Exam 6: Individual for Agi Deductions

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($15,000) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $115,000 of salary, $10,000 of long-term capital gains, $3,000 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

This fall, Josh paid $5,000 for his tuition and fees at State University (a qualified education institution). Assume that Josh is Marsha and Jeff's son and that Marsha and Jeff claim Josh as a dependent. Marsha and Jeff's modified AGI is $100,000. How much of Josh's $5,000 tuition and fees payments can Marsha and Jeff deduct this year?

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $32,000, she transferred the entire $32,000 out of her traditional IRA and immediately into a Roth IRA. Her current marginal tax rate is 25 percent. What amount of tax and penalty is she required to pay on this rollover?

Careen owns a condominium near Newport Beach in California. This year, she incurs the following expenses in connection with her condo: Insurance \ 1,000 Mortgage interest 7,500 Property taxes 3,200 Repairs and maintenance 800 Utilities 1,700 Depreciation 5,700 During the year, Careen rented the condo for 90 days, receiving $20,000 of gross income. She personally used the condo for 50 days. Assuming Careen uses the IRS method of allocating expenses to rental use of the property. What is Careen's net rental income for the year?

Roy, a resident of Michigan, owns 25 percent of a fourplex in the nearby college town of Ann Arbor with three other friends. The fourplex is rented to students who attend the University of Michigan. Roy's responsibility is to approve new tenants each year and take care of any maintenance issues. During the year, the rental property generated a $25,000 loss which was split equally among Roy and his three friends. Assuming Roy's only source of income was $145,000 of salary, how much of the rental loss can Roy deduct this year and what amount must be carried forward?

Hector is a married self-employed taxpayer, and this year he paid $3,000 for his health insurance premiums. Under which of the following alternative conditions can Hector deduct the cost of the premiums for AGI?

Kristen rented out her home for 10 days during the year for $5,000. She used the home for personal purposes for the other 355 days. She allocated the following home expenses to the rental use of the home: Insurance \ 1,500 Mortgage interest 8,500 Property taxes 4,000 Repairs and maintenance 950 Utilities 1,900 Depreciation 5,500 Kristen's AGI is $120,000 before considering the effect of the rental activity. What is Kristen's AGI after considering the tax effect of the rental use of her home?

Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $20,000 of debt she is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of the debt resulting in a tax basis of $7,000 and an at risk amount of $5,000. During the year, ABC LP generated a ($70,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

Tatia, age 38, has made deductible contributions to her traditional IRA over the past few years. When her account balance was $30,000, she received a distribution of the entire $30,000 balance of her traditional IRA. She retained $5,000 of the distribution to help her pay the taxes due on the distribution and she immediately contributed the remaining $25,000 to a Roth IRA. What amount of tax and early distribution penalty is she required to pay on the $30,000 distribution from the traditional IRA if her marginal tax rate is 25 percent?

This fall Millie finally repaid her student loan. She originally borrowed the money to pay tuition several years ago when she attended at State University (a qualified educational institution). This year Millie paid a total of $2,400 of interest on the loan. If Millie files single and reports $70,000 of income and no other items of income or expense how much of the interest can she deduct?

Self employed taxpayers can choose between claiming a deduction or a credit for the employer portion of self employment taxes paid.

On the sale of a passive activity, any suspended losses can be used to offset income from:

Which taxpayer would not be considered a material participant of an activity?

Taxpayers who use a vacation home for both personal and rental use generally must allocate expenses associated with the home to the personal use and the rental use.

In 2016, Madison is a single taxpayer who is 25 years of age. During 2016, she contributed $3,000 to her employer sponsored 401(k) account. Her 2016 AGI was $65,500 (before considering IRA deductions). What is the maximum deductible contribution, if any, that Madison can make her to IRA?

Cassandra, age 33, has made deductible contributions to her traditional IRA over the years. When the balance in her IRA was $40,000, Cassandra received a distribution of $34,000 from her IRA in order to purchase a new car. How much of the $34,000 distribution will she have remaining after paying income taxes and early distribution penalties on the distribution? Her marginal tax rate is 25 percent.

Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?