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Exam 6: Deductions and Losses: in General

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Question 51

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Trade or business expenses are classified as deductions for AGI. Section 212 expenses, barring certain exceptions, are classified as deductions from AGI. What are these exceptions?

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The normal classification for § 212 expe...

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Question 52

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None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

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B) False

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Question 53

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Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Aaron, a shareholder-employee of Pigeon, Inc., receives a $300,000 salary. The IRS classifies $100,000 of this amount as unreasonable compensation. The effect of this reclassification is to decrease Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

Alice incurs qualified moving expenses of $12,000 in 2018. If she is not reimbursed by her employer, the deduction is classified as a deduction for AGI.

Legal expenses incurred in connection with rental property are deductions from AGI.

Purchased goodwill must be capitalized, but can be amortized over a 60-month period.

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

If property taxes and home mortgage interest expense are related to a hobby, the excess amount of these items over the hobby income cannot be deducted even if the taxpayer itemizes deductions.

Which of the following is a deduction for AGI?

Trade or business expenses of a self-employed taxpayer should be treated as:

Deductions are allowed unless a specific provision in the tax law provides otherwise.

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

Two-thirds of treble damage payments under the antitrust law are not deductible.

Which of the following are deductions for AGI?

Abner contributes $2,000 to the campaign of the Tea Party candidate for governor, $1,000 to the campaign of the Tea Party candidate for senator, and $500 to the campaign of the Tea Party candidate for mayor. Can Abner deduct these political contributions?

Jacques, who is not a U.S. citizen, makes a contribution to the campaign of a candidate for governor. Cassie, a U.S. citizen, also makes a contribution to the same campaign fund. If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

The Code does not specifically define what constitutes a trade or business.