Exam 17: Tax Consequences of Personal Activities

This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.

Gary is a successful architect who also sings at weddings. This year, he received $5,400 fees from his singing and spent $6,250 on singing lessons, sheet music, and travel to the weddings. If Gary considers this activity as a hobby for federal tax purposes, which of the following statements is true?

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

Taxpayers include a maximum of 85% of Social Security benefits in gross income.

Mr and Mrs King had only one casualty loss this year when a tornado (a federally declared disaster) severely 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.

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.

Mr Jain paid the following taxes this year. Federal income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 32,450 Federal self-employment tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 7,921 State and local income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$ $ 3,450 State and local sales tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 4,060 Local property tax on principal residence $\quad$$\quad$ $ 4,320 Local property tax on investment land $\quad$$\quad$$\quad$ $ 1,880 Local property tax on two automobiles $\quad$$\quad$$\quad$ $ 750 Compute Mr Jain's itemized deduction for taxes.

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

Which of the following statements about divorce settlements is true?

Bjorn contributed $600,000 cash to qualified public charities this year. Her AGI was $814,000. 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.

Mr and Mrs Darwin sold their principal residence on September 12, 2017, and purchased and moved into a new residence three weeks later. They excluded their $353,000 gain realized on this sale from gross income. On October 2, 2018, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?

Carl had $2,000 gambling winnings and $8,400 gambling losses this. Carl must include $2,000 in gross income and can deduct $8,400 as an itemized deduction.

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

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

Mary Stone, a single individual, sold a personal residence on June 3, 2017, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2019, she can exclude a maximum of $156,400 of any gain.

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

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?

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?