Exam 17: Tax Consequences of Personal Activities

Polly received the following items this year. Compute Polly's gross income.

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

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 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.

Mr. and Mrs. Shohler received $25,200 Social Security benefits this year. Their only other source of income was Mrs. Shohler's $10,479 taxable pension from her former employer. How much of their Social Security is included in gross income?

Mary Stone, a single individual, sold a personal residence on June 3, 2011, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2013, she can exclude a maximum of $156,400 of any gain.

An unused charitable contribution deduction may be carried forward five years.

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

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

Josh donated a painting to the local art museum. He purchased the painting twenty years ago for $34,000, and its appraised FMV at date of gift was $115,000. Which of the following statements about this donation is true?

Mr. Rex had his car stolen this year. The car had $35,600 basis and a $22,000 FMV. Rex received a $16,500 reimbursement from his insurance company. Compute Rex's casualty loss resulting from the theft.

Six years ago, Milo Lenz, an amateur artist, sculpted a garden gnome as a gift for his mother. This year, his mother sold the gnome on eBay for $1,200. What is the amount and character of the mother's gain?

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

Mr. and Mrs. King had only one casualty loss this year. A tornado 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.

Damage to a personal residence by a tornado is an example of a casualty loss.

Violet took out a $900,000 mortgage to purchase her personal residence. She can deduct the mortgage interest payments as an itemized deduction.

On February 1, 2012, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2012, Alan sold this residence for $460,000 because he accepted a new job in another state. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?

Which of the following statements about divorce settlements is false?

Unemployment benefits are excluded from gross income.

Mr. and Mrs. Darwin sold their principal residence on September 12, 2011, 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, 2012, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?