1. Jacob and Chloe are married and together have AGI of $30,000. They have two dependents and file a joint return. Each pays $1,200 for hospitalization insurance. During the year, they paid the following amounts for medical care: $7,000 in doctor and dentist bills and hospital expenses, and $1,700 for prescribed medicine and drugs. In December, they received an insurance reimbursement of $2,700 for hospitalization. Determine the deduction allowable for medical expenses paid during the year. a. $11,100. b. $9,150. c. $8,850. d. $6,150. e. None of the above. ACC 3300 - Federal Income Tax for Individuals Final Exam (Chap 10-18) Name: ________________________________________ (Questions worth 2% each) Please write your answer below using CAPITAL LETTERS. (i.e. A, B, C, D, E) 1.__ 2. 3. 4. 5. 6. 7. 8.. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 3.7. 38. 39. 40. 41. 1 42. 43. 44. 45. 46. 47. 48. 49. 50. Choose the best answer for each of the following questions: 1. Jacob and Chloe are married and together have AGI of $30,000. They have two dependents and file a joint return. Each pays $1,200 for hospitalization insurance. During the year, they paid the following amounts for medical care: $7,000 in doctor and dentist bills and hospital expenses, and $1,700 for prescribed medicine and drugs. In December, they received an insurance reimbursement of $2,700 for hospitalization. Determine the deduction allowable for medical expenses paid during the year. a. b. c. d. e. $11,100. $9,150. $8,850. $6,150. None of the above. 2. Samuel and Lopita, married taxpayers, took out a mortgage on their home for $150,000 in 2004. In May of 2010, when the home had a fair market value of $175,000 and they owed $100,000 on the mortgage, they took out a home equity loan for $120,000. They used the funds to purchase a single engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which they can deduct home equity interest? a. $75,000. b. $100,000. c. $120,000. d. $175,000. e. None of the above. 3. Which of the following items would be a miscellaneous itemized deduction on Schedule A of Form 1040 not subject to the 2 percent of AGI floor? a. b. c. d. e. Investment expenses under 212. Professional dues. Tax return preparation fees. Unreimbursed employee expenses. None of the above. 2 4. In 2010, Israel, the sole proprietor of a video rental store, pays a $4,000 premium for medical insurance for himself and an additional $5,000 for his family. Emily, one of Israel's employees, pays a $4,000 premium for a medical insurance policy for herself. Which of the following statements is true? a. b. c. d. e. Israel may deduct $9,000 as a deduction from AGI. Israel may deduct $4,000 as a deduction for AGI. Emily may deduct $4,000 as a deduction for AGI. Israel may deduct $9,000 as a deduction for AGI. None of the above. 5. Upon the recommendation of a physician, Joshua has a dust elimination system installed in his personal residence. He suffers from severe allergies. In connection with this system, Joshua incurs and pays the following amounts during the current year: Dust elimination system and cost of installation $7,000 Increase in utility bills due to the system 400 Cost of certified appraisal 500 The system has an estimated useful life of 5 years. The appraisal was to determine the value of Joshua's residence with and without the system. The appraisal states that the system increased the value of Joshua's residence by $3,000. Disregarding percentage limitations, how much of the above expenditures qualify for the medical expense deduction in the current year? a. $7,900. b. $7,400. c. $4,500. d. $4,400. e. None of the above. 6. In 2010, Aaron pays $3,000 to become a charter member of Western University's Athletic Council. The membership ensures that Aaron will receive choice seating at all of Western's home football games. Also in 2010, Aaron pays $600 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? a. b. c. d. e. $0. $600. $2,400. $3,000. None of the above. 3 7. Eric owns five activities. He elects not to group them together as a single activity under the "appropriate economic unit" standard. He participates for 100 hours in Activity A, 140 hours in Activity B, 240 hours in Activity C, 99 hours in Activity D, and 120 hours in Activity E. Which of the following statements is correct? a. b. c. d. e. Eric is a material participant with respect to Activities A, B, C, D, and E. Eric is a material participant with respect to Activities B, C, and E only. Activities A, B, C, D and E are all significant participation activities. Activities B, C and E are all significant participation activities. None of the above. 