Question 1

Lori owns a vacation home that she rents out for about three months each year. Her deduction for expenses allocable to the rental periods is limited to her gross rental income less any home mortgage interest or property taxes allocable to the rental period.

Accepted Answer

A) True 
 B)False

Question 2

Mr. and Mrs. Shohler received $25,200 Social Security benefits this year. Their only other source of income was Mrs. Shohler's $10,479 taxable pension from her former employer. How much of their Social Security is included in gross income?

Accepted Answer

A)  $0 
B)  $12,600 
C)  $21,420 
D)  $25,200

Question 3

Which of the following statements about the tax consequences of gambling is true?

Accepted Answer

A)  Gambling winnings are not taxable, and gambling losses are not deductible. 
B)  Gambling losses are an above-the-line deduction. 
C)  Gambling losses are deductible as itemized deductions only to the extent of gambling winnings. 
D)  Gambling winnings are taxable, but gambling losses are not deductible.

Question 4

This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.

Accepted Answer

A) True 
 B)False

Question 5

Ms. Bjorn contributed $600,000 cash to qualified public charities this year. Her AGI was $814,000. Which of the following statements is true?

Accepted Answer

A)  Ms. Bjorn's charitable contribution deduction is limited to $488,400, and she has a $111,600 contribution carryover to future years. 
B)  Ms. Bjorn's charitable contribution deduction is $360,000. 
C)  Ms. Bjorn's charitable contribution deduction is limited to $488,400. The $111,600 nondeductible amount will never result in a tax benefit. 
D)  Ms. Bjorn's charitable contribution deduction is $600,000.

Question 6

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Accepted Answer

A) True 
 B)False

Question 7

Ted and Alice divorced in 2014. Pursuant to the divorce decree, Ted pays $5,000 alimony and $7,500 child support to Alice every month. Alice is the custodial parent. Which of the following statements is true?

Accepted Answer

A)  Alice includes the monthly alimony and child support payments in gross income. 
B)  Ted is allowed to deduct the monthly alimony and child support payments. 
C)  Ted is entitled to the child credits for the couples' two minor children because he is paying child support. 
D)  None of these choices aretrue.

Question 8

Damage to a personal residence caused by a hurricane that is a federally declared disaster is an example of a casualty loss.

Accepted Answer

A) True 
 B)False

Question 9

Three years ago, Suzanne bought a new personal automobile for $26,900. This year, she sold it for $19,000. What is the amount and character of Suzanne's recognized loss?

Accepted Answer

A)  No loss recognized on the sale of a personal asset. 
B)  $26,900 long-term capital loss. 
C)  $7,900 ordinary loss. 
D)  $7,900 long-term capital loss.

Question 10

Gary is an architect who also sings at weddings. This year, he received $5,400 in fees from his singing and spent $6,250 on singing lessons, sheet music, and travel to the weddings. If Gary considers this activity as a hobby for federal tax purposes, which of the following statements is true?

Accepted Answer

A)  Gary is not required to include the $5,400 in gross income. 
B)  Gary is allowed to deduct $5,400 of his expenses as an above-the-line deduction. 
C)  Gary is not allowed to deduct any of his hobby expenses. 
D)  Gary is allowed to deduct $5,400 of his expenses as an itemized deduction.

Question 11

Any gain recognized on the sale of a personal residence is excluded from the seller's gross income.

Accepted Answer

A) True 
 B)False

Question 12

Mr. and Mrs. Perry own three homes, each of which is subject to a mortgage incurred to purchase the home. The mortgage on their principal residence is $290,000, the mortgage on the second home is $100,000, and the mortgage on the third home is $317,000. Which of the following statements is true?

Accepted Answer

A)  Mr. and Mrs. Perry are allowed an itemized deduction for the interest paid on all three mortgages. 
B)  The Perrys' itemized deduction is limited to the interest on the $290,000 mortgage. 
C)  The Perrys' itemized deduction is limited to the interest on the $317,000 mortgage. 
D)  None of these statements are true.

Question 13

Mr. and Mrs. Hunt have the following allowable itemized deductions this year.
 $\begin{array}{llr}
  \text { Medical expenses } &\$3,279\
 \text { state and local taxes } &\$7,400\
 \text {  Casualty loss (less $ \$ 100 $ per casualty floor)} &\$3,990\
 \text { charitable contributions } &\$3,500\
 \text {  } &\
 \text {  } &\
\end{array}$
 Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

Accepted Answer

The answer of Mr. and Mrs. Hunt have the following...

