Multiple Choice Questions
1. Sean and Jenny own a home in Boulder City, Nevada, near Lake Mead. During the year, they rented the house for 40 days for $3,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $14,000 in mortgage interest, $3,500 in property taxes, $1,100 in utilities, $1,300 in maintenance, and $10,900 in depreciation. What is the deductible net loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses.
a. $0.
b. $388.
c. $8,090.
d. $27,800.
2. Nicolette and Brady own a cabin in Lake Arrowhead, California that they rent out during the winter and use the rest of the year. The rental property is categorized as personal/rental property, and their personal use is determined to be 68% (based on the IRS method). They had the following income and expenses for the year (after allocation):
Gross rental income $9,500
Interest and taxes 6,000
Utilities and maintenance 2,500
Depreciation 4,300
How much can Nicolette and Brady deduct for depreciation expense related to this property for this year on their tax return?
a. $0.
b. $1,000.
c. $4,300.
d. Answer cannot be determined.
3. Colin is a high school chemistry teacher who owns some land in Oklahoma that produces oil from its small oil reserve. On what schedule should Colin report the royalty income he receives?
a. Schedule A.
b. Schedule C.
c. Schedule E.
d. Schedule SE.
4. Sally is a full-time author and recently published her third mystery novel. The royalty income she receives from the publisher this year should be reported on what schedule?
a. Schedule E.
b. Schedule D.
c. Schedule A.
d. Schedule C.
5. What is the maximum amount of passive losses from a rental activity that a taxpayer can deduct against active and portfolio income per year (assuming no passive loss limitation due to AGI or personal use of the property)?
a. $0.
b. $15,000.
c. $25,000.
d. $50,000.
6. Which of the following entity (ies) is (are) considered flow-through?
a. Partnership.
b. S Corporation.
c. LLC.
d. All are considered flow-through entities
7. From which of the following flow-through entities is ordinary income (K-1) considered self-employment income?
a. Partnership.
b. S Corporation.
c. Trusts.
d. Estates.