FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Deductions and Losses: in General

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

True/False

Review LaterAdd Note

Review Later

Landscaping expenditures on new rental property are deductible in the year they are paid or incurred.

A) True
B) False

Correct Answer

verified

Show Answer

Question 62

Multiple Choice

Review LaterAdd Note

Review Later

Bob and April own a house at the beach.The house was rented to unrelated parties for 8 weeks during the year.April and the children used the house 12 days for their vacation during the year.After properly dividing the expenses between rental and personal use,it was determined that a loss was incurred as follows: What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable?

A) A $1,500 loss should be reported.
B) Only the mortgage interest and property taxes should be deducted.
C) Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use.
D) Since the house was used less than 50% personally by Bob and April, all expenses allocated to personal use may be deducted.
E) Bob and April should include none of the income or expenses related to the beach house in their current year income tax return.

F) None of the above
G) C) and D)

Correct Answer

verified

Show Answer

Question 63

Multiple Choice

Review LaterAdd Note

Which of the following is deductible as a trade or business expense?

During the year,Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest,$3,000; real estate taxes,$1,500; utilities,$800; maintenance,$500; and depreciation,$4,000.Compute Martin's allowable deductions for the vacation home.

If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction.

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

For a vacation home to be classified in the primarily rental use category,what attributes must be present?

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use on November 1,2012.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne must include the $2,500 in her gross income whereas Martha is not required to include the $3,000 in her gross income.

Amos,a shareholder-employee of Pigeon,Inc.,receives a $400,000 salary.The IRS classifies $125,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Amos' gross income by $125,000 and increase Pigeon's gross income by $125,000.

Fines and penalties paid for violations of the law (e.g.,illegal dumping of hazardous waste)are deductible only if they relate to a trade or business.

Which of the following are deductions for AGI?

Janet is the CEO for Silver,Inc.,a closely held corporation.Her total compensation for 2012 is $5 million.Of this amount,$2 million is a salary and $3 million is a bonus.The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million X 5% = $3 million).The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors (1 of the 5 directors is an outside director)of Silver.How much of Janet's compensation can Silver deduct for 2012?

If an item such as property taxes and home mortgage interest exceed the income from a hobby,the excess amount of this item over the hobby income cannot be deducted if the taxpayer itemizes deductions.

A political contribution to the Democratic Party or the Republican Party is not deductible,but a contribution to the Presidential Election Campaign Fund is deductible.

Briefly explain the provisions regarding the deductibility of expenditures paid for another's benefit or obligation.

A salary that is classified as unreasonable by the IRS is disallowed as a deduction to the corporation.

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year.The rental income is $6,000 and the expenses are as follows: Using the IRS approach,total expenses that Robyn can deduct on her tax return associated with the beach house are:

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

In determining whether an activity should be classified as a business or as a hobby,the satisfaction of the presumption (i.e.,profit in at least 3 out of 5 years)ensures treatment as a business.