Question 1

Which of the following is a deduction from AGI (itemized deduction)?

Accepted Answer

A) Contribution to a traditional IRA. 
B) Roof repairs to a rental home. 
C) Safe deposit box rental fee in which stock certificates are stored. 
D) Trade or business expense. 
E) None of the above. 
A) Contribution to a traditional IRA. 
B) Roof repairs to a rental home. 
C) Safe deposit box rental fee in which stock certificates are stored. 
D) Trade or business expense. 
E) None of the above.

Question 2

Alice incurs qualified moving expenses of $12,000.If she is reimbursed by her employer, the deduction is classified as a deduction for AGI.If not reimbursed, the deduction is classified as an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 3

The legal cost of having a will prepared is not deductible.

Accepted Answer

A) True 
 B)False

Question 4

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

Accepted Answer

@#IMG-DLM& @#IMG-DLM& The bribes to poli

Question 5

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Accepted Answer

If the personal residence is r

Question 6

Graham, a CPA, has submitted a proposal to do the annual audit for a municipality.Owen, the city treasurer, tells Graham that for a $1,000 fee, he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

Accepted Answer

The payment from Graham to Owen appears

Question 7

Janice is single, had gross income of $38,000, and incurred the following expenses:   Her AGI is:

Accepted Answer

A) $21,300. 
B) $28,800. 
C) $32,800. 
D) $35,500. 
E) $37,800. 
A) $21,300. 
B) $28,800. 
C) $32,800. 
D) $35,500. 
E) $37,800.

Question 8

The only § 212 expenses that are deductions for AGI are those related to rent and royalty income.

Accepted Answer

A) True 
 B)False

Question 9

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

Accepted Answer

A) Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis). 
B) Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya). 
C) If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss. 
D) Only a.and b.are correct. 
E) a., b., and c.are correct. 
A) Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis). 
B) Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya). 
C) If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss. 
D) Only a.and b.are correct. 
E) a., b., and c.are correct.

Question 10

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

Accepted Answer

A) True 
 B)False

Question 11

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

Accepted Answer

To be classified in the primarily rental

Question 12

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Accepted Answer

The $1 million limit on deducting the co

Question 13

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Accepted Answer

A) If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part. 
B) If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part. 
C) If Jeanette pays the mortgage company directly, she cannot deduct the interest part. 
D) Only b.and c.are correct. 
E) a., b., and c.are correct. 
A) If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part. 
B) If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part. 
C) If Jeanette pays the mortgage company directly, she cannot deduct the interest part. 
D) Only b.and c.are correct. 
E) a., b., and c.are correct.

Question 14

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Accepted Answer

Because the interest income on municipal

Question 15

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Accepted Answer

Sham transactions can be structured betw

Question 16

Trade and business expenses should be treated as:

Accepted Answer

A) A deduction from AGI subject to the 2%-of-AGI floor. 
B) A deduction from AGI not subject to the 2%-of-AGI floor. 
C) Deductible for AGI. 
D) An itemized deduction if not reimbursed. 
E) None of the above. 
A) A deduction from AGI subject to the 2%-of-AGI floor. 
B) A deduction from AGI not subject to the 2%-of-AGI floor. 
C) Deductible for AGI. 
D) An itemized deduction if not reimbursed. 
E) None of the above.

Question 17

Which of the following is not deductible?

Accepted Answer

A) Moving expenses in excess of reimbursement. 
B) Tax return preparation fees of an individual. 
C) Expenses incurred associated with investments in stocks and bonds. 
D) Allowable hobby expenses in excess of hobby income. 
E) None of the above. 
A) Moving expenses in excess of reimbursement. 
B) Tax return preparation fees of an individual. 
C) Expenses incurred associated with investments in stocks and bonds. 
D) Allowable hobby expenses in excess of hobby income. 
E) None of the above.

Question 18

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion).
(2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest.
(3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies).
If these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

Accepted Answer

A) (1), (2), (3). 
B) (1), (3), (2). 
C) (2), (3), (1). 
D) (2), (1), (3). 
E) (3), (2), (1). 
A) (1), (2), (3). 
B) (1), (3), (2). 
C) (2), (3), (1). 
D) (2), (1), (3). 
E) (3), (2), (1).

Question 19

Petal, Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012, the following occur associated with bad debts.   The amount of the deduction for bad debt expense for Petal for 2012 is:

Accepted Answer

A) $13,000. 
B) $14,000. 
C) $27,000. 
D) $35,000. 
E) None of the above. 
A) $13,000. 
B) $14,000. 
C) $27,000. 
D) $35,000. 
E) None of the above.

Question 20

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Accepted Answer

A) A deduction for AGI. 
B) A deduction from AGI, subject to the 2 percent floor. 
C) A deduction from AGI, not subject to the 2 percent floor. 
D) Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period. 
E) Not deductible. 
A) A deduction for AGI. 
B) A deduction from AGI, subject to the 2 percent floor. 
C) A deduction from AGI, not subject to the 2 percent floor. 
D) Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period. 
E) Not deductible.

Exam 6: Deductions and Losses: in General

Which of the following is a deduction from AGI (itemized deduction)?

Alice incurs qualified moving expenses of $12,000.If she is reimbursed by her employer, the deduction is classified as a deduction for AGI.If not reimbursed, the deduction is classified as an itemized deduction.

The legal cost of having a will prepared is not deductible.

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Janice is single, had gross income of $38,000, and incurred the following expenses: Her AGI is:

The only § 212 expenses that are deductions for AGI are those related to rent and royalty income.

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Trade and business expenses should be treated as:

Which of the following is not deductible?

Petal, Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2012 is:

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters