Exam 17: Tax Consequences of Personal Activities

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

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 purchase a new personal residence in order to exclude any gain from the sale of the old residence.

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.

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

Losses realized on the sale of personal use assets are deductible.

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

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

Mary Stone, a single individual, sold a personal residence on June 3, 2014, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2016, she can exclude a maximum of $156,400 of any gain.

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

A nondeductible charitable contribution may be carried forward five years.

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

Ms. Bjorn's only contribution this year was a donation of marketable securities (FMV $600,000; tax basis $273,000) to a public charity. Her AGI was $814,000. Which of the following statements is true?

William took out a $740,000 mortgage to purchase his personal residence. The residence is worth over $1.4 million, and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt. William can deduct 50% of the interest he will pay on the second mortgage.

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. Oliva, ages 70 and 67, incurred the following unreimbursed medical expenses this year. If the Olivas' AGI is $23,200, compute their medical expense deduction.

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

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

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?

Mr. and Mrs. Stimson incurred $3,937 of miscellaneous itemized deductions this year. Their AGI was $97,300, and their marginal rate on ordinary income was 25%. Which of the following statements is false?