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Exam 6: Deductions and Losses: in General

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Question 1

Multiple Choice

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On January 2,2017,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life,a covenant not to compete for 10 years,and goodwill. ​ Of the purchase price,$140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2017?

A) $10,667.
B) $16,000.
C) $20,000.
D) $32,667.
E) None of the above.

F) A) and C)
G) None of the above

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Question 2

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If a vacation home is classified as primarily personal use,part of the maintenance and utility expenses can be allocated and deducted as a rental expense.

A) True
B) False

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Question 3

Multiple Choice

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Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year.The rental income is $6,000 and the expenses are as follows: ​ Using the IRS approach,total expenses that Robyn can deduct on her tax return associated with the beach house are:

Which of the following may be deductible?

Which of the following is not deductible?

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:

Marvin spends the following amounts on a house he owns: ​ a.How much of these expenses can Marvin deduct if the house is his principal residence? b.How much of these expenses can Marvin deduct if he rents the house to a tenant? c.Classify any deductible expenses as deductions for AGI or as deductions from AGI.

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $36,000.The lease commences on October 1,2017.How much of the $36,000 payment can she deduct in 2017 and 2018? a.If Mella is an accrual basis taxpayer? b.If Mella is a cash basis taxpayer?

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

The legal cost of having a will prepared is not deductible.

Assuming an activity is deemed to be a hobby,discuss the order and limits in which expenses must be deducted.

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

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

The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

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 under the court's approach and the IRS's approach.