Question

1,On an involuntary conversion, gain is recognized to the extent of the lower of gain realized or the proceeds not used for replacement.
True    False

2. If married taxpayers live in their personal residence for more than two years, the couple can exclude a maximum of $250,000 on the gain from the sale of the residence.
True    False

3. Xavier is a self-employed plumber. His earnings from self-employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his deductible Keogh contribution for 2019?

A) $16,000.

B) $20,000.

C) $54,000.

D) $64,000.

Answer 1

1) False because: gain is not reported if the property received is similar or related in service or use to the converted property. The basis for the new property is the same as the basis for the converted property. The gain on the involuntary conversion is deferred until a taxable sale or exchange occurs/

2. False Because the limit of $250,000 is per person so the maximum exclusion that a couple can get excluded is $500,000

3) B) $20,000 is the right answer because the keogh contribution allows the lower value of 25% of salary or $56,000 to be contributed. 25% of 80,000 = $20000