Question

14. Jim, single, took out a mortgage on his home for $590,000 five years ago. In September of this year, when the home had a fair market value of $620,000 and he owed $550,000 on the mortgage, he took out a home equity loan for $80,000. Will used the funds to purchase a yacht to be used for recreational purposes. What is the maximum amount of debt on which he can deduct home equity interest? a. $70,000. b. $80,000. c. $50,000. d. $30,000. e. None of the above.

15. Joie owned stock in Ace Corp that she donated to a university (a qualified charitable organization) on September 10, 2016. What is the amount of Joie’s charitable contribution deduction assuming that she had purchased the stock for $21,100 on October 1, 2013, and the stock had a value of $23,200 when she made the donation? a. $8,100. b. $20,100. c. $21,100. d. $23,200. e. None of the above

. ____ 16. In 2015, Pat invests $150,000 for a 20% partnership interest in an activity in which she is a passive participant. She has other passive income of $200,000 in 2015 and $100,000 in 2016.The partnership reports losses of $700,000 in 2015 and $500,000 in 2016. Pat’s share of the partnership’s losses is $140,000 in 2015 and $100,000 in 2016. How much of the losses can Pat deduct? a. $140,000 in 2015 and $100,000 in 2016. b. $200,000 in 2015 and $100,000 in 2016. c. $0 in 2015 and $0 in 2016. d. $140,000 in 2015 and $10,000 in 2016. e. None of the above. ____

17. Wilson, a computer lab manager, earns a salary of $80,000 and receives $30,000 in dividends and interest during the year. In addition, he incurs a loss of $10,000 from an investment in a non-real estate passive activity. His at-risk amount in the activity at the beginning of the year is $75,000. He has passive income of $5,000 from another investment.What is Wilson’s adjusted gross income for this year? a. $110,000. b. $85,000. c. $115,000. d. None of the above. ____

18. Mel, who is single and age 37, provides you with the following information from his financial records. Regular income tax liability $ 47,228 AMT positive adjustments 40,000 AMT preferences 20,000 Taxable income 190,000 Calculate his AMT exemption for 2015. a. $0. b. $23,450. c. $14,075. d. $48,450. e. None of the above. ____

19. Which of the following statements is true regarding the education tax credits? a. The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees. b. The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year. c. The American Opportunity credit is calculated per taxpayer, while the lifetime learning credit is available per eligible student. d. Continuing education expenses do not qualify for either education credit. e. None of the above statements is true.

____ 20. Which of the following correctly reflects current rules regarding estimated tax payments for individuals? a. Employees are not subject to the estimated tax payment provisions. b. Any penalty imposed for underpayment is deductible for income tax purposes. c. Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return. d. No quarterly payments are required if the taxpayer’s estimated tax is under $1,000. e. None of the above.

____ 21. Ally owns land with an adjusted basis of $610,000. Real estate taxes are $8,000 per calendar year and are payable on December 31. On April 2, 2016, Ally sells her land subject to the mortgage for $640,000 in cash, a note for $590,000, and property with a fair market value of $130,000. What is the amount realized? a. $1,360,000. b. $1,361972. c. $1,720,000. d. $1,722,219. e. None of the above.

____ 22. Al owns all of the stock of Shaow Corp. The current earnings and profits are $35,000. Al’ basis for his stock is $300,000. He receives a distribution of $340,000 on the last day of the tax year. How much dividend income and/or capital gain should Al report? a. Dividend income of $35,000. b. Dividend income of $35,000 and capital gain of $5,000. c. Dividend income of $25,000 and capital gain of $25,000. d. Dividend income of $0 and capital gain of $35,000. e. None of the above.

____ 23. Kam sells two personal use assets during the taxable year. A gain of $7,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset. What is the recognized gain or loss? a. $7,000. b. $5,000. c. $9,000. d. ($2,000). e. None of the above.

____ 24. Mey purchased a business from Jue for $1,200,000. Jue’s records and an appraiser provided her with the following data regarding the assets purchased: Adjusted Basis FMV Land $75,000 $175,000 Building 250,000 350,000 Equipment 65,000 75,000 What is Mey’s adjusted basis for the land, building, equipment and good will? a. Land $250,000, building $600,000, equipment $130,000, goodwill $220,000. b. Land $75,000, building $250,000, equipment $65,000, goodwill $0. c. Land $175,000, building $350,000, equipment $75,000, goodwill $600,000. d. Land $180,000, building $550,000, equipment $180,000, goodwill $290,000. e. None of the above.

____ 25. Juan received a gift of stock with an adjusted basis of $46,000 to the donor and fair market value of $38,000 on the date of gift. Juan then sold the property for $37,000. What is the recognized gain or loss? a. $3,000. b. ($2,000). c. ($5,000). d. ($1,000). e. None of the above.

Answer 1

15. C $21,100 = Deduction is goven for the price paid to buy the stock i.e. the purchase price and not the actual value of stock.

17. A $110,000 = No adjustment is done for passive income from the non-passive. So, AGI will be $80,000 + $30,000

23. B $5,000 = Loss on sale can be adjusted against the gain on sale of personal asset. Recognised gain = $7,000 - $2,000

25. D $(1,000) = When the gift is sold at a loss, then the recognised gain/loss is calculated as the difference between sale price and fair market value.