Question 1

Which of the following statements is true with regard to the reporting of royalty income?

Accepted Answer

A)  It must be reported on Schedule C only 
B)  It must be reported on Schedule E only 
C)  It can be reported on Schedule C but generally on Schedule E 
D) Royalty income reported on Schedule E is subject to self-employment tax 
A)  It must be reported on Schedule C only 
B)  It must be reported on Schedule E only 
C)  It can be reported on Schedule C but generally on Schedule E 
D) Royalty income reported on Schedule E is subject to self-employment tax C

Question 2

Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500. They used the cabin for personal use for 30 days during the year. The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental activity. What is the proper tax treatment of these amounts by Hugh and Mary?

Accepted Answer

A)  Report net income of $4,500 
B)  Report rental net loss of $1,500 
C)  None of the amounts should be reported 
D) Report income and expenses on Schedule E but expenses cannot exceed income 
A)  Report net income of $4,500 
B)  Report rental net loss of $1,500 
C)  None of the amounts should be reported 
D) Report income and expenses on Schedule E but expenses cannot exceed income D

Question 3

Royalties can be earned from allowing others the right to use:

Accepted Answer

A)  patents. 
B)  plays. 
C)  songs. 
D) all of these. 
A)  patents. 
B)  plays. 
C)  songs. 
D) all of these. D

Question 4

Which of the following entity(ies) is(are) considered flow-through?

Accepted Answer

A)  C corporation 
B)  Sole proprietorship 
C)  Publicly traded corporation 
D) S corporation 
A)  C corporation 
B)  Sole proprietorship 
C)  Publicly traded corporation 
D) S corporation

Question 5

Royalties can NOT be earned from which of the following:

Accepted Answer

A)  oil wells. 
B)  patents. 
C)  coal mines. 
D) stocks. 
A)  oil wells. 
B)  patents. 
C)  coal mines. 
D) stocks.

Question 6

Naomi and Matt received the following amounts from a tenant who is renting their condominium during the current year (rent is $1,500 per month):   Rent for two months would normally have been $3,000, but the tenant paid $800 for a plumbing repair. The repair would normally have been paid by Naomi and Matt but the problem occurred while they were out of town. How much should Naomi and Matt report as rental income for the current tax year?

Accepted Answer

A)  $2,200 
B)  $2,400 
C)  $3,000 
D) $4,600 
A)  $2,200 
B)  $2,400 
C)  $3,000 
D) $4,600

Question 7

Flow-through entities include, but are not limited to, LLCs, S Corporations, trusts and estates.

Accepted Answer

A) True 
 B)False

Question 8

Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year. The house is considered personal/rental property.

Accepted Answer

A) True 
 B)False

Question 9

A property that has been rented for 120 days and used for personal use for 40 days should be categorized as:

Accepted Answer

A)  Primarily rental. 
B)  Primarily personal. 
C)  Personal/rental. 
D) All of these are correct. 
A)  Primarily rental. 
B)  Primarily personal. 
C)  Personal/rental. 
D) All of these are correct.

Question 10

Mario owns a home in Park City, Utah, that he rented for $1,600 for three weeks during the summer. He lived there for a total of 120 days and the rest of the year the house was vacant. The expenses for the home included $6,000 in mortgage interest, $900 in property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much net rental income or loss from the Park City home would Mario report for the current year? Use the IRS method for allocating expenses.

Accepted Answer

A)  $0 
B)  $1,600 net income 
C)  $6,000 net loss 
D) $9,100 net loss 
A)  $0 
B)  $1,600 net income 
C)  $6,000 net loss 
D) $9,100 net loss

Question 11

All rental properties are depreciated using the straight-line method over 39 years.

Accepted Answer

A) True 
 B)False

Question 12

In the case of a primarily personal property, a taxpayer may report a net loss as long as the correct allocation method was used.

Accepted Answer

A) True 
 B)False

Question 13

Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for 55 days. The cabin is considered personal/rental property.

Accepted Answer

A) True 
 B)False

Question 14

If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full rent), that expense is not considered part of rental income to the taxpayer.

Accepted Answer

A) True 
 B)False

Question 15

Richard owns a cabin in Utah that he rented for $4,000 for 21 days. He lived there for a total of 120 days. The expenses for the home included $8,000 in mortgage interest, $1,200 in property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much net income or loss from the Utah home would Richard report for the current year (use the IRS method)? (Round your answer to the nearest whole number)

Accepted Answer

A)  $0. 
B)  $1,915 net income. 
C)  $4,000 net income. 
D) $10,000 net loss. 
A)  $0. 
B)  $1,915 net income. 
C)  $4,000 net income. 
D) $10,000 net loss.