8. Wanda owns four separate activities. She elects not to group them together as a single activity under the \"appropriate economic unit\" standard. Wanda participates for 111 hours in Activity A, 155 hours in Activity B, 115 hours in Activity C, and 120 hours in Activity D. She has one employee, who works 400 hours in Activity D. Which of the following statements is incorrect? a. Losses from all of the activities can be used to offset Wanda's active income. b. Wanda is a material participant with respect to Activities A, B, C, and D. c. Wanda is a material participant with respect to only Activity D. d. Activities A, B, C, and D are all significant participation activities. e. None of the above statements is correct. 9. Sally sells a passive activity with an adjusted basis of $145,000 for $225,000. Suspended losses attributable to this property total $35,000. The total gain and the taxable gain are: a. $80,000 total gain; $80,000 taxable gain. b. $45,000 total gain; $45,000 taxable gain. c. $80,000 total gain; $0 taxable gain. d. $80,000 total gain; $45,000 taxable gain. e. None of the above. 10. Sycamore Corporation, a closely held nonpersonal service corporation, has $300,000 of passive losses, $240,000 of active business income, and $40,000 of portfolio income. How much of the passive loss may Sycamore Corporation deduct? a. $0. b. $40,000. c. $240,000. d. $300,000. e. None of the above. 4 11. Andrew, who is single, has $95,000 of salary, $60,000 of income from a limited partnership, and a $79,000 passive loss from a real estate rental activity in which he actively participates. His modified adjusted gross income is $95,000. Of the $79,000 loss, how much is deductible? a. $-0-. b. $19,000. c. $25,000. d. $79,000. e. None of the above. 12. Paul owns five activities. He elects not to group them together as a single activity under the "appropriate economic unit" standard. He participates for 100 hours in Activity A, 145 hours in Activity B, 125 hours in Activity C, 105 hours in Activity D, and 126 hours in Activity E. Which of the following statements is correct? a. Activities A, B, C, and E are all significant participation activities. b. Paul is a material participant with respect to Activities B, C, D, and E only. c. d. e. Paul is a material participant with respect to Activities A, B, C, D, and E. Activities A, B, C, D and E are all significant participation activities. None of the above. 13. Stevie, who is single, owns a personal residence in the city. He also owns a townhouse near the ocean. He uses the townhouse as a vacation home. In March 2010 he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile. During 2010, he paid the following amounts of interest: on his personal residence on the townhouse on the home equity loan on credit card obligations $14,000 7,000 5,000 4,000 What amount, if any, must Stevie recognize as an AMT adjustment in 2010? a. $0. b. $4,000. c. $5,000. d. $9,000. e. None of the above. 5 14. In 2010, Tito has a $65,000 loss on a passive activity for regular income tax purposes. For AMT purposes, his loss is $55,000. The amount of the AMT adjustment resulting from the passive activity loss is: a. $0. b. $10,000 negative adjustment. c. $10,000 positive adjustment. d. $55,000. e. None of the above. 15. Which of the following is a positive adjustment for AMT? a. Standard deduction. b. Real property taxes. c. Student loan interest. d. All of the above. e. None of the above. 16. Which of the following is not an itemized deduction allowed for AMT purposes? a. Gambling losses. b. Charitable contributions. c. Property tax on realty. d. Medical expenses in excess of 10 percent of AGI. e. None of the above are correct. 17. Several years ago, Freddie purchased a structure for $50,000 that was originally placed in service in 1929. In the current year, he incurred qualifying rehabilitation expenditures of $100,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts: a. $10,000 credit, $90,000 basis. b. $10,000 credit, $100,000 basis. c. $10,000 credit, $150,000 basis. d. $20,000 credit, $8,000 basis. e. None of the above. 