Question 1

Juanita knits blankets as a hobby and sells them.In the current year,she earns $5,000 from her blanket sales and incurs expenses of $600.Juanita does not itemize deductions.On her tax return,she should

Accepted Answer

The answer of Juanita knits blankets as a hobby and...

Question 2

For the years 2009 through 2013 (inclusive)Max,a surgeon,has been involved in raising poodles.Only in 2012 and 2013 did his revenue exceed the expenses from the activity.Which statement is correct?

Accepted Answer

The answer of For the years 2009 through 2013 (inclusive)Max,a...

Question 3

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as:

Accepted Answer

The houseboat is rented for 280 days, making it a rental property. Vanessa's personal use of the property for 25 days falls within the IRS guidelines for personal use of a rental property. Expenses in excess of income can be deducted, subject to passive activity rules.

Question 4

Erin,Sarah,and Timmy are equal partners in EST Partnership.Sarah also owns 40% of Elton Corporation.The remaining shareholders of Elton Corporation are: Erin (24%)and Sarah's uncle (36%).What percent ownership does Sarah directly or constructively own in Elton Corporation?

Accepted Answer

Sarah directly owns 40% of Elton Corporation, and constructively owns 24% of Elton Corporation through her ownership in EST Partnership (which owns 24% of Elton Corporation). Therefore, Sarah's total ownership in Elton Corporation is 40% + 24% = 64%.

Question 5

Which of the following individuals is not considered a relative for purposes of the loss disallowance rules under Sec.267?

Accepted Answer

The answer of Which of the following individuals is not...

Question 6

Victor,a calendar year taxpayer,owns 100 shares of AB Corporation stock,which was purchased three years ago for $5,000.Victor sells all 100 shares on December 27,of the current year,for $4,000 and on January 5,of the following year,purchases 60 shares of AB Corporation stock.Victor's recognized loss will be

Accepted Answer

The answer of Victor,a calendar year taxpayer,owns 100 shares of...

Question 7

Rob sells stock with a cost of $3,000 to his daughter for $2,200,which is its fair market value.Later the daughter sells the stock for $3,200 to an unrelated party.Which of the following describes the tax treatment to Rob and Daughter?

Accepted Answer

Rob will have a capital loss of $800 ($2,200 - $3,000) but cannot deduct it because the sale was to a related party (his daughter). 
Daughter will have a capital gain of $1,000 ($3,200 - $2,200) which will be reported on her tax return.

Question 8

Kyle drives a race car in his spare time and on weekends.His records regarding this activity reflect the following information for the year.  What is the allowable deduction (before any AGI limitation)for depreciation assuming that this activity is not engaged in for profit and Kyle can itemize his deductions?

Accepted Answer

Since the activity is not engaged in for profit, no deduction is allowed for expenses, including depreciation. However, if Kyle can itemize his deductions, he can deduct up to $1,400 of the expenses as a miscellaneous itemized deduction on Schedule A. The deduction is subject to a 2% floor of adjusted gross income, so if Kyle's AGI is less than $70,000, the allowable deduction is $1,400.

Question 9

Abby owns a condominium in the Great Smokey Mountains.During the year,Abby uses the condo a total of 21 days.The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500.Abby incurs the following expenses:  Using the IRS method of allocating expenses,the amount of depreciation that Abby may take with respect to the rental property will be

Accepted Answer

The answer of Abby owns a condominium in the Great...

Question 10

For the years 2009 through 2013 (inclusive)Mary,a best-selling author,has been involved in operating an antique store.In 2009,2010 and 2011 her revenue exceeded the expenses from the activity.In 2012 and 2013,the antique store generated a loss.Which statement is correct?

Accepted Answer

According to the IRS, if an activity generates income for three out of the past five years, it is presumed to be a business. In this case, Mary's antique store generated revenue for three consecutive years from 2009 to 2011, which means it is presumed to be a business. However, the IRS can still challenge this presumption and argue that it is actually a hobby, especially given the two consecutive years of losses in 2012 and 2013. Therefore, option C is the correct answer.

