1. Mortgage interest. A qualified residence for purposes of the itemized deduction for mortgage interest is defined as which of the following?

A. Principal residence only

B. Any residence

C. Principal residence and one other residence if selected by taxpayer

2. Residence definition. Bilbo owned a house in Rivendell. This year, Bilbo vacationed at the house for 10 days in March. Bilbos nephew, Frodo, had vacationed at the house for 20 days in January, paying Bilbo full rental value. Then, for the last 250 days of the year, Frodo moved into the house as his principal residence and again paid Bilbo full rental value. True or False: The house qualified as Bilbos residence.

A. True

B. False

3. Asset character. Desmond is a lawyer. A few years ago, he bought some undeveloped land in Santa Fe that he thought would increase in value in the future. He did not develop or rent out the land and he did not use it in a business. What is the character of this land?

A. Section 1231

B. Capital

C. Ordinary

4. Asset character. Buster runs a donut shop. He owns the land and building used in the donut shop business. What is the character of the land and building?

A. Section 1231

B. Ordinary

C. Capital

5. Asset character. Maxwell runs a real estate development enterprise that routinely sells single family homes to individuals. What is the character of these homes?

A. Section 1231

B. Ordinary

C. Capital

6. Hobby. Alberta very much enjoys oil painting, an avocation that she took up 2 years ago. This year, she spent $2,000 on painting lessons, $1,800 on supplies and $1,500 on business advice. This year, she sold her first painting: a landscape for $150. She claims that she intends to earn profits from painting and estimates she will be profitable within the next 4 years. As preparer of her tax return, you believe her but are looking for additional evidence of her intent to profit before you sign a return in which she claims her expenses on a Schedule C. Which of the following facts are helpful? (Choose all that apply.)

A. She kept detailed records of her expenses

B. She painted only when she could find time in her busy schedule as an advertising executive

C. She hired a reputed art gallery owner as a business advisor

7. Employee. Randy is a very experienced gardener who is capable of maintaining sophisticated public gardens. He has contracts with each of his clients that specify the terms of his engagement. Identify which of the following factors suggest that he should be classified as an employee of his primary client for tax purposes and which ones suggest that he should be classified as an independent contractor. Answer Employee or Contactor?

Prompt 1. Randy has one client for whom he works 30 hours per week and two others for whom he works only 2 hours per week

Prompt 1 Answer Employee or Contactor?

Prompt 2. Randy owns specialized gardening tools in which he has made a substantial investment

Prompt 2 Answer Employee or Contactor?

Prompt 3. Randy's primary client does not provide him with any benefits (such as health insurance)

Prompt 3 Answer Employee or Contactor?

Prompt 4. Randy's contract with his primary client specifies what days and what hours he is required to perform his work

Prompt 4 Answer Employee or Contactor?