Reference no: EM132829982

Questions -

Q1) A taxpayer reported the following items this year:

Net Investment Income $4,500

Investment Interest expense 1,400

Fees Paid for investment advice 2,000

Safe deposit box rental fee 300 (used for investments)

What amount, if any, may the taxpayer deduct on Schedule A related to investment expenses for the current year?

A. $0

B. $1,400

C. $2,300

D. $3,700

Q2) An unmarried taxpayer with an adjusted gross income of $100,000 incurred and paid the following unreimbursed medical expenses for the year:

Doctors bills resulting from a serious fall $4,000

Cosmetic surgery that was necessary 15,000 to correct a congenital deformity

The taxpayer had no medical insurance. For regular income tax purposes, what is the taxpayer's maximum allowable medical expense deduction (if any) after the applicable threshold limitation?

A. $0

B. $5,000

C. $9,000

D. $19,000

Q3) Ruth and Mark Cline are married and will file a joint year 1 income tax return. Among their expenditures during year 1 were the following discretionary costs that they incurred for the sole purpose of improving their physical appearance and self-esteem:

Face-lift for Ruth, performed by a licensed surgeon $5,000

Hair transplant for Mark, performed by a licensed surgeon $3,600

Disregarding the adjusted gross income percentage threshold, what total amount of the aforementioned doctors' bills may be claimed by the Clines in their year 1 return as qualifying medical expenses?

A. $0

B. $3,600

C. $5,000

D. $8,600

Q4) A CPA uses a commercial tax software package to prepare clients' individual income tax returns. Upon reviewing a client's computer-generated itemized deductions for year 1, the CPA discovers that the schedule's deductible investment interest expense is less than the amount paid by the taxpayer and the amount that the CPA entered into the computer. After analyzing the entire tax return, the CPA determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct?

A. The client's qualified residence interest expense reduces the deductible amount of investment interest expense.

B. The client's total deduction for qualified residence mortgage interest and investment interest exceeds $10,000.

C. The client's investment interest expense is subject to a 10% AGI threshold.

D. The client's investment interest expense exceeds net investment income.

Q5) In 20X6, Wood's residence had an adjusted basis of $150,000 and it was destroyed by a tornado. An appraiser valued the decline in market value at $175,000. Wood's home was in an area declared a federal disaster area. Later that same year, Wood received $130,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Wood's 20X6 adjusted gross income was $60,000 and he did not have any casualty gains. What total amount can Wood deduct as a 20X6 itemized deduction for the casualty loss, after the application of the threshold limitations?

A. $39,000

B. $38,900

C. $19,900

D. $13,900

Q6) Upon retirement, an employee receives pension benefits in the form of an annuity that was paid for entirely by the employer. The portion of the benefits received that may be excluded from income is:

A. Based on a ratio of the amount paid by the employer divided by the expected benefits to be paid over the life of the annuity.

B. Zero.

C. Based on a ratio of the amount paid by the employee divided by the expected benefits to be paid over the life of the annuity.

D. Equal to the first payments received up to the total cost of the annuity.

Q7) The following pertain to Joyce in year 1:

Medical insurance premiums paid by employer: $ 4,800

Teacher of the Year Award, in the form of gift cards redeemable at local businesses: $ 500

Jewelry box, received from employer for 25 years of service (FMV): $ 100

Holiday bonus awarded in December year 1, to be paid in January year 2 $ 250

What total amount from the above may be excluded from Joyce's year 1 gross income?

A. $5,650

B. $350

C. $5,150

D. $850

Q8) Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year:

Wages $22,000

Unemployment compensation $6,000

Pension distribution (100% taxable) $4,000

A state tax refund from the previous year $425

What is Randolph's gross income?

A. $22,000

B. $28,425

C. $32,000

D. $32,425

Q9) Which of the following is excluded from gross income on an individual's year 4 tax return?

A. January 20X15 rent received in December year 4

B. Value arising from personal use of company vehicle in year 4

C. Dividends announced by a C Corporation in December year 3 and received in January year 4

D. Refundable security deposit received in January year 4 for a lease ending in July year 5

Q10) During the current year, an individual who owns 100% interest in two rental real estate properties reports the following items:

Loss from rental real estate Property A ($20,000) (materially participate and perform 800 hours of service)

Loss from rental estate Property B (activity participates) ($48,000)

Income from limited partnership (No material participation) $12,000

Income from dividends $15,000

What amount of the $68,000 loss may the taxpayer deduct this year?

A. $20,000

B. $27,000

C. $32,000

D. $47,000

Q11) Sandro turned 71 last year and made a $6,500 contribution to his Roth IRA His income for the year was $76,400. How much of the contribution can he deduct on his Form 1040?

A. $6,500

B. $5,500

C. $0, because it should be deducted on Schedule A

D. $0, because his contribution is non-deductible

Q12) An LLC exchanged an office building with a fair market value of $550,000 and an adjusted basis of $220,000 for a shopping center with a fair market value of $600,000. If the LLC paid an additional $50,000 to complete the exchange, what amount of gain, if any, would the LLC realize?

A. $0

B. $50,000

C. $330,000

D. $380,000

Q13) Which of the following is a capital asset?

A. Accounts receivable from the sale of inventory.

B. Depreciable property used in a trade or business.

C. U.S. Treasury bonds held for investment.

D. Unimproved land held-for-sale to be subdivided to build houses sold to the general public.

Q14) Lobster, Inc. incurs the following losses on disposition of business assets during the year:

Loss on the abandonment of office equipment $25,000

Loss on the sale of a building (straight-line depreciation taken in prior years $200,000) $250,000

Loss on the sale of delivery trucks $15,000

What is the amount and character of the losses to be reported on Lobster's tax return?

A. $40,000 Section 1231 loss only.

B. $40,000 Section 1231 loss, $50,000 long-term capital loss.

C. $40,000 Section 1231 loss, $250,000 long-term capital loss.

D. $290,000 Section 1231 loss.

Q15) The following apply to Simon, a single individual:

In July, year 2, Simon sold for $12,000 Section 1231 property acquired by Simon in December, year 1 for $7,000.

In February, year 2, Simon inherited from her parents Section 1244 stock, which had cost her parents $5,000 and was worth $10,000 at time of inheritance. Later in year 2, the stock became worthless.

In May, year 2, Simon sold for $17,000 Section 1231 property Simon had acquired in January, year 1for $10,000.

As a result of the above, what is Simon's net capital gain (loss)?

A. $0

B. $2,000

C. ($3,000)

D. $7,000