Exam 17: Tax Consequences of Personal Activities

Sue, a single taxpayer, purchased a principal residence in 2001 for $415,000. In 2005, she paid $18,000 to add a sunroom. This year, Sue sold the residence for $686,000. Her selling expenses were $5,000. How much gain must Sue recognize on the sale?

Under the terms of a divorce decree, Harold transferred his one-half interest in the marital residence to his former wife Francine. Francine must include the value of the interest in gross income.

For federal income tax purposes, a taxpayer may deduct state and federal employment taxes as an itemized deduction.

Helen makes quilts and sells them at the regional county fairs. This year, she earned $950 from quilt sales and spent $3,300 on supplies and travel relating to her quilting activity. If the IRS determines that this activity is a hobby instead of a business, Helen can't deduct her $2,350 net loss.

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

Three years ago, Suzanne bought a new personal automobile for $26,900. This year, she sold it for $19,000. What is the amount and character of Suzanne's recognized loss?

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?

Mr. and Mrs. Darwin sold their principal residence on September 12, 2012, 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, 2013, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?

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?

Tax return preparation fees are miscellaneous itemized deductions subject to the 2% AGI floor.

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

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.

Mary Stone, a single individual, sold a personal residence on June 3, 2012, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2014, she can exclude a maximum of $156,400 of any gain.