Exam 17: Tax Consequences of Personal Activities

Gary is a successful architect who also sings at weddings. This year, he received $5,400 of fees for his singing and spent $6,250 on voice lessons, sheet music, and travel to the weddings. Which of the following statements is true?

James Dean received the following this year. Scholarship for college tuition and fees $\quad$$\quad$$\quad$$\quad$ $ 20,000 Scholarship for college room and board $\quad$$\quad$$\quad$$\quad$ $ 12,500 Chamber of Commerce citizenship award $\quad$$\quad$$\quad$ $ 1,500 Inheritance from great uncle $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 38,000 Compute James' gross income.

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

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

Chad won a car valued at $25,000 from a game show. Because he immediately donated the car to the Red Cross, Chad can exclude $25,000 from gross income.

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

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?

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 $900,000. Compute the Franklin's itemized deduction for their home mortgage interest.

Recipients of the Nobel Peace Prize must include the prize in gross income.

Which of the following statements about the tax consequences of gambling is true?

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?

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

A thief broke into Kate's condominium and stole her laptop computer and $725 cash. Kate may be allowed a casualty loss deduction because of the theft.

A nondeductible charitable contribution may be carried forward five years.

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?

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?

A flood (a 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).

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

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.

Dotty Sprauge incurred the following medical expenses this year. Payments to physicians and dentists $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 4,300 Payment for two-day stay at Mercy Hospital $\quad$$\quad$$\quad$ $6,250 Payments to physical therapist $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 2,100 Prescription drugs $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 1,010 Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $35,400, compute her medical expense deduction.