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Exam 6: Deductions and Losses: in General

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Question 81

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Two-thirds of treble damage payments under the antitrust law are deductible.

A) True
B) False

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Question 82

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

A) True
B) False

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Question 83

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If a vacation home is classified as primarily personal use (i.e., rented for fewer than 15 days), none of the related expenses can be deducted.

Olive, Inc., an accrual method taxpayer, is a corporation that is equally owned by Maurice and Alex, who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital, the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year, there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective, when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

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?

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

LD Partnership, a cash basis taxpayer, purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land, but can deduct the $150,000 paid for the building in the current tax year.

The expenses incurred to investigate the expansion of an existing business are deductible even if the expansion is not accomplished.

The stock of Eagle, Inc.is owned as follows: Tom sells land and a building to Eagle, Inc.for $212,000.His adjusted basis for these assets is $225,000.Calculate Tom's realized and recognized loss associated with the sale.

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

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

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

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.