Federal tax course

1.Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2016. What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP) for the year?

2.

Mike owns a house that he rents out for $1,000 per month. His expenses for the 2016 tax year are as follows:

Real estate taxes	$ 1,300
Mortgage interest	4,400
Insurance	600
General repairs	640

Mike bought the property in September of 2007, and his basis for depreciation on the house is $137,500. He uses straight-line depreciation with a 27 -year life, so the depreciation on the house is $5,000. Mike does not use a property manager and handles all aspects of the rental activity himself.

a.	Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 12 months).
b.	Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

3.

Mike owns a house that he rents out for $1,000 per month. His expenses for the 2016 tax year are as follows:

Real estate taxes	$ 1,300
Mortgage interest	4,400
Insurance	600
General repairs	640

Mike bought the property in September of 2007, and his basis for depreciation on the house is $137,500. He uses straight-line depreciation with a 27 -year life, so the depreciation on the house is $5,000. Mike does not use a property manager and handles all aspects of the rental activity himself.

a.	Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 12 months).
b.	Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

4. Jeremy, age 38, has $25,000 in a traditional IRA account and is considering taking the money out to buy himself a new car. What will be the tax consequences to Jeremy if he withdraws the $25,000 from his IRA in 2016 for this purpose? Explain.

5. Donald owns a two-family home. He rents out the first floor and resides on the second floor. The following expenses attributable to the total building were incurred by Donald for the year ended December 31, 2016:

Real estate taxes	$ 1,800
Mortgage interest	1,600
Utilities	1,200
Repairs (first floor)	1,400
Painting (second floor)	400

In addition, the depreciation attributable to the entire building would be $2,000. What is the total amount of the expenses that Donald can deduct on Schedule E of Form 1040 (before any limitations)?

Select one:

a. $3,300

b. $3,850

c. $4,000

d. $4,700

e. None of the above

6. For purposes of the passive loss rules, income is classified into three separate categories. What are the three categories of individual income? Give an example of each. (1) (2) (3)