Exam 17: Tax Consequences of Personal Activities

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.

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.

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.

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

Which of the following donations does not qualify as a charitable contribution for federal tax purposes?

Dotty incurred the following medical expenses this year. Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $47,200, compute her medical expense deduction.

Interest paid on debt incurred to acquire, build, or improve a personal residence is a preference item for computing the alternative minimum tax.

Which of the following statements about divorce settlements is true?

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

Which of the following is excluded from gross income?

Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.

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?

A drunk driver seriously injured Leah. The court awarded her $200,000 for her physical injuries and $300,000 as punitive damages. Leah must include $300,000 in income.

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

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

Mr. and Mrs. Alvarez paid $130,000 for their home 30 years ago. They recently sold this home and moved into a retirement apartment. Describe the tax consequences of the sale assuming that the amount realized was: a. $125,000 b. $450,000 c. $850,000

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

Mr. and Mrs. Trent divorced last year. Pursuant to the divorce, Mr. Trent transferred marketable securities (FMV $100,000; basis $67,000) to Mrs. Trent. This year, Mrs. Trent sold the securities for $112,000. Which of the following statements is true?

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