Exam 17: Tax Consequences of Personal Activities

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 wanted to rent a newly constructed condominium. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Which of the following deductions is allowed in the computation of alternative minimum taxable income (AMTI)?

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.

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

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.

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

Which of the following is excluded from gross income?

Interest paid on home equity debt is not deductible in computing alternative minimum taxable income (AMTI).

Which of the following items is included in the recipient's gross income?

A thief broke into Kate's condominium and stole her laptop computer. Kate purchased the computer for $1,400, but its current value is only $300. Kate's casualty loss is $1,400.

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 reports this activity as a hobby for federal tax purposes, which of the following statements is true?

Mr. and Mrs. Darwin sold their principal residence on September 12, 2015, and purchased and moved into a new residence three weeks later. They properly excluded their $353,000 gain realized on this sale from gross income. On October 2, 2016, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain 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?

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

Alimony payments are included in the recipient's gross income.

Mr. and Mrs. Blake suffered two casualty losses this year. Mr. Blake's wallet containing $1,300 cash was stolen, and their uninsured sailboat (basis $67,000; FMV $50,000) sank after colliding with a reef. Compute the Blakes' itemized deduction for casualty losses if their AGI was $112,200.

This year, Mr. and Mrs. Franklin paid $93,000 interest on a mortgage they incurred 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.

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

Ms. Ruang owns a principal residence subject to an $817,000 acquisition mortgage. The home has an $875,000 appraised FMV. What is the maximum home equity debt that Ms. Ruang could incur for federal tax purposes?

Which of the following statements about divorce settlements is true?