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Exam 17: Tax Consequences of Personal Activities

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Question 51

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Lori owns a vacation home that she rents out for about three months each year. Her deduction for expenses allocable to the rental periods is limited to her gross rental income.

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Question 52

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Mia inherited $1 million from her deceased grandfather. Mia must include the inheritance in gross income.

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Question 53

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Polly received the following items this year. Compute Polly's gross income.

Which of the following statements about divorce settlements is false?

Mr. and Mrs. Perry own three personal residences, all of which are subject to an acquisition mortgage. The mortgage on the first residence is $290,000, the mortgage on the second residence is $400,000, and the mortgage on the third residence is $357,000. Which of the following statements is true?

Mr. Jain paid the following taxes this year. Compute Mr. Jain's itemized deduction for taxes.

Mr. and Mrs. Darwin sold their principal residence on September 12, 2014, and purchased and moved into a new residence three weeks later. They properly excluded their $353,000 gain realized on this sale from gross income. On October 2, 2015, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?

Carl had $2,000 gambling winnings and $8,400 gambling losses this. Carl must include $2,000 in gross income and can deduct $8,400 as an itemized deduction.

Jenna Leigh is employed as a receptionist for a CPA firm, but on evenings and weekends, she bakes wedding cakes. In each of the past four years, Jenna's baking activity resulted in a net profit. This year, the activity generated a $720 net loss. Which of the following statements is true?

Damage to a personal residence by a tornado is an example of a casualty loss.

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

Recipients of the Nobel Peace Prize must include the prize in gross income.

On February 1, 2015, Alan, a single individual, purchased his first personal residence for $400,000. On July 1, 2015, Alan sold this residence for $460,000 because he wanted to rent a newly constructed condominium. Consequently, Alan occupied the home for only 150 days. How much gain must Alan recognize?