Questions and Answers of Introduction To Federal Income Taxation

Jodie sells land held as an investment for a gain. She receives the sales proceeds over a three year period. Unless an election is made to the contrary, under the normal tax laws, Jodie will
Warren sold his office building for $115,000. Warren had bought the building for $120,000, and over the years he has deducted $22,000 of depreciation on his tax returns. Warren’s unrecaptured
Business property owned for 3 months is stolen from the taxpayer. The loss is treated in the netting process as:a. an ordinary loss.b. a business casualty or theft loss.c. a Section 1231 gain or
Which of the following taxpayers can take advantage of the special rules that apply to subdivided property?a. A taxpayer who is a real estate dealer.b. A taxpayer who puts in roads, sewer and
Henri is married, but files a separate return from his wife, Darla. If Henri realizes a $110,000 loss from the sale of Section 1244 stock he bought 10 years ago, he will recognize a:a. $50,000
Nina is single. If in the current year, Nina recognizes an $11,000 short-term capital loss, a$4,000 long-term capital loss and a $5,000 short-term capital gain, she will carry over to the next year
An unmarried taxpayer whose filing status is single has taxable income of $460,000. Included in this amount is $20,000 of net capital gain and qualified dividends. The tax rate that will apply to the
Dale recognizes a $6,000 short-term capital loss, a $5,000 short-term capital gain, a $2,000 long-term capital loss and a $9,000 long-term capital gain. The taxpayer's net capital gain is:a. $0.b.
Which of the following properties does not have a carryover basis?a. Property acquired in a like-kind exchangeb. Nontaxable stock dividendsc. Property inherited from an aunt who died in 2014d. Gifted
Which of the following is a capital asset?a. Inventory held primarily for resale in the ordinary course of businessb. Land held as an investmentc. Depreciable property used the taxpayer’s trade or
The installment method never applies to losses.
Only the excess of a taxpayer’s net Section 1231 gain over the taxpayer's nonrecaptured Section 1231 losses is treated as long-term capital gain in the netting process.
Depreciation recapture is always taxed as ordinary income.
Nonbusiness bad debts are always treated as short-term capital losses.
On the gain from the sale of property to someone who is considered a related party, how the seller used the property is relevant for purposes of whether the gain will be taxed as ordinary income.
In the netting process, worthless securities are always treated as long-term capital losses.
The carry forward period for capital losses is five years for individual taxpayers.
Net capital gain and qualified dividends (other than those the taxpayer elects to consider investment income in the calculation of net investment income) is always taxed at a lower tax rate than all
Recognized gain on the sale of personal use property held for 10 months goes in the netting process as short-term capital gain.
The gain on the sale of inherited property results in long-term or short-term gain, depending on the amount of time the taxpayer holds the property.
On October 5, 2014, Safecom’s office building is destroyed by a tornado. Safecom's adjusted basis in the building is $325,000. On December 16, 2014, Safecom receives a check for$750,000 from the
On September 8, 2014, the taxpayer receives an official letter from the state informing him that the property where his office building is located has been condemned by the state government.On
Which of the following qualifies as a like-kind exchange?a. Exchange of an investment in land located in Florida for an investment in land located in Quebec, Canadab. Exchange of the taxpayer’s
Amber and Mel swap land in a like-kind exchange. As part of the exchange, Amber assumes Mel’s $50,000 debt and Mel assumes Amber’s $70,000 debt. Which of the following statements is true
Property that can never be considered like-kind includes:a. stock.b. personal-use property.c. inventory.d. All of the above.
Philip and Suzie Levi purchased Section 1202 (qualified small business) stock for $52,000 back in 2007. The Levis sold the stock in 2014 for $235,000. The Levis’ realized and recognized gain on the
Les paid $22,000 for stock in ABC Company. In January of this year, Les sold the stock for its $15,000 fair market value to his son, Manny. Three months later, Manny sells the stock to an unrelated
Losses between related parties are:a. always realized, but never recognized by the seller.b. always realized and recognized by the seller.c. always realized and recognized by the buyer.d. always
Two years ago, Joyce paid $10,000 for 1,000 shares of ABC common stock. On April 5, 2014, she pays $2,400 for 300 more shares of ABC common stock. Then, on April 29, 2014, Joyce sells 1,000 shares of
An example of a realized gain or loss that is not recognized, but is merely postponed is:a. loss from the theft of business property.b. gain on the sale of Section 1202 stock.c. gain resulting from
Realized gain from an exchange of like-kind property is never recognized unless boot is received.
