Exam 17: Tax Consequences of Personal Activities

Under the terms of a divorce decree, Harold transferred his one-half interest in the marital residence to his former wife Francine. Francine must include the value of the interest in gross income.

Which of the following statements about divorce settlements is true?

Which of the following donations doesn't qualify as a charitable contribution for federal tax purposes?

The cost of commuting to and from a place of employment is a nondeductible personal expense.

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?

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.

Which of the following statements about tax subsidies for higher education is false?

Tax return preparation fees are itemized deductions.

On February 1, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, Alan sold this residence for $460,000 because he decided to move in with his girlfriend. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

A flood (federally declared disaster) destroyed an antique Persian rug owned by Mr. and Mrs. McConnell. The couple purchased the rug for $13,000 fifteen years ago, but its appraised FMV before the flood was $42,500. Unfortunately, their homeowners' insurance policy does not cover flood damage. Compute the McConnells' casualty loss (before the 10% AGI threshold).

Which of the following expenditures is not a medical expense for federal tax purposes?

For purposes of the child credit, a child of divorced parents is considered a dependent of the custodial parent unless that parent agrees to allow the noncustodial parent to claim the child as a dependent.

Unemployment benefits are excluded from gross income.

On February 1, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, Alan sold this residence for $460,000 because he accepted a new job in another state. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

For federal income tax purposes, property transfers pursuant to a divorce are nontaxable events.

William took out a $440,000 mortgage to purchase his personal residence. The residence is worth almost $1 million, and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt. William can deduct the interest he pays on both mortgages.

Mary Stone, a single individual, sold a personal residence on June 3, 2018, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2020, she can exclude a maximum of $156,400 of any gain.

Polly Nolan received the following items this year. Interest on New York City School bonds \1 ,600 Gift from grandparents \5 ,000 Jackpot from state lottery \4 2,500 Gambling winnings \3 ,000 Compute Polly's gross income.

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

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