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Exam 6: Deductions and Losses: In General

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Question 71

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

A) True
B) False

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Question 72

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Which of the following statements is correct in connection with the investigation of a business?

A) If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned.
B) Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired.
C) That business must be related to the taxpayer's present business for any expense ever to be deductible.
D) Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be ??????????? ??? ?????????.
E) None of the above.

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

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Question 73

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

Calculate the net income includible in taxable income for the following hobby in 2018:

Bridgett's son, Clyde, is $12,000 in arrears on his residential mortgage payments. Of the $12,000, $7,500 represents interest and $4,500 represents principal. a. If Bridgett pays the $12,000 to the lender, how much can she deduct? How much can Clyde deduct? b. If Bridgett pays the $7,500 of interest to the lender and loans or gives $4,500 to Clyde, who pays the $4,500 of principal, how much can Bridgett deduct? How much can Clyde deduct? c. If Bridgett gives or lends the $12,000 to Clyde who pays the lender, how much can he deduct? How much can Bridgett deduct? d. Advise Bridgett and Clyde on how the payment should be made.

During the year, Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months. The following expenses were incurred on the home: Calculate her rental gain or loss and itemized deductions.

In what situations may individuals be able to take a qualified business income deduction?

Tracy invested in the following stocks and bonds during 2018. To finance the investments, she borrowed $100,000 from Swan Bank. Interest expense paid on the loan during 2018 was $5,000. During 2018, Tracy received $1,250 of dividend income from Blue, Inc. and $3,000 of interest income on the municipal bonds. a. Determine the amount of Tracy's gross income. b. Determine the maximum amount of Tracy's deductible interest expense.

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year. At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year. a. Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer. b. Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000. Walter reinvests the proceeds in the stock market. Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. a. Determine the tax consequences to Walter. b. Determine the tax consequences to Shirley.

Briefly discuss the disallowance of deductions for capital expenditures.

Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows: What is Al's AGI?

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Which of the following are deductions for AGI?

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Which of the following is not a related party for constructive ownership purposes under § 267?

Marge sells land to her adult son, Jason, for its $20,000 appraised value. Her adjusted basis for the land is $25,000. Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Taylor, a cash basis architect, rents the building in which his office is located for $5,000 per month. He commenced his practice on February 1, 2018. In order to guarantee no rent increases during an 18-month period, he signed an 18- month lease and prepaid the $90,000 on February 1, 2018. How much can Taylor deduct as rent expense for 2018?

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.