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.

Ruang, a single taxpayer, purchased her principal residence on August 19, 2018 and financed the purchase with a mortgage secured by the residence. In 2018, the average balance of the mortgage was $817,000, and Ms Ruang paid $35,000 of mortgage interest. How much of this interest is an itemized deduction?

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

A taxpayer must have owned and lived in a personal residence at least two of the last five years in order to qualify for the maximum exclusion of gain on sale of that residence.

Mr and Mrs Oliva incurred the following unreimbursed medical expenses this year. Payments to physicians and dentists $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 2,290 Payment for hospital emergency room visit $\quad$$\quad$$\quad$ $ 3,520 Prescription drugs $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 750 Cost of wheelchair $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 1,800 If the Olivas' AGI is $23,200, compute their medical expense deduction.

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?

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

Which of the following statements about divorce settlements is false?

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

Polly Nolan received the following items this year. Interest on New York City School bonds $\quad$$\quad$$\quad$ $ 1,600 Gift from grandparents $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 5,000 Jackpot from state lottery $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 50,000 Gambling winnings $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 3,000 Compute Polly's gross income.

Spencer paid the following taxes this year. Federal income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 12,034 Federal employee payroll tax $\quad$$\quad$$\quad$$\quad$$\quad$ $ 4,590 State and local income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 5,725 State and local sales tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 2,998 Local property tax on personal residence $\quad$$\quad$ $ 3,300 Compute Spencer's itemized deduction for taxes.

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 statements about tax subsidies for higher education is false?

Over the course of the year, Mr Soo won $8,200 and lost $5,900 gambling in the local casino. Mr Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr Soo's taxable income?

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

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.

Which of the following is excluded from gross income?

Real estate taxes deducted for regular tax purposes must be added back in computing alternative minimum taxable income (AMTI).

Lori owns a vacation home that she rents out for about three months each year. Her deduction for expenses allocable to the rental periods is limited to her gross rental income.

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