,000 mortgage to purchase their personal residence.They can deduct the annual mortgage interest payments as an itemized deduction.

Six years ago,Milo Lenz,an amateur artist,sculpted a garden gnome as a gift for his mother.This year,his mother sold the gnome on eBay for $1,200.What is the amount and character of the mother's gain?

Mr.and Mrs.Alvarez paid $130,000 for their home 30 years ago.They recently sold this home and moved into a rented apartment.Describe the tax consequences of the sale assuming that the amount realized was: a.$125,000 b.$450,000 c.$850,000

Any gain recognized on the sale of a personal residence is excluded from the seller's gross income.

Twelve years ago,Mr.Drake incurred a $790,000 mortgage to purchase his principal residence.Last year,he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University.Which of the following statements is true?

Which of the following is excluded from gross income?

Mrs.Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan,and $15,000 cash gifts from her children.Compute Mrs.Hanson's AGI.

Helen makes quilts and sells them at the regional county fairs.This year,she earned $950 from quilt sales and spent $3,300 on supplies and travel relating to her quilting activity.If the IRS determines that this activity is a hobby instead of a business,Helen can't deduct her $3,300 expenses.

Mr.and Mrs.Hunt have the following allowable itemized deductions this year. Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

Gifts are not included in the recipient's gross income.

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Mia inherited $1 million from her deceased grandfather.Mia must include the inheritance in gross income.

Mrs.Kronin received $16,200 child support payments from her former husband.These payments are excluded from Mrs.Kronin's gross income.

Mr.and Mrs.King had only one casualty loss this year when a tornado (a federally declared disaster)damaged their home,decreasing its value by $70,000.The couple received a $48,000 reimbursement from their insurance company.Compute the Kings' itemized deduction for casualty losses if their AGI was $98,200.

If alimony is paid under a 2015 divorce decree,the payments are included in the recipient's gross income.

A taxpayer must purchase a new personal residence in order to exclude any gain from the sale of the old residence.

Mr.Lightfoot owns three mortgaged residences that he occupies at different times of the year.He can treat the interest paid on only one mortgage as qualified residence interest.

James Dean received the following this year. Compute James' gross income.

Dotty Sprauge incurred the following medical expenses this year. Dotty's insurance company reimbursed her for $8,800 of these expenses.If Dotty's AGI is $26,550,compute her medical expense deduction.

Jenna Leigh is employed as a receptionist for a CPA firm,but on evenings and weekends,she bakes wedding cakes.In each of the past four years,Jenna's baking activity resulted in a net profit.This year,the activity generated a $720 net loss.Which of the following statements is true?