In order to qualify for the exclusion on the sale of a main home, the taxpayer must have used the home as his or her main home for the two years leading up to the sale.
For purposes of sales between related parties, the taxpayer's parents are related because they are considered to be "family members," whereas the taxpayer's aunts and uncles are not.
A stock dividend is only taxable if the taxpayer is given the choice between receiving a stock dividend or a cash dividend.
When a vacation home is converted to rental property, the taxpayer’s basis for purposes of depreciation of the home is the FMV on the date the property is converted to rental use.
The taxpayer’s basis in gifted property is its FMV on the date of the gift if, at the time of the gift, the FMV is less than the donor’s basis in the gift.
When the executor of a decedent’s estate elects to use the alternative valuation date, the heir’s basis in inherited property is its FMV on the date it is distributed to the heir.
When depreciable business property and nonbusiness property are acquired in a single purchase for a lump sum, it is necessary to allocate the purchase price between the various properties acquired.
In a bargain purchase, the taxpayer’s basis in the property equals the fair market value (FMV)of the property.
Casualty loss deductions are an example of a capital recovery.
Which of the following items is not added back to AGI to arrive at modified AGI for purposes of computing the special deduction available to active participants in rental real estate?a. The deduction
Which of the following is a correct statement?a. The passive activity loss rules are applied before the at-risk rules.b. When rental expenses from property that qualifies as a “residence” exceed
Sam rents out his vacation home for 13 days during the year. How will Sam deduct the mortgage interest and depreciation from the home on his tax return?Interest Depreciationa. against rental income
Which of the following does not count as a personal day of use by the taxpayer (owner)?a. Use by a family member who pays a fair rental price to use the home for 21 days during the yearb. Donation of
Property qualifies as a “residence” when the taxpayer’s personal use days exceeds:a. 14 days.b. 10% of the days rented at fair rental.c. the greater ofa. or b.d. the lesser ofa. or b.
On August 1, 2014, Janice moved out of her home. On August 10, 2014, she placed an ad in the paper offering the home for rent. A tenant signed a one-year lease on December 1, 2014.The lease term runs
Which of the following is not a rental expense?a. Depreciationb. Utilitiesc. Maintenanced. Improvements
Which of the following would a cash basis taxpayer not report as rental income in 2014?a. Rent due in January 2015 that was received in 2014.b. A security deposit received in 2014 for a new 24-month
Rent received in advance is reported as income:a. in the year it is earned by (owed to) both cash and accrual basis landlords.b. in the year it is received by both cash and accrual basis landlords.c.
A dwelling unit would not include:a. an apartment.b. a motor coach.c. a mobile home.d. a hotel.
Taxpayers file one Form 8582 to report income and losses from their nonrental real estate passive activities, and a separate Form 8582 to report their income and losses from their rental real estate
When a taxpayer disposes of their entire interest in a passive activity, suspended losses from the activity are forever lost.
If the taxpayer is unable to demonstrate material participation in rental real estate activities, the taxpayer will not be able to deduct any losses from rental real estate activities against active
Active participation in an activity allows the taxpayer to deduct all losses from the activity against active or portfolio income.
Amounts borrowed for use in an activity count as amounts at-risk if the taxpayer pledges personal assets to back up the loan.
Taxpayers who own three rental properties complete only one Schedule E.
Individual taxpayers can rent out their homes for up to 14 days each year and not have to report the rental income on their tax returns.
A taxpayer who owns a duplex in which the taxpayer lives in one unit and rents out the other(identical) unit deduct 50% of the repairs made to the rental unit.
Furniture used in rental property is 7-year property for purposes of computing MACRS depreciation.
Cash basis taxpayers do not always deduct rental expenses in the year the expenses are paid.
Section 197 intangible property is amortized over:a. 15 years.b. its useful life.c. the lesser ofa. or b.d. the greater ofa. or b.
On June 28, 2010, a company placed in service an apartment building costing $1,000,000.If the building is sold on February 28, 2014, the formula used to compute the 2014 MACRS deduction is:a.
On May 1, 2013, Peter entered into a 5-year car lease. Peter’s monthly payments are $700, and he uses the car 60% for business. If the second year (2014) inclusion amount from the IRS table is $55,
On March 15, 2012, Madeline paid $30,000 for a used car that she uses 70% for business and 30% for personal use. Assuming the half-year convention applies, Madeline’s 2014 MACRS depreciation
During 2014, Photo, Inc. pays $217,000 for 7-year property. This was Photo’s only purchase in 2014. If Photo has $6,000 of taxable income from the business, what is the maximum amount of Section
The MACRS and ADS recovery periods for office copy machines:a. 5 and 5 years, respectively.b. 7 and 10 years, respectively.c. 7 and 5 years, respectively.d. 5 and 6 years, respectively.
