Exam 22: Deductions and Losses

Erin,Sarah,and Timmy are equal partners in EST Partnership.Sarah also owns 40% of Elton Corporation.The remaining shareholders of Elton Corporation are: Erin (24%)and Sarah's uncle (36%).What percent ownership does Sarah directly or constructively own in Elton Corporation?

Abby owns a condominium in the Great Smokey Mountains.During the year,Abby uses the condo a total of 21 days.The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500.Abby incurs the following expenses: Using the IRS method of allocating expenses,the amount of depreciation that Abby may take with respect to the rental property will be

List those criteria necessary for an expenditure to be deductible as business or investment expenses.

Margaret,a single taxpayer,operates a small pottery activity in her spare time.During the current year,she reported the following income and expenses from this activity which is classified as a hobby: In addition,she had salary of $75,000 and itemized deductions,not including those listed above,of $2,200. What is the amount of her taxable income?

Fines and penalties are tax deductible if related to the taxpayer's trade or business.

A single individual with no dependents can deduct the larger of his itemized deductions or his personal exemption.

An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.

Rob sells stock with a cost of $3,000 to his daughter for $2,200,which is its fair market value.Later the daughter sells the stock for $3,200 to an unrelated party.Which of the following describes the tax treatment to Rob and Daughter?

Which of the following individuals is not considered a relative for purposes of the related parties loss disallowance rules under Sec.267?

On August 1 of the current year,Terry refinances her home and borrows $240,000.Terry is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on August 1 of the current year.How much,if any,of the points may Terry deduct in the current year?

Doug,a self-employed consultant,has been a firm believer in maintaining a paperless office.Unfortunately,he recently lost all of his business records in a ransomware attack,and his backup system was also compromised.Which of the following cases should Doug investigate to better understand substantiation requirements for business expenses?

Which of the following statements is false?

During the current year,Charlene borrows $10,000 to purchase Kansas City bonds.Charlene incurs $800 of interest on her outstanding loan.How much interest expense may Charlene deduct in the current year?

Expenses incurred in connection with conducting a trade or business activity or in connection with generating investment income are generally deductible,but personal expenses are generally not deductible.

Ronna is a professional golfer.In order to correct her vision,Ronna has eye surgery.The costs of the surgery and subsequent medical care are not covered by insurance.What tax issues should Ronna consider?

Sacha,a dentist,has significant investment assets.She holds corporate bonds,municipal bonds,stocks and mutual funds.Sacha paid $1,500 to an investment adviser to conduct a portfolio review and to prepare a recommendation for rebalancing her portfolio.Which of the following statements is correct regarding the tax treatment of the $1,500 fee?

Jones,Inc. ,a calendar-year taxpayer,is in the air conditioner repair business.The business uses the cash method.In December of the current year,Jones charged $100 of supplies at Refrigeration,Inc. , (he will pay the credit card bill in January)and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January).What is the amount that is deductible by Jones,Inc. ,in the current year?

Victor,a calendar-year taxpayer,owns 100 shares of AB Corporation stock,which was purchased three years ago for $5,000.Victor sells all 100 shares on December 27,of the current year,for $4,000 and on January 5,of the following year,purchases 60 shares of AB Corporation stock.Victor's recognized loss will be

Kaitlyn owns a hotel in Phoenix,Arizona.The city of Phoenix has proposed legislation to increase the hotel room tax.Kaitlyn incurs $1,000 of lobbying expenses to discourage passage of the legislation.Kaitlyn can deduct the $1,000.

Mackensie owns a condominium in the Rocky Mountains.During the year,Mackensie uses the condo a total of 23 days.The condo is also rented to tourists for a total of 77 days and generates rental income of $10,900.Mackensie incurs the following expenses in the condo: Using the court's method of allocating expenses,the amount of depreciation that Mackensie may take with respect to the rental property will be