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Exam 6: Deductions and Losses: in General

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Question 41

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None of the prepaid rent paid on November 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

A) True
B) False

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Question 42

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Mattie and Elmer are separated and are in the process of obtaining a divorce.They incur legal fees for their respective attorneys with the expenses being itemized as follows: Although there is no requirement that he do so,Elmer pays Mattie's lawyer as a gesture of the positive feelings he still has for her.

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Question 43

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Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

A vacation home at the beach which is rented for 170 days and used personally for 16 days is classified in the personal/rental use category.

If an activity involves horses,a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

Bridgett's son,Hubert,is $10,000 in arrears on his residential mortgage payments.Of the $10,000,$7,500 represents interest and $2,500 represents principal.

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).

During the year,Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest,$3,000; real estate taxes,$1,500; utilities,$800; maintenance,$500; and depreciation,$4,000.Compute Martin's allowable deductions for the vacation home.

Trade of business expenses are classified as deductions for AGI.Section 212 expenses,barring certain exceptions,are classified as deductions from AGI.What are these exceptions?

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use on November 1,2012.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

Depending on the nature of the expenditure,expenses incurred in a trade or business may be deductible for or from AGI.

Larry,a calendar year cash basis taxpayer,has the following transactions: Based on this information,Larry has:

If a residence is used primarily for personal use (rented for fewer than 15 days per year) ,which of the following is correct?

In determining whether an activity should be classified as a business or as a hobby,the satisfaction of the presumption (i.e.,profit in at least 3 out of 5 years)ensures treatment as a business.

A taxpayer who claims the standard deduction cannot also deduct expenses that are classified as deductions from AGI.

Janice is single,had gross income of $38,000,and incurred the following expenses: Her AGI is:

Nikeya sells land (adjusted basis of $120,000) to her adult son,Shamed,for its appraised value of $95,000.Which of the following statements is correct?