Exam 22: Deductions and Losses

During the current year,Ivan begins construction of an office building and a hotel.He incurs $10,000 in property taxes during the construction of the office building and $15,000 for the hotel.Which of the following statements is true of the property taxes during the construction period?

Emeril borrows $340,000 to finance taxable and tax-exempt investments.He incurs $18,000 investment interest expense,allocated equally between the taxable and tax-exempt investments.Ignore any possible investment interest expense limitation.How much of the interest expense is deductible,and where is it deductible?

Losses on the sale of property between a taxpayer and his/her more than 50-percent-owned corporation are disallowed.

Sheila sells stock,which has a basis of $12,000,to her daughter for $7,000,the stock's fair market value.Subsequently,the daughter sells the stock to an unrelated party for $5,000.Which of the following is true for Sheila and her daughter?

Gabby owns and operates a part-time art gallery,now in its fifth year.She views it as a business activity,but she is concerned that the IRS will challenge her classification and consider it a hobby.Her business results,using the cash method of accounting,were net losses in the first and fourth years and small profits in the second and third years.It is now almost year-end and based on projections,the business is showing a small profit of $6,000.Repairs to the security system and to the heating/cooling system were recently completed and these bills total $7,000.When should Gabby pay these bills?

Ben is a well-known professional football quarterback.His team's owners expect him to be a role model for young people.Any endorsement contracts that he receives are based on his reputation.In the current year,Ben is charged with assault.Ben hires an attorney to represent him in this matter.Ultimately,the charges are dismissed.What tax issues should Ben consider?

A sole proprietor contributes to the election campaign of a state governor.The candidate has promised to change a law that severely limits the growth of the sole proprietor's business.Given the direct benefit,the sole proprietor can deduct the contribution.

In order for an expense to be ordinary,it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income-producing activity or property.

Expenses incurred in a trade or business generally are deductions for AGI.

On December 1,Robert,a cash-method taxpayer,borrows $10,000 from the bank for use in his business.Under the terms of the loan,the bank discounts the loan by $300,paying Robert the $9,700 cash proceeds.If Robert repays the loan next year,he may deduct

The vacation home limitations of Section 280A may also apply to boats and mobile homes.

Laura,the controlling shareholder and an employee of Southtown Corporation,receives an annual salary of $750,000.Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably sized corporations,the IRS contends that Laura's salary should be no higher than $600,000.The Court upheld the IRS's position.As a result,which of the following is true?

Which of the following factors is not used to determine whether an activity is a hobby or a business?

Points paid in connection with the purchase of a principal residence may be deducted in the year paid.

Dana purchased an asset from her brother for $15,000.Her brother's basis was $20,000.If Dana sells the asset to an unrelated party for $12,000,she will recognize

Super Development Company purchased land in the current year from Riverside Chemicals,Inc.The land was contaminated with harmful pollutants,so Super Development paid $1,000,000 to remove the contaminants.What tax issue(s)should be considered before Super files its current year tax return?

During 2017 and 2018,Danny pays property taxes of $3,500 each year on a piece of land.During 2017,the land is vacant and unproductive.In 2018,Danny uses the land as a parking lot and generates $16,000 in income.Which of the following is true regarding the property taxes?

Anita has decided to sell a parcel of land she had been holding for investment purposes.She purchased the land 5 years ago for $10,000.The current fair market value is $6,000.Anita's sister,Kathy,is interested in buying the land as is Anita's friend,Marcia.What tax issues should Anita consider when deciding to whom the land should be sold?

Assume Congress wishes to encourage healthy eating and is considering a deduction for broccoli purchases.In order to maximize the value of this tax deduction for taxpayers,Congress should provide for a

Maria pays the following legal and accounting fees during the year: What is the total amount of her for AGI deduction for these fees?