Question 16

Flow-through entities file "informational returns."

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not considered a flow-through entity?

Accepted Answer

A)  Limited liability company. 
B)  Sole proprietorship. 
C)  Partnership. 
D) S corporation. 
A)  Limited liability company. 
B)  Sole proprietorship. 
C)  Partnership. 
D) S corporation.

Question 18

Lori and Donald own a condominium in Colorado Springs, Colorado, that they rent out part of the time and use during the summer. The rental property is classified as personal/rental property and their personal use is determined to be 75% (based on the IRS method). They had the following income and expenses for the year (before any allocation):   How much netloss should Lori and Donald report for their condominium on their tax return this year?

Accepted Answer

A)  $0. 
B)  $3,350 loss. 
C)  $7,400 loss. 
D) $9,000 loss. 
A)  $0. 
B)  $3,350 loss. 
C)  $7,400 loss. 
D) $9,000 loss.

Question 19

Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business reports the following results:   How do Owen and Jessica report these items for tax purposes?

Accepted Answer

A)  $68,500 income on Schedule E; $16,000 investment expense on Schedule D 
B)  $68,500 income on Schedule E; $8,000 investment expense on Schedule A 
C)  $137,000 income on Schedule E; $88,000 investment expense on Schedule A 
D) $225,000 income on Schedule E; $16,000 investment expense on Schedule A 
A)  $68,500 income on Schedule E; $16,000 investment expense on Schedule D 
B)  $68,500 income on Schedule E; $8,000 investment expense on Schedule A 
C)  $137,000 income on Schedule E; $88,000 investment expense on Schedule A 
D) $225,000 income on Schedule E; $16,000 investment expense on Schedule A

Question 20

Explain the difference between the two methods available; the Tax Court's method and the IRS method, to allocate expenses between personal and rental use of property.

Accepted Answer

If using the IRS method, expenses are al

Which of the following statements is true with regard to the reporting of royalty income?

Royalties can be earned from allowing others the right to use:

Which of the following entity(ies) is(are) considered flow-through?

Royalties can NOT be earned from which of the following:

Flow-through entities include, but are not limited to, LLCs, S Corporations, trusts and estates.

Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year. The house is considered personal/rental property.

A property that has been rented for 120 days and used for personal use for 40 days should be categorized as:

All rental properties are depreciated using the straight-line method over 39 years.

In the case of a primarily personal property, a taxpayer may report a net loss as long as the correct allocation method was used.

Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for 55 days. The cabin is considered personal/rental property.

If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full rent), that expense is not considered part of rental income to the taxpayer.

Flow-through entities file "informational returns."

Which of the following is not considered a flow-through entity?

Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business reports the following results: How do Owen and Jessica report these items for tax purposes?

Explain the difference between the two methods available; the Tax Court's method and the IRS method, to allocate expenses between personal and rental use of property.

Introduction to Taxation, the Income Tax Formula, and Form 1040ez

Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income

Capital Gains and Other Sales of Property

Tax Credits

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities:

Special Property Transactions

At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

Partnership Taxation

Corporate Taxation

Filters

Exam 8: Rental Property, Royalties, Income From Flow-Through Entities

Which of the following statements is true with regard to the reporting of royalty income?

Royalties can be earned from allowing others the right to use:

Which of the following entity(ies) is(are) considered flow-through?

Royalties can NOT be earned from which of the following:

Flow-through entities include, but are not limited to, LLCs, S Corporations, trusts and estates.

Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year. The house is considered personal/rental property.

A property that has been rented for 120 days and used for personal use for 40 days should be categorized as:

All rental properties are depreciated using the straight-line method over 39 years.

In the case of a primarily personal property, a taxpayer may report a net loss as long as the correct allocation method was used.

Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for 55 days. The cabin is considered personal/rental property.

If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full rent), that expense is not considered part of rental income to the taxpayer.

Flow-through entities file "informational returns."

Which of the following is not considered a flow-through entity?

Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business reports the following results: How do Owen and Jessica report these items for tax purposes?

Explain the difference between the two methods available; the Tax Court's method and the IRS method, to allocate expenses between personal and rental use of property.

Introduction to Taxation, the Income Tax Formula, and Form 1040ez

Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income

Capital Gains and Other Sales of Property

Tax Credits

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities:

Special Property Transactions

At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

Partnership Taxation

Corporate Taxation

Filters