Exam 6: Individual for Agi Deductions

Expenses of a vacation home allocated to rental use are deductible for AGI.

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Tyson's marginal tax rate is 25%. Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA. He retains $12,500 to pay tax on the distribution and he contributes $37,500 to a Roth IRA. What amount of income tax and penalty must Tyson pay on this series of transactions?

If a taxpayer's marginal tax rate is decreasing, a taxpayer contributing to a traditional IRA can earn an after-tax rate of return greater than her before-tax rate of return.

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs).

Scott is a self employed plumber and his wife, Emily, is a full-time employee for the University. Emily has health insurance from a qualified plan provided by the University, but Scott has chosen to purchase his own health insurance rather than participate in Emily's plan. Besides paying $5,400 for his health insurance premiums, Scott also pays the following expenses associated with his plumbing business: Gross rental income \ 20,000 Tier 1 expenses: Mortgage interest =(90140)\times\ 8,500=\ 5,464 Property taxes =(901140)\times\ 4,000=\ 2,571 Less: total Tier 1 expenses (8,035) Balance \ 11,965 Tier 2 expenses: Insurance =(901140)\times\ 1,500=\ 964 Repairs and Maintenance =(901140)\times\ 950=\ 611 Utilities =(90/140)\times\ 1,900=\ 1,221 Less: total Tier 2 expenses \ 9,169 Balance Tier 3 expenses: Depreciation (90/140) \times\ 5,500=\ 3,536 (3,536) Net income from rental \ 5,633 What is the amount of deductions for AGI that Scott can claim this year (2016)?

To deduct a moving expense, the taxpayer must be employed or self employed for a specific amount of time after the move.

Don owns a condominium near Orlando, California. This year, he incurs the following expenses in connection with his condo: Salary \ 120,000 Loss from rental property (40,000) During the year, Don rented the condo for 70 days and he received $17,400 of rental receipts. He did not use the condo at all for personal purposes during the year. Don is considered to be an active participant in the property. Don's AGI from all sources other than the rental property is $140,000. Don does not have passive income from any other sources. What is Don's AGI?

A tax loss from a rental home is generally a passive activity loss.

To qualify under the passive activity rental real estate exception, the taxpayer must (1) own at least 15 percent of the property and (2) participate in the process of making management decisions.

Harvey rents his second home. During 2016, Harvey reported a net loss of $35,000 from the rental. If Harvey is an active participant in the rental and his AGI is $80,000, how much of the loss can he deduct against ordinary income in 2016?

Alexandra operates a garage as a sole proprietorship. Alexandra also owns a half interest in a partnership that operates a gas station. This year Alexandra paid or reported the following expenses related to her garage and other property. Determine Alexandra's AGI for 2016. Gross rental income \ 25,000 Tier 1 expenses: Mortgage interest =(100/365)\times\ 7,500=\ 2,056 Property taxes =(100/365)\times\ 3,200=\ 877 Less: total Tier 1 expenses Balance \ 2,932) Tier 2 expenses: Insurance =(100/160)\times\ 1,000=\ 625 Repairs and Maintenance =(100/160)\times\ 800=\ 500 Utilities =(100/160)\times\ 1,700=\ 1,063 \ 2,188) Less: total Tier 2 expenses \ 19,880 Balance Tier 3 expenses: Depreciation (100/160) \times\ 5,700=\ 3,563 \ (3,563) Net income from rental \ 16,317

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

Which of the following is a true statement?

A taxpayer's at-risk amount in an activity is increased by:

Carmello and Leslie (ages 34 and 35, respectively) are married and want to contribute to a Roth IRA. In 2016, their AGI totaled $42,000. Of the $42,000, Carmello earned $35,000 and Leslie earned $7,000. How much can each spouse contribute to a Roth IRA if they file jointly? How much can each spouse contribute to a Roth IRA if they file separately?

This year Tiffanie files as a single taxpayer. Tiffanie received $62,700 of salary and paid $3,200 of qualified educational interest. This year Tiffanie has also paid deductible moving expenses of $2,200 and received $12,000 of alimony. What is Tiffanie's AGI?

In certain circumstances, a taxpayer could rent her personal residence at a profit and not pay any tax on the income.

Which of the following statements regarding the home office expense deduction is correct?

During 2016 Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2016 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold, what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.