Exam 17: Tax Consequences of Personal Activities

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

Which of the following statements about divorce settlements is false?

Mr. and Mrs. McGraw received $50,160 Social Security benefits this year. They also received $108,000 taxable pension payments and earned $47,300 interest and dividends from their investment portfolio. How much of the McGraw's Social Security is included in gross income?

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

Lori owns a vacation home that she rents out for about three months each year. Her deduction for expenses allocable to the rental periods is limited to her gross rental income.

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

Ted and Alice divorced this year. Pursuant to the divorce agreement, Ted pays $5,000 alimony and $7,500 child support to Alice every month. Which of the following statements is true?

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. Jain paid the following taxes this year. Compute Mr. Jain's itemized deduction for taxes.

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

A child of divorced parents is considered a dependent of the parent with custody unless that parent agrees to allow the noncustodial parent to claim the dependency exemption.

Mr. and Mrs. Allen made the following interest payments. Determine their deduction for each payment. a. $28,000 on a $400,000 acquisition mortgage secured by their personal residence b. $5,000 on a $60,000 second mortgage secured by their personal residence. The Allens used the proceeds to pay off credit card debt and take a second honeymoon. c. $2,400 on credit card debt d. $1,500 on a bank loan incurred to purchase a new family car e. $1,890 on an unsecured bank loan incurred to pay for a new roof on their personal residence

A taxpayer must have owned and lived in a personal residence at least two of the last five years in order to qualify for the maximum exclusion of gain on sale of that residence.

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

Mr. and Mrs. Nguyen, ages 71 and 61, reported $70,200 AGI and were allowed a $6,400 itemized medical expense deduction this year. Compute their medical expense deduction for alternative minimum tax (AMT) purposes.

On February 1, 2013, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2013, 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?

Mr. and Mrs. Hunt, ages 38 and 33, have the following allowable itemized deductions this year. Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

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