Question 11

Bart operates a sole proprietorship for which he uses the accrual method of accounting.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Bart's business in November 2013.In December,Bart received a billing statement from Samantha for $5,000.Bart paid Samantha the $5,000 in January 2014.Samantha is a calendar year taxpayer.When may Bart deduct the $5,000?

Accepted Answer

Since Bart uses the accrual method of accounting, he may deduct the $5,000 in the tax year in which the expense was incurred, which is 2014 when he paid Samantha. The fact that Samantha is Bart's sister does not disallow the deduction.

Question 12

Dana purchased an asset from her brother for $15,000.Her brother's basis was $20,000.If Dana sells the asset to an unrelated party for $12,000,she will recognize

Accepted Answer

Dana's basis for the asset would be her brother's basis of $20,000. If she sells it for $12,000, she would recognize a loss of $8,000 ($12,000 - $20,000). However, since her purchase price was only $15,000, she can only recognize a loss up to the amount of her basis, which is $15,000. Therefore, she would recognize a loss of $3,000 ($15,000 - $12,000).

Question 13

Jason sells stock with an adjusted basis of $66,000 to JJ Inc.,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be

Accepted Answer

The answer of Jason sells stock with an adjusted basis...

Question 14

Which of the following factors is not used to determine whether an activity is a hobby or a business?

Accepted Answer

D)Success in dissimilar activities would not be relevant.

Question 15

Ashley,a calendar year taxpayer,owns 400 shares of Yale Corporation stock that she purchased two years ago for $4,000.In the current year Ashley sells all 400 shares of the Yale Corporation stock for $2,400 on December 27.On January 4 of the following year,Ashley purchases 300 shares of Yale Corporation stock for $800.Ashley's recognized loss and her basis in the newly purchased 300 shares of Yale Corporation stock are

Accepted Answer

The answer of Ashley,a calendar year taxpayer,owns 400 shares of...

Question 16

Donald sells stock with an adjusted basis of $38,000 to his son,Kiefer,for its fair market value of $30,000.Kiefer sells the stock three years later for $32,000.Kiefer will recognize a gain on the subsequent sale of

Accepted Answer

The answer of Donald sells stock with an adjusted basis...

Question 17

Samuel,a calendar year taxpayer,owns 100 shares of R Corporation common stock which was purchased two years ago for $3,600.Samuel sells all 100 shares on December 27 of the current year for $1,000.On January 4 of the following year,Samuel purchases 40 shares of R Corporation preferred stock.Samuel's recognized loss will be

Accepted Answer

The answer of Samuel,a calendar year taxpayer,owns 100 shares of...

Question 18

Abigail's hobby is sculpting.During the current year,Abigail sold three of her sculptures for a total of $3,200.Her related expenses include $1,500 in utilities,$1,200 in supplies and $900 in depreciation.Of the total expenses incurred,Abigail may deduct

Accepted Answer

C)Since the activity is classified as a hobby,hobby expenses are deductible to the extent of hobby income of $3,200.Further,they are deducted in a specific order-those that are otherwise allowable such as property taxes and interest; those related to the activity other than those that decrease basis; and those that reduce basis (depreciation).

Question 19

Sheila sells stock,which has a basis of $12,000,to her daughter for $7,000,the stock's fair market value.Subsequently,the daughter sells the stock to an unrelated party for $5,000.Which of the following is true for the Sheila and the Daughter?

Accepted Answer

The answer of Sheila sells stock,which has a basis of...

Question 20

Mackensie owns a condominium in the Rocky Mountains.During the year,Mackensie uses the condo a total of 23 days.The condo is also rented to tourists for a total of 77 days and generates rental income of $10,900.Mackensie incurs the following expenses in the condo:  Using the court's method of allocating expenses,the amount of depreciation that Mackensie may take with respect to the rental property will be

Accepted Answer

The answer of Mackensie owns a condominium in the Rocky...

Quiz 12: Deductions and Losses