6 18. Sidney is in the process this year of constructing a new office building for her business and has learned that current Federal Regulations require the structure to be accessible to handicapped individuals. Therefore, she incurs an additional $16,250 for various features, such as ramps and widened doorways, to make her office building more accessible. The $16,250 incurred will produce a disabled access credit of what amount? a. $0. b. $1,000. c. $5,000. d. $8,000. e. None of the above. 19. During the year, Panther Corporation (a U.S. corporation) has U.S. source income of $6,000,000 and foreign source income of $2,000,000. The foreign source income generates foreign income taxes of $1,000,000. The U.S. income tax before the foreign tax credit is $2,800,000. Panther Corporation's foreign tax credit is: a. b. c. d. e. $250,000. $700,000. $933,333. $1,000,000. None of the above. 20. Nick and Bethany are married and file a joint tax return claiming their two children, ages 12 and 9 as dependents. Their AGI for 2010 is $112,000. Nick and Bethany's child tax credit for 2010 is: a. $0. b. $1,800. c. $1,900. d. $2,000. e. None of the above. 7 21. Bryce and Shay are married, file a joint tax return, have AGI of $145,000, and have two children. McKenzie is beginning her freshman year at Public University during Fall 2010, and Cindy is beginning her senior year at Southwestern University during Fall 2010 after having completed her junior year during the spring of that year. Both McKenzie and Cindy are claimed as dependents on their parents' tax return. McKenzie's qualifying tuition expenses and fees total $7,500 for the fall semester, while Cindy's qualifying tuition expenses and fees total $9,250 for each semester during 2010. Full payment is made for the tuition and related expenses for both children during each semester. What amount of education tax credit should be taken for these higher education costs? a. $-0- b. $2,500 c. $4,000 d. $5,000 e. None of the above. 22. In describing FICA taxes for self-employed taxpayers, which (if any) of the following statements is correct? a. Self-employed taxpayers are allowed an income tax deduction for all of the self-employment tax paid. b. Self-employed taxpayers are allowed a deduction from net earnings from self-employment at the full self-employment rate in determining the self-employment tax. c. Individuals with net earnings of $400 or more from self-employment are subject to the tax. d. Self-employed taxpayers pay only the employer's one-half portion of the tax. e. None of the above. 23. Samuel purchased a tract of land for $150,000 in 2008 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $250,000. Highway engineers surveyed the property and indicated that he would probably get $200,000. The highway project was abandoned in 2010 and the value of the land fell to $100,000. What is the amount of loss Samuel can claim in 2010? a. b. c. d. $0. $50,000. $100,000. $150,000. e. None of the above. 24. Robin purchases land for $110,000. He incurs legal fees of $1,000 associated with the purchase. He subsequently incurs additional legal fees of $4,000 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $150,000. What is Robin's basis for the land and the improvements? a. $110,000. b. $260,000. c. $261,000. d. $265,000. e. None of the above. 8 25. Ricardo purchases a business for $1,000,000. The fair market value of the assets of the business is as follows: Equipment $ 500,000 Building 400,000 What is Ricardo's cost basis in each asset? a. $500,000 equipment, $400,000 building, $0 goodwill. b. $550,000 equipment, $250,000 building, $0 goodwill. c. $500,000 equipment, $400,000 building, $100,000 goodwill. d. $571,428 equipment, $428,572 building, $0 goodwill. e. None of the above. 26. Miriam received nontaxable stock rights on June 4, 2010. She allocated $12,000 of the $60,000 basis for the associated stock to the stock rights. The stock rights expire on August 14, 2010. What is Miriam's recognized loss on the expiration of the stock rights? a. $0. b. $12,000. c. $60,000. d. $72,000 e. None of the above. 27. Harlow owned the following lots of Pansy Corporation stock. Purchase date No. of shares Basis October 1, 2007 50 $ 4,500 February 8, 2008 50 5,500 100 12,000 September 5, 2008 On October 12, 2010, 100 shares of stock were sold for $14,000. Harlow did not specifically identify the shares of stock sold. What is the recognized gain or loss? a. $0. b. $2,000. c. $3,000. d. $4,000. e. None of the above. 9 28. Lucy gives her sister a machine to use in her business with a fair market value of $10,500 and a basis in Lucy's hands of $9,500. What is the sister's basis for depreciation (cost recovery)? a. $0. b. $1,000. c. $9,500. d. $10,500. e. None of the above. 