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Exam 6: Deductions and Losses: In General

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Question 81

True/False

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A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

A) True
B) False

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Question 82

Multiple Choice

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Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

A) A deduction for AGI.
B) A deduction from AGI, subject to the 2 percent floor.
C) A deduction from AGI, not subject to the 2 percent floor.
D) Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period.
E) Not deductible.

F) C) and D)
G) A) and D)

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Question 83

Multiple Choice

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Which of the following is incorrect?

Jacques, who is not a U.S. citizen, makes a contribution to the campaign of a candidate for governor. Cassie, a U.S. citizen, also makes a contribution to the same campaign fund. If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

Velma and Bud divorced. Velma's attorney fee of $5,000 is allocated as follows: Of the $5,000 Velma pays to her attorney in 2018, the amount she may deduct as an itemized deduction is:

The stock of Eagle, Inc. is owned as follows: Tom sells land and a building to Eagle, Inc. for $212,000. His adjusted basis for these assets is $225,000. Calculate Tom's realized and recognized loss associated with the sale.

Which of the following is a required test for the deduction of a business expense?

For a vacation home to be classified in the personal/rental use category, what attributes must be present?

Cory incurred and paid the following expenses in 2018: Calculate the amount that Cory can deduct (before any percentage limitations) .

Bruce owns several sole proprietorships. Must Bruce use the same accounting method for each of these businesses?

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

A hobby activity results in all of the hobby income being included in AGI and no deductions being allowed for hobby related expenses.

Sandra owns an insurance agency. The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2018.

Robin and Jeff own an unincorporated hardware store. They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0. Based on this policy, Robin and Jeff each receive a total salary of $125,000. This is paid as follows: $8,000 per month and $29,000 on December 31. Determine the amount of the salary deduction.

An advance payment received in June 2018 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

If a vacation home is classified as primarily personal use (i.e., rented for fewer than 15 days), none of the related expenses can be deducted.