FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Deductions and Losses in General

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

Essay

Review LaterAdd Note

Review Later

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.

Correct Answer

verified

Since the vacation home is rented for 15...

View Answer

Show Answer

Question 62

Essay

Review LaterAdd Note

Review Later

If part of a shareholder/employee's salary is classified as unreasonable,determine the effect on the: a.Shareholder/employee's gross income. b.Corporation's taxable income.

Correct Answer

verified

a.The reclassification of part of a shar...

View Answer

Show Answer

Question 63

Essay

Review LaterAdd Note

What losses are deductible by an individual taxpayer?

An expense need not be recurring in order to be "ordinary."

Bob and April own a house at the beach.The house was rented to unrelated parties for 8 weeks during the year.April and the children used the house 12 days for their vacation during the year.After properly dividing the expenses between rental and personal use,it was determined that a loss was incurred as follows: Gross rental income $4,000 Less: Mortgage interest and property taxes $3,500 Other allocated expenses 2,000 (5,500) Net rental loss ($1,500) ​ What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable?

Melba incurred the following expenses for her dependent daughter during the current year: Payment of principal on daughter's automobile loan $3,600 Payment of interest on above loan 2,900 Payment of daughter's property taxes 1,800 Payment of principal on daughter's personal residence loan 2,800 Payment of interest on daughter's personal residence loan 7,000 ​ How much may Melba deduct in computing her itemized deductions?

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

Which of the following is not deductible?

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

While she was a college student,Angel lived by a bookstore located near campus.She thinks a bookstore located on the other side of campus would be successful.She incurs expenses of $42,800 (legal fees,accounting fees,marketing survey,etc. )in exploring its business potential.Her parents have agreed to loan her the money required to start the business.What amount of these investigation costs can Angel deduct if: a.She opens the bookstore on August 1,2016. b.She decides not to open the bookstore.

Are all personal expenses disallowed as deductions?

Describe the circumstances under which a taxpayer can receive rent income from a personal residence,but does not have to report it as gross income.

Only some employment related expenses are classified as deductions for AGI.

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

Which of the following is not a "trade or business" expense?

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

Agnes operates a Christmas Shop in Atlantic City,NJ.She makes a weekend trip to Vero Beach,FL,for the purpose of determining the feasibility of opening another shop.Her travel expenses are $2,000 (includes $500 for meals).In addition,she pays $5,000 to a market research firm in Vero Beach to prepare a feasibility study.Determine the amount of the expenses that Agnes can deduct if: a.She opens a new shop in Vero Beach. b.She decides not to open a new shop in Vero Beach.

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

Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.