29. Joyce exchanges a machine used in her trade or business for another machine. In addition, she gives 200 shares of Alpha Corporation stock which have a fair market value of $38,000 and a basis of $29,000. The old machine has an adjusted basis of $36,000 and the new machine has a fair market value of $100,000. What is the recognized gain or loss and the basis of the new machine? a. b. c. d. e. $26,000 and $74,000. $9,000 and $74,000. $26,000 and $100,000. $9,000 and $100,000. None of the above. 30. In order to qualify for like-kind exchange treatment: a. The form of the transaction must be an exchange. b. Both the property transferred and the property given must be held for productive use in a trade or business or for investment. c. The property must be like kind. d. All of the above. e. None of the above. 31. In regard to nontaxable exchanges which, if any, of the following is correct? a. Neither realized gains or losses are recognized. b. Realized gains are not recognized but realized losses are recognized. c. Realized gains and losses are recognized. d. Realized losses are not recognized but realized gains are recognized. e. None of the above. 32. Taxpayer receives stock as a gift from his nephew. The adjusted basis of the stock is $15,000 and the fair market value is $37,000. Taxpayer trades the stock for bonds with a fair market value of $35,000 and $2,000 cash. What is his recognized gain and the basis for the bonds? a. $2,000, $17,000. b. $0, $15,000. c. $2,000, $15,000. d. $22,000, $35,000. e. None of the above. 10 33. On October 1, Tabitha exchanged an apartment building (adjusted basis of $675,000 and subject to a mortgage of $325,000) for another apartment building owned by Edwin (fair market value of $950,000 and subject to a mortgage of $325,000). The property transfers were made subject to the outstanding mortgages. What amount of gain should Tabitha recognize? a. $0. b. $50,000. c. $225,000. d. $275,000. e. None of the above. 34. Cedar, Inc., owns a delivery truck which initially cost $30,000. After depreciation of $25,000 had been deducted, the truck was traded-in on a new truck that cost $50,000. Cedar was required to pay the car dealer $20,000 in cash. What is Cedar's basis for the new truck? a. $0. b. $25,000. c. $50,000. d. e. $75,000. None of the above. 35. A nonbusiness bad debt held for 18 months is treated: a. As an ordinary loss. b. As a short-term capital loss. c. As a 25% long-term capital loss. d. As a long-term capital loss. e. None of the above. 36. Walnut Company signs a 15-year franchise agreement with Cookie Company. Cookie Company retained significant powers, rights, and a continuing interest. Walnut (the franchisee) makes noncontingent payments of $25,000 per year for the first five years of the franchise. Walnut Company also pays a contingent fee of 2% of gross sales every month. Which of the following statements is correct? a. Walnut Company may deduct the $25,000 per year noncontingent payments in full as they are made. b. Walnut Company may deduct the monthly contingent fee as it is paid. c. Walnut Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. d. Walnut Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. e. None of the above. 11 37. On September 10, 2010, an investor purchased 1,000 shares of Melon Corporation for $10,000. On July 2, 2011, the stock became worthless. What is the recognized gain or loss and how is it classified? a. $3,000 STCL. b. $10,000 STCL. c. $3,000 LTCL. d. $10,000 LTCL. e. None of the above. 38. Sophia purchased for $8,700 a $10,000 bond when it was issued two years ago. Sophia amortized $300 of the original issue discount and then sold the bond for $9,500. Which of the following statements is correct? a. Sophia has $1,100 of long-term capital gain. b. Sophia has $800 of long-term capital gain. c. Sophia has $500 of long-term capital gain. d. Sophia has $800 long-term capital loss. e. None of the above. 39. Anthony lives in an apartment building and has a two-year lease that began eleven months ago. His landlord is willing to pay Anthony $3,000 to vacate the apartment immediately. The landlord wants to sell the building to a buyer who will convert the building into condominiums. Anthony's lease on the apartment is a capital asset, but has no tax basis. The $3,000 Anthony will receive if he accepts the landlord's offer will be: a. A long-term capital gain. b. A short-term capital gain. c. An ordinary gain. d. A short-term capital loss. e. Excludible from gross income. 