Exam 2: Gross Income and Exclusions

Jerry and Sally were divorced under an agreement executed July 1,2017.The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000.What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer,respectively?

Taxpayers must report interest income on Series EE savings bonds as the interest accrues.

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2017 tax year. -Alimony

Which of the following is correct?

Which of the following is nontaxable income to the recipient for tax purposes?

Mable is a wealthy widow who has come to you for tax advice.She is in the 35 percent tax bracket.She has a choice between investing in a high-quality municipal bond paying 3.5 percent or a high-quality corporate bond paying 7 percent.From a tax standpoint,which investment would you advise her to make and why?

As a new benefit to employees,the Acme Company is providing a dining allowance every Tuesday for use in one of the twenty restaurants that they own around town.Should this benefit be included in the wages of the employees?

Van is sick and tired of his job.His doctor certifies that his health may be compromised if he continues to work at his current job.He sells his life insurance policy to Life Settlements,Inc.for $50,000 so he can take a break from work.He has paid $10,000 so far for the policy.How much of the $50,000 must Van include in his taxable income?

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2017 tax year. -Reimbursement of hospital expenses from a health insurance plan

Indicate whether each of the items listed below would be (a) included in gross income or (b) excluded from gross income for the 2017 tax year. -Child support payments

Amounts received by an employee as reimbursement for medical expenses under a policy provided by the taxpayer's employer are excluded from gross income.

Under a divorce agreement executed in the current year,periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30,2010,Richard was required to pay Alice $1,500 per month of which $600 was designated as child support.He made 12 such payments in 2017.Additionally,Richard voluntarily paid Alice $1,200 per month for 12 months of 2017,no portion of which was designated as child support.Assuming that Alice has no other income,her tax return for 2017 should show gross income of:

Steve and Laura were divorced in 2011.Laura pays Steve alimony of $1,200 a month.The payment amount was agreed upon in the decree of divorce.To save money,Steve and Laura still live together.Are the alimony payments that Steve receives in 2017 included in his income?

Payments made to a qualified retirement plan by an employer are considered part of the employee's investment in the contract for calculation of the annuity exclusion ratio.

Under a divorce agreement executed in 2013,Bob is required to pay his ex-wife,Carol,$3,000 a month until their youngest daughter is 21 years of age.At that time,the required payments are reduced to $2,000 per month. a.How much of each $3,000 payment may be deducted as alimony by Bob? b.How much of each $3,000 payment must be included in Carol's taxable income?

Sam died on January 15,2006 and left his wife,Terry,an insurance policy with a face value of $100,000.Terry elected to receive the proceeds over a 10-year period ($10,000 plus interest each year).This year Terry receives $11,500 ($10,000 proceeds plus $1,500 interest)from the insurance company.How much income must Terry report from this payment?

Unemployment compensation is fully taxable to the individual receiving the compensation.

Answer the following questions regarding the taxability of Social Security payments. a.Will a taxpayer with no income other than Social Security have to include the Social Security in taxable income? b.Will a taxpayer with a large amount of municipal bond income,but no taxable income,likely have to pay tax on part of his or her Social Security? c.What is the maximum percentage of Social Security benefits which may be subject to tax on an individual's tax return?

Which of the following amounts must be included in the gross income of the recipient?