Question

1.             Which of the following legal expenses are deductible in arriving at AGI (above the line) in 2018? A legal expense

a. incurred in connection with a trade or business        

b. incurred in connection with rental or royalty property held for the production of income.

c. incurred for tax advice relative to the preparation of an individual’s income tax return.

d. Only a. and b. qualify.

e. A, b., and c. qualify.

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

a. Whether the activity is enjoyed by the taxpayer.

b. The expertise of the taxpayers or their advisers.

c. The time and effort expended.

d. The relationship of profits earned and losses incurred.

e. All of the above are relevant factors.

3.           Velma and Bud divorced. Velma’s attorney fee of $5,000 is allocated as follows:

General representation in obtaining the divorce $1,500

Services in obtaining custody of the child 900

Services in settlement of martial property 600

Determining the tax consequences of:

Dependency deduction for child 700

Tax Consequences of property settlement 1,300

Of the $5,000 Velma pays to her attorney in 2018, the amount she may deduct as an itemized deduction is:

a. $0

b. $700

c. $2,000

d. $5,000

e. None of the above is correct.

4.             In 2018, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

a. Mark has a $5,000 capital loss deduction.

b. Mark has a $3,000 capital loss deduction.

c. Mark has a $13,000 net capital gain.

d. Mark has a $5,000 net capital gain.

e. Mark has an $18,000 net capital loss.

Answer 1

Question No. (1)

Answer -

Following legal expenses are deductible in arriving at AGI in 2018 -

A legal expense incurred in connection with a trade or business.

A legal expense incurred in connection with rental or royalty property held for the production of income.

Hence, Option - (d) is Correct.

.

Question No. (2)

Answer -

Option - (e) - All of the above are relevant factors, is Correct.

.

Question No. (3)

Answer -

Velma’s itemized deduction is $0, because legal fees that relate to tax advice are no longer deductible.

Hence, Option - (a) is Correct.

.

Question No. (4)

Answer -

There is a net short-term capital loss of $5000 ($18000 short-term capital loss - $7000 28% gain - $6000 0%/15% gain) of which $3000 is deductible for AGI as a capital loss deduction, as per U.S. Internal Revenue Service.

Hence, Option - (b) is Correct.