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Exam 6: Deductions and Losses: in General

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Question 41

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How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

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Legal expenses are deductible when they ...

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Question 42

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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.

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Since the vacation home is rented for 15...

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Question 43

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Which of the following is a required test for the deduction of a business expense?

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000. Walter reinvests the proceeds in the stock market. Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. a. Determine the tax consequences to Walter. b. Determine the tax consequences to Shirley.

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states. During 2014, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia. She acquires the South Carolina operations, but not the outlets in Georgia. As to these expenses, Iris should:

The legal cost of having a will prepared is not deductible.

Under what circumstance can a bribe be deducted?

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value. She had paid $26,000 for the stock. Calculate Sandra's and Bob's gain or loss under the following circumstances: a. Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $18,000. b. Sandra sold the shares to Bob for $30,000. One year later, Bob sold them for $27,000. c. Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $28,000.

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

Graham, a CPA, has submitted a proposal to do the annual audit for a municipality. Owen, the city treasurer, tells Graham that for a $1,000 fee, he will use his influence to have the audit awarded to Graham. What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

Bridgett's son, Clyde, is $12,000 in arrears on his residential mortgage payments. Of the $12,000, $7,500 represents interest and $4,500 represents principal. a. If Bridgett pays the $12,000 to the lender, how much can she deduct? How much can Clyde deduct? b. If Bridgett pays the $7,500 of interest to the lender and loans or gives $4,500 to Clyde, who pays the $4,500 of principal, how much can Bridgett deduct? How much can Clyde deduct? c. If Bridgett gives or lends the $12,000 to Clyde who pays the lender, how much can he deduct? How much can Bridgett deduct? d. Advise Bridgett and Clyde on how the payment should be made.

The Code does not specifically define what constitutes a trade or business.

Are there any circumstances under which lobbying expenditures are deductible?

Briefly discuss the disallowance of deductions for capital expenditures.