40. Gerard has a NLTCG of $20,000 and a NSTCL of $30,000. What is Gerard's 2010 capital loss deduction if Gerard's adjusted gross income for 2010 (before considering capital asset transactions) is $60,000? a. $30,000. b. $20,000. c. $10,000. d. $3,000. e. None of the above. 12 41. Jamie elects to treat the cutting of timber as a sale or exchange under 1231. Jamie purchased the land for $100,000 and the timber for $125,000 several years ago. On the first day of 2010, the timber was appraised at $220,000 and in September 2010 it was cut and sold for $275,000. What is Jamie's ordinary income from this transaction? a. $0. b. $55,000. c. $95,000. d. $150,000. e. None of the above. 42. Which of the following is 1231 property? a. Property where casualty losses exceed casualty gains for the taxable year. b. Property not held for the long-term holding period. c. Property held for sale to customers. d. Purchased intangibles. e. None of the above. 43. An individual has a $40,000 1245 gain, a $65,000 1231 gain, a $45,000 1231 loss, a $30,000 1231 lookback loss, and a $90,000 long-term capital gain. The net long-term capital gain is: a. $155,000. b. $125,000. c. $100,000. d. $90,000. e. None of the above. 44. Which, if any, of the following is correct regarding 1245 recapture? a. It applies to the total amount of depreciation allowed or allowable regardless of the depreciation method used. b. It applies to gains but not losses. c. It applies regardless of the holding period of the property. d. All of the above. e. None of the above. 45. A retail building used in the trucking business of a sole proprietor is sold on February 10, 2010 for $300,000. It had been acquired in 1992 for $275,000. Straight-line depreciation of $175,000 had been taken on the property. What is the maximum unrecaptured 1250 gain from this disposition after considering depreciation recapture? a. $0. b. $100,000. c. $175,000. d. $275,000. e. None of the above. 13 46. The HAT Partnership has three corporate partners with taxable years and ownership interests in the venture as follows: Partner H Inc. A Inc. T Inc. Tax Year Ending April 30 October 31 November 30 Interest in Partnership 30% 40% 30% a. b. c. A partnership must use the calendar year to report its income. The partnership can elect to use a November year end. Under the least aggregate deferral calculations, using a fiscal year ending October 31 will result in an aggregate deferral of .30 (1 X .30) with respect to T and 1.8 (6 X .30) with respect to H. d. The partnership must use an October 31st year end since A Inc. has the largest ownership interest. e. None of the above. 47. Which of the following is not an exception to the accrual method of reporting requirement for corporations? a. A corporation with average annual gross receipts for the most recent three-year period of $5 million or less. b. A tax shelter. c. A farming business. d. A qualified personal service corporation. e. None of the above. 48. Justin sold land for $200,000 plus a note for $400,000. The interest rate on the note was equal to the Federal rate. The fair market value of the note was $400,000. His basis in the land was $75,000. a. If Justin is an accrual basis taxpayer and does not use the installment method to report the gain, his gain in the year of sale is $525,000 ($200,000 + $400,000 - $75,000). b. If Justin is a cash basis taxpayer, he cannot use the installment method to report the gain. c. If Justin is a cash basis taxpayer and uses the installment method, the contract price is $400,000. d. If Justin is a cash basis taxpayer, his gain in the year of the sale is $125,000 ($200,000 - $75,000). e. None of the above. 49. In 2010, Jackie sold land to her son Horatio for $100,000 cash and an installment note for $400,000. Jackie's adjusted basis was $200,000. In 2011, after paying $10,000 interest but nothing on the 14 principal, Horatio sold the land for $625,000 cash. As a result of the second disposition, what gain must Jackie recognize in 2011? a. $400,000. b. $200,000. c. $240,000. d. $60,000. e. None of the above. 50. Which, if any, of the following transactions will accelerate the gain on an installment note? a. Contributions of capital to a partnership. b. Transfers by gift. c. Transfers due to taxpayer's death. d. Transfers pursuant to tax-free incorporations. e. None of the above. 15