Exam 22: Deductions and Losses

Ola owns a cottage at the beach.She and her family use the property for 30 days during the summer season and rent it to unrelated parties for 60 days.The rental receipts amount to $8,000.Total costs of operating the property are as follows: In addition,potential depreciation expense is $9,000. a.Is the cottage subject to the vacation home rental limitations of IRC Sec.280A? b.How much of expenses can Ola deduct?

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Question 1

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a.Ola and her family use the property for more than 14 days and 10% of the rental period so the property is classified as a vacation property,and the expenses must be allocated between personal and rental use.Rental period expenses will be limited to the rental income.

The remaining property taxes will be allowed as an itemized deduction.If the remaining interest is qualified residential interest,it will also be allowed as an itemized deduction.

Discuss why the distinction between deductions for AGI and from AGI is important to individuals.

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Question 2

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An individual is permitted to deduct the greater of the standard deduction or the total "from" AGI deductions in arriving at taxable income.Where the sum of the "from" AGI deductions does not exceed the standard deduction,the benefit of the "from" AGI deductions is lost."For" AGI deductions,however,reduce AGI and taxable income even when the standard deduction is used to compute taxable income.
AGI is also used to establish limits on certain deductions from AGI-such as charitable contributions,medical expenses,casualty losses,and miscellaneous itemized deductions-and the phase-outs for certain credits and deductions.Because AGI is used as a benchmark to establish these limits,it is important to properly classify deductions as deductions for AGI or deductions from AGI.

In 2017 the IRS audits a company's 2015 tax return and determines that the president's salary was excessive and disallowed $100,000 of the salary deduction.Under the terms of the hedge (payback)agreement in the corporate bylaws,the president repays $100,000 of her salary to her employer in 2017.The president will amend her 2015 tax return to get a refund of the taxes paid on the excess salary.

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(True/False)

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Question 3

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False

Rachel has significant travel and entertainment expenses for her work,but she has not kept receipts.She will be able to deduct a reasonable amount of these ordinary and necessary expenses under the Cohan rule.

(True/False)

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Question 4

Kelsey enjoys making cupcakes as a hobby and occasionally sells them for parties.Kelsey receives $1,000 in revenues from cupcake sales this year and pays $1,300 for supplies.Kelsey takes the standard deduction each year.The net effect of the cupcake activity on Kelsey's taxable income is

(Multiple Choice)

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Question 5

A change to adjusted gross income cannot affect a taxpayer's itemized deductions.

(True/False)

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Question 6

During the current year,the United States files criminal and civil actions against Joe,the CEO of Box Corporation,and Jane,the president of Cable Corporation,for price fixing.Both enter pleas of no contest and appropriate judgments are entered.Subsequent to this action,Square Corporation sues both Box and Cable for treble damages of $6,000,000.In settlement,Box and Cable each pay Square $1,200,000.What is the maximum amount that Box and Cable may each deduct?

(Multiple Choice)

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Question 7

In 2017,Sean,who is single and age 44,received $55,000 of gross income and had $5,000 of deductions for AGI and $4,600 of itemized deductions.Sean's taxable income is

(Multiple Choice)

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Question 8

Deductions for AGI may be located

(Multiple Choice)

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Question 9

Under the wash sale rule,if all of the sold shares are not repurchased within the relevant time period,a portion of the loss on the sale is allowed.

(True/False)

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Question 10

Troy incurs the following expenses in his business,an illegal gambling establishment: His deductible expenses are

(Multiple Choice)

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Question 11

All of the following deductible expenses are deductions for AGI except

(Multiple Choice)

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Question 12

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as

(Multiple Choice)

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Question 13

Pat,an insurance executive,contributed $1,000,000 to the reelection campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?

(Multiple Choice)

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Question 14

In March of the current year,Marcus began investigating the possibility of opening a specialty clothing store.From March through June,he spent $2,300 on a market survey,$2,700 in consulting fees to find the best location and $3,600 in professional fees setting up an accounting and inventory system.Although he had never run his own business before,on August 1 he opened his doors for business.What is the maximum amount of deduction for the current year attributable to these expenditures?

(Multiple Choice)

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Question 15

If a loss is disallowed under Section 267,a gain on a subsequent sale of the property by the related purchaser may be offset by the previously unrecognized loss.

(True/False)

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Question 16

Fees paid to prepare a taxpayer's Schedule C of the tax return (Profit or Loss from Business)are for AGI deductions.

(True/False)

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Question 17

Various criteria will disqualify the deduction of a business or investment related expenditure.Which of the following criteria will not disqualify a business or investment expenditure?

(Multiple Choice)

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Question 18

Capital expenditures add to the value,substantially prolong the useful life,or restore the life of the property.

(True/False)

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Question 19

For the years 2013 through 2017 (inclusive)Mary,a best-selling author,has been involved in operating an antique store.In 2013,2014 and 2015 her revenue exceeded the expenses from the activity.In 2016 and 2017,the antique store generated a loss.Which statement is correct?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 146

Exam 22: Deductions and Losses

Discuss why the distinction between deductions for AGI and from AGI is important to individuals.

Rachel has significant travel and entertainment expenses for her work,but she has not kept receipts.She will be able to deduct a reasonable amount of these ordinary and necessary expenses under the Cohan rule.

Kelsey enjoys making cupcakes as a hobby and occasionally sells them for parties.Kelsey receives $1,000 in revenues from cupcake sales this year and pays $1,300 for supplies.Kelsey takes the standard deduction each year.The net effect of the cupcake activity on Kelsey's taxable income is

A change to adjusted gross income cannot affect a taxpayer's itemized deductions.

In 2017,Sean,who is single and age 44,received $55,000 of gross income and had $5,000 of deductions for AGI and $4,600 of itemized deductions.Sean's taxable income is

Deductions for AGI may be located

Under the wash sale rule,if all of the sold shares are not repurchased within the relevant time period,a portion of the loss on the sale is allowed.

Troy incurs the following expenses in his business,an illegal gambling establishment: His deductible expenses are

All of the following deductible expenses are deductions for AGI except

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as

Pat,an insurance executive,contributed $1,000,000 to the reelection campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?

If a loss is disallowed under Section 267,a gain on a subsequent sale of the property by the related purchaser may be offset by the previously unrecognized loss.

Fees paid to prepare a taxpayer's Schedule C of the tax return (Profit or Loss from Business)are for AGI deductions.

Various criteria will disqualify the deduction of a business or investment related expenditure.Which of the following criteria will not disqualify a business or investment expenditure?

Capital expenditures add to the value,substantially prolong the useful life,or restore the life of the property.

For the years 2013 through 2017 (inclusive)Mary,a best-selling author,has been involved in operating an antique store.In 2013,2014 and 2015 her revenue exceeded the expenses from the activity.In 2016 and 2017,the antique store generated a loss.Which statement is correct?

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