Question 14

Mr. Jain paid the following taxes this year.
 $\begin{array}{lcr}
\text { Federal income tax } & \$ & 32,450 \
\text { Federal self-employment tax } & \$ & 7,921 \
\text { State and local income tax } & \$ & 3,450 \
\text { State and local sales tax } & \$ & 4,060 \
\text { Local property tax on principal residence } & \$ & 4,320 \
\text { Local property tax on investment land } & \$ & 1,880 \
\text { Local property tax on two automobiles } & \$ & 750
\end{array}$
 Compute Mr. Jain's itemized deduction for taxes.

Accepted Answer

The answer of Mr. Jain paid the following taxes this...

Question 15

Helen makes quilts and sells them at the regional county fairs. This year, she earned $950 from quilt sales and spent $3,300 on supplies and travel relating to her quilting activity. If the IRS determines that this activity is a hobby instead of a business, Helen can't deduct her $3,300 expenses.

Accepted Answer

A) True 
 B)False

Question 16

Mia inherited $1 million from her deceased grandfather. Mia must include the inheritance in gross income.

Accepted Answer

A) True 
 B)False

Question 17

Dotty Sprauge incurred the following medical expenses this year. $\begin{array}{llr}
  \text {  Payments to physicians and dentists} &\$4,300\
 \text { Eayment for two-day stay at Mercy Hospital } &\$6,250\
 \text {Payments to physical therapist  } &\$2,100\
 \text {Prescription drugs  } &\$1,010
\end{array}$
 Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $26,550, compute her medical expense deduction.

Accepted Answer

A)  $0 
B)  $1,991 
C)  $2,869 
D)  $4,860

Question 18

A drunk driver seriously injured Leah. The court awarded her $200,000 for her physical injuries and $300,000 as punitive damages. Leah must include $300,000 in gross income.

Accepted Answer

A) True 
 B)False

Question 19

Josh donated a painting to the local art museum. He purchased the painting twenty years ago for $34,000, and its appraised FMV at date of gift was $115,000. Which of the following statements about this donation is true?

Accepted Answer

A)  Josh must recognize an $81,000 long-term capital gain and is allowed a $115,000 charitable contribution deduction. 
B)  Josh recognizes no gain and is allowed a $115,000 charitable contribution deduction. 
C)  Josh recognizes no gain and is allowed a $34,000 charitable contribution deduction. 
D)  None of these choices are true.

Question 20

Gifts are not included in the recipient's gross income.

Accepted Answer

A) True 
 B)False

Exam 17: Tax Consequences of Personal Activities

Lori owns a vacation home that she rents out for about three months each year. Her deduction for expenses allocable to the rental periods is limited to her gross rental income less any home mortgage interest or property taxes allocable to the rental period.

Mr. and Mrs. Shohler received $25,200 Social Security benefits this year. Their only other source of income was Mrs. Shohler's $10,479 taxable pension from her former employer. How much of their Social Security is included in gross income?

Which of the following statements about the tax consequences of gambling is true?

This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.

Ms. Bjorn contributed $600,000 cash to qualified public charities this year. Her AGI was $814,000. Which of the following statements is true?

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Ted and Alice divorced in 2014. Pursuant to the divorce decree, Ted pays $5,000 alimony and $7,500 child support to Alice every month. Alice is the custodial parent. Which of the following statements is true?

Damage to a personal residence caused by a hurricane that is a federally declared disaster is an example of a casualty loss.

Three years ago, Suzanne bought a new personal automobile for $26,900. This year, she sold it for $19,000. What is the amount and character of Suzanne's recognized loss?

Gary is an architect who also sings at weddings. This year, he received $5,400 in fees from his singing and spent $6,250 on singing lessons, sheet music, and travel to the weddings. If Gary considers this activity as a hobby for federal tax purposes, which of the following statements is true?

Any gain recognized on the sale of a personal residence is excluded from the seller's gross income.

Mr. and Mrs. Perry own three homes, each of which is subject to a mortgage incurred to purchase the home. The mortgage on their principal residence is $290,000, the mortgage on the second home is $100,000, and the mortgage on the third home is $317,000. Which of the following statements is true?

Helen makes quilts and sells them at the regional county fairs. This year, she earned $950 from quilt sales and spent $3,300 on supplies and travel relating to her quilting activity. If the IRS determines that this activity is a hobby instead of a business, Helen can't deduct her $3,300 expenses.

Mia inherited $1 million from her deceased grandfather. Mia must include the inheritance in gross income.

A drunk driver seriously injured Leah. The court awarded her $200,000 for her physical injuries and $300,000 as punitive damages. Leah must include $300,000 in gross income.

Josh donated a painting to the local art museum. He purchased the painting twenty years ago for $34,000, and its appraised FMV at date of gift was $115,000. Which of the following statements about this donation is true?

Gifts are not included in the recipient's gross income.