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 41

True/False

Review LaterAdd Note

Review Later

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Payments by a cash basis taxpayer of capital expenditures:

A) Must be expensed at the time of payment.
B) Must be expensed by the end of the first year after the asset is acquired.
C) Must be deducted over the actual or statutory life of the asset.
D) Can be deducted in the year the taxpayer chooses.
E) None of these.

F) D) and E)
G) A) and E)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

Al is single, age 60, and has gross income of $140,000.His deductible expenses are as follows: $\begin{array} { l r } \text { Alimony(divorce finalized in 2017) } & \$ 20,000 \\\text { Charitable contributions } & 4,000 \\\text { Contribution to a traditional IRA } & 5,500 \\\text { Expenses paid on rental property } & 7,500 \\\text { Interest on home mortgage and property taxes on personal residence } & 7,200 \\\text { State income tax } & 2,200\end{array}$ What is Al's AGI?

Generally, a closely held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Rachel operates a sole proprietorship that earns $200,000 of qualified business income after deducting salaries of $60,000.The sole proprietorship is not a specified service business.She files a single tax return for 2019.Assume her taxable income before the QBI deduction is $230,000.Rachel's QBI deduction for 2019 is:

Which of the following is not a related party for constructive ownership purposes under § 267?

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM, only $1 million is deductible.

Investment related expenses, such as paying a fee to an investment manager, generally are deductions from adjusted gross income in 2019.

Marge sells land to her adult son, Jason, for its $20,000 appraised value.Her adjusted basis for the land is $25,000. Marge's recognized loss is $5,000, and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized lossof Marge).

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

Only under limited circumstances can a loss on the sale of a personal use asset be deducted.

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

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation? $\begin{array} { l l r } \text { Income } & & \$ 200,000 \\\text { Expenses: } & & \\& \text { Rent } & 8,000 \\& \text { Utilities } & 2,000 \\& \text { Bribes to police } & 10,000 \\& \text { Office supplies } & 5,000 \\& \text { Legal fees } & 20,000 \\& \text { Depreciation } & 14,000 \\& \text { Illegal kickbacks } & 15,000\end{array}$

Rex, a cash basis calendar year taxpayer, runs a bingo operation that is illegal under state law.During 2019, a bill designated H.R.9 is introduced into the state legislature, which, if enacted, would legitimize bingo games.In 2019, Rex had the following expenses: $\begin{array} { l r } \text { Operating expenses in conducting bingo games } & \$ 247,000 \\\text { Payoff money to state and local police } & 24,000 \\\text { Newspaper ads supporting H.R. } 9 & 3,000 \\\text { Political contributions to legislators who support H.R. 9 } & 8,000\end{array}$ Of these expenditures, Rex may deduct:

Which of the following may be deductible in 2019?

All domestic bribes (i.e., to a U.S.official) are disallowed as deductions.

Purchased goodwill must be capitalized but can be amortized over a 60-month period.

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

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of the shareholder-employee's gross income but results in an increase in the taxable income of the corporation.

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