On September 7, 2012, a company placed in service 5-year property. The MACRS basis used to depreciate the property is $100,000, and the mid-quarter convention applies to personal property placed in
On February 28, 2010, a company placed in service new furniture. This was the only property placed in service during the year. After subtracting out bonus depreciation, the MACRS basis in the
During the year, a corporation places in service two depreciable properties. In March, it places in service a machine that cost $100,000. In October, it places in service a warehouse that cost
On April 16, 2014, a company placed in service an office copier costing $20,000. This was the only property placed in service during the year. Section 179 was not taken on the copier. The formula to
Trademarks are always Section 197 intangibles.
The cost of off-the-shelf computer software is amortized over 36-months.
SUVs weighing over 6,000 pounds are not subject to the $25,000 Section 179 limit.
The business-use portion of listed property must be depreciated under the Alternative Depreciation System (ADS).
Straight-line MACRS uses the straight-line method over the same recovery period used in regular (accelerated) MACRS.
Section 179 is not allowed on purchases of used property.
Neither Section 179 nor bonus depreciation is allowed on listed property.
When computing the MACRS deduction in the year property is sold, the averaging convention(half-year, mid-quarter, mid-month) used in the year the property was placed in service is used.
From 2008-2013, (first-year) bonus depreciation was required to be taken on all purchases of new depreciable personal property placed in service during the year, unless the taxpayer made an election
When a business mistakenly claims too little depreciation, the taxpayer reduces the adjusted basis in the property by the correct amount of depreciation that should have been taken.
Ali is a self-employed. During 2014, Ali reports profits of $72,500 on Schedule C, and$10,244 of self-employment tax on Schedule SE. What is the maximum amount that Ali can contribute to a KEOGH plan
Barb, age 38, is self-employed. During the year, Barb reports $55,000 of profits on her Schedule C. What is the maximum amount Barb can contribute to her SIMPLE plan for 2014?a. $52,000b. $12,000c.
Denise is self-employed, and works exclusively from her home. She has a 260 square foot space in her room home that she uses regularly and exclusively as a home office. If Denise uses the safe harbor
In 2012, Sheila, a cash basis taxpayer, loaned her supplier $10,000. Sheila made the loan so that the supplier could stay in business and Sheila could keep her inventory near its normal levels.
Which of the following correctly states the proper tax treatment for the situation presented?a. A sole proprietor gives a business client four tickets to a sporting event, but does not attend the
Kat has a full-time job, but also runs a part-time business on the side. Kat’s social security wages during 2014 are $88,100, and she reports $40,000 of net profit on Schedule C. How much of
Jack, age 58, runs his own business. During 2014, Jack reports $135,685 of revenues and$87,167 of expenses on Schedule C. If Jack has no other sources of earned income, what amount of Jack’s
Which of the following retirement plans does not allow for an additional contribution after the employee turns 50?a. Simplified employee pension (SEP)b. 401(k)c. Savings incentive match plan for
Which of the following retirement plans for employees is funded entirely by employer contributions?a. Roth 401(k)b. Simplified employee pension (SEP)c. 401(k)d. Savings incentive matching plan for
Shea owns an exercise studio and uses the accrual method of accounting for her business.Shea sells a punch card for $1,000, which grants customers access to 100 Zumba classes over a 36-month period.
Sole proprietors who are also employees cannot use Short Schedule SE to compute their self-employment tax.
Taxpayers who use the safe harbor method for computing the home office deduction in one year can choose to use the actual operating costs of their home to compute their deduction in a later year.
Instead of requiring actual receipts to be submitted for reimbursement, sole proprietors can choose to reimburse their employees and themselves for meals and lodging using a per diem amount.
Amounts paid to employees from a nonaccountable reimbursement plan are deducted by a sole proprietor as wage expense on Schedule C.
Taxpayers can continue to use the percentage depletion method to compute depletion expense even after the entire cost in the property has been fully recovered through annual depletion deductions.
If Darion uses an accelerated depreciation method to compute his car and truck expense deduction under the actual cost method, he cannot use the standard mileage rate method on that same car to
Owners of multiple businesses combine the amounts for each line item and report the totals on a single Schedule C.
Amounts earned by a childcare provider are reported on Schedule C when the services are rendered in the parent’s home.
Accrual basis taxpayers can never spread prepaid income over more than two years.
Cash basis taxpayers deduct prepaid amounts in the year of the payment.

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