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Exam 17: Tax Consequences of Personal Activities

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Question 41

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Ben received a $5,000 tuition scholarship from his local community college. He can exclude the $5,000 from gross income.

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Question 42

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Which of the following tax payments is allowed as an itemized income tax deduction?

A) Federal gift tax
B) Payroll tax on wages paid to a housekeeper
C) Social Security tax withheld from salary
D) Local property tax on personal automobile

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Question 43

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Taxpayers include a maximum of 85% of Social Security benefits in gross income.

Mr. and Mrs. Oliva incurred the following unreimbursed medical expenses this year. If the Olivas' AGI is $23,200, compute their medical expense deduction.

Mr. Lightfoot owns three mortgaged residences that he occupies at different times of the year. He can treat the interest paid on only one mortgage as qualified residence interest.

Mr. and Mrs. Allen made the following interest payments. Determine their deduction for each payment. a. $28,000 on a $400,000 acquisition mortgage secured by their personal residence b. $5,000 on a $60,000 second mortgage secured by their personal residence. The Allens used the proceeds to pay off credit card debt and take a second honeymoon. c. $2,400 on credit card debt d. $1,500 on a bank loan incurred to purchase a new family car e. $1,890 on an unsecured bank loan incurred to pay for a new roof on their personal residence

Which of the following items is included in the recipient's gross income?

Mr. and Mrs. Nguyen reported $70,200 AGI and were allowed a $6,400 itemized medical expense deduction this year. Compute their medical expense deduction for alternative minimum tax (AMT) purposes.

Mr. and Mrs. Hunt have the following allowable itemized deductions this year. Determine the effect on the amount of each deduction if the Hunts engage in a transaction generating $10,000 additional AGI this year.

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Sue, a single taxpayer, purchased a principal residence in 2001 for $415,000. In 2005, she paid $18,000 to add a sunroom. This year, Sue sold the residence for $686,000. Her selling expenses were $5,000. How much gain must Sue recognize on the sale?

Ms. Ruang owns a principal residence subject to an $817,000 acquisition mortgage. The home has an $875,000 appraised FMV. What is the maximum home equity debt that Ms. Ruang could incur for federal tax purposes?

Gary is a successful architect who also sings at weddings. This year, he received $5,400 fees from his singing and spent $6,250 on singing lessons, sheet music, and travel to the weddings. If Gary reports this activity as a hobby for federal tax purposes, which of the following statements is true?

The cost of commuting to and from a place of employment is a nondeductible personal expense.

Which of the following government transfer payments is included in the recipient's gross income?

Which of the following statements about the tax consequences of gambling is true?

Which of the following deductions is disallowed in the computation of alternative minimum taxable income (AMTI) ?

A child of divorced parents is considered a dependent of the parent with custody unless that parent agrees to allow the noncustodial parent to claim the dependency exemption.

Tax return preparation fees are miscellaneous itemized deductions subject to the 2% AGI floor.

Which of the following items is not included in the recipient's gross income?