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QUIZ 71. Bert resides in a nursing home primarily for medical reasons rather than personal reasons. Costs for meals and lodging can be included in determining his deductible medical expenses.

A) True

B) False

Points Earned: 2.0/2.0

2. Chad pays the medical expenses of his son, James. James would qualify as Chad’s dependent except that he earns $7,500 during the year. Chad may not claim James’ medical expenses because he is not a dependent.

A) True

B) False


3. During the year, Victor spent $300 on bingo games sponsored by his church. If all profits went to the church, Victor has a charitable contribution deduction of $300.

A) True

B) False


4. John gave $1,000 to a family whose house was destroyed by fire. John may claim a charitable deduction of $1,000 on his tax return for the current year.

A) True

B) False


5. Nancy had an accident while skiing on vacation. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her nose, which was not injured in the accident. The surgery to restore her appearance cost $12,000 and the surgery to reshape her nose cost $5,000. How much of

Nancy’s surgical fees will qualify as a deductible medical expense (before application of the 7.5% limitation)?

A) $0.

B) $5,000.

C) $12,000.

D) $17,000.

E) None of the above.


6. Larry and Beth are married and together have AGI of $80,000 in 2010. They have two dependents and file a joint return. They pay $3,000 for a high deductible health insurance policy and they contribute $2,400 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $7,500 in physician and dentist bills and hospital expenses, and $1,700 for prescribed medicine and drugs. In November 2010, they received an insurance reimbursement of $2,100 for hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2011. Determine the maximum deduction allowable for medical expenses in 2010.

A) $4,100.

B) $6,100.

C) $7,100.

D) $10,100.



7. Lonnie developed severe arthritis and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $28,000. The increase in the value of the residence as a result of the room addition was determined to be $12,000. In addition, Lonnie paid the contractor $5,000 to construct an entrance ramp to his home and $7,000 to widen the hallways to accommodate his wheelchair. Lonnie’s AGI for the year was $80,000. How much of these expenditures can Lonnie deduct as a medical expense?

A) $10,000.

B) $16,000.

C) $22,000.

D) $40,000.



8. David, a single taxpayer, took out a mortgage on his home for $300,000 nine years ago. In August of this year, when the home had a fair market value of $550,000 and he owed $225,000 on the mortgage, he took out a home equity loan for $350,000. David 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) $50,000.

B) $100,000.

C) $325,000.

D) $350,000.



9. Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter’s assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily’s deduction associated with this charitable activity?

A) $600.

B) $1,200.

C) $1,800.

D) $2,200.

E) $3,700.


10. Pat died this year. Before she died, Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization). The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000. In the year of her death, Pat had AGI of $300,000. In completing her final income tax return, how much of the charitable contribution should Pat’s executor deduct?

A) $90,000.

B) $150,000.

C) $180,000.

D) $210,000.



QUIZ 81. If a taxpayer receives reimbursement for a casualty loss sustained and deducted in a previous year, the total reimbursement must be included in gross income on the return for the year in which the reimbursement is received.

A) True

B) False


2. Research and experimental expenditures do not include expenditures for ordinary testing of materials for quality control.

A) True

B) False


3. A taxpayer must carry any NOL incurred back two years.

A) True

B) False


4. On June 2, 2009, Fred’s TV Sales sold Mark a large HD TV, on account, for $12,000. Fred’s TV Sales uses the accrual method. In 2010, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could expect to receive 60 cents on the dollar of the amount owed to him. In 2011, final settlement was made and Fred received $5,000. How much bad debt loss can Fred deduct and in which years?

A) 2009—$12,000.

B) 2009—$0; 2010—$8,000.

C) 2009—$0; 2010—$3,200; 2011—$0.

D) 2010—$4,800.



5. On September 3, 2009, Able purchased § 1244 stock in Red Corporation for $6,000. On December 31, 2009, the stock was worth $8,500. On August 15, 2010, Able was notified that the stock was worthless. How should Able report this item on his 2009 and 2010 tax returns?

A) 2009—$0; 2010—$6,000 ordinary loss.

B) 2009—$0; 2010—$6,000 long-term capital loss.

C) 2009—$2,500 short-term capital loss; 2010—$8,500 short-term capital loss.

D) 2009—$2,500 short-term capital gain; 2010—$3,800 ordinary loss.



6. On February 20, 2009, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2010, the stock became worthless. During 2010, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2010 tax return?

A) $4,000 long-term capital loss and $9,000 short-term capital loss.

B) $4,000 long-term capital loss and $3,000 short-term capital loss.

C) $8,000 ordinary loss and $3,000 short-term capital loss.

D) $8,000 ordinary loss and $5,000 short-term capital loss.

E) $8,000 long-term capital loss and $6,000 short-term capital loss.


7. In 2010, Wally had the following insured personal casualty losses (arising from one casualty). Wally also had $48,000 AGI for the year.

Fair Market Value InsuranceAsset Adjusted Basis Before After Recovery

A $9,200 $8,000 $1,000 $2,000B 3,000 4,000 –0– 500C 3,700 1,900 –0– 800

Wally’s casualty loss deduction is:

A) $4,100.

B) $4,500.

C) $8,600.

D) $9,500.



8. Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $400,000 in 2010. Ivory’s domestic production activities deduction is:

A) $24,000.

B) $36,000.

C) $40,000.

D) $54,000.



9. In 2010, Juan’s home was burglarized. Juan had the following items stolen:

Securities worth $15,000. Juan purchased the securities four years ago for $20,000. New tools which Juan had purchased two weeks earlier for $6,000. Juan uses the tools in

making repairs at an apartment house that he owns and manages. An antique worth $12,000. Juan inherited the antique (a family keepsake) when the property

was worth $9,000.

Juan’s homeowner’s policy had a $50,000 deductible clause for thefts. If Juan’s salary for the year is $60,000, determine the amount of his itemized deductions as a result of the theft.

A) $3,100.

B) $6,000.

C) $23,100.

D) $23,500.



10. Regarding research and experimental expenditures, which of the following are not qualified expenditures?

A) Costs of improving an existing pilot model.

B) Costs to develop a plant process.

C) Costs of developing a formula.

D) Costs of purchasing a building to be used for research.



QUIZ 91. Under the MACRS mid-quarter convention, an asset sold on December 10 will be treated as though it were sold on November 15 for a calendar year taxpayer.

A) True

B) False


2. The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used in a trade or business is $25,000.

A) True

B) False


3. Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk. If the business incurs a $32,000 loss from operations during the year, this loss will be fully deductible.

A) True

B) False


4. On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $70,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

A) $70,000.

B) $90,000.

C) $120,000.

D) $140,000.



5. Hazel purchased a new business asset (five-year property) on November 30, 2010, at a cost of $100,000. This was the only asset acquired by Hazel during 2010. On January 7, 2011, Hazel placed the asset in service. She did not elect to expense any of the asset cost under § 179, nor did she elect straight-line cost recovery. If Congress reenacts additional first-year depreciation for 2010, Hazel did elect not to take additional first-year depreciation. On October 25, 2012, Hazel sold the asset. Determine the cost recovery for 2012.

A) $9,600.

B) $16,000.

C) $26,000.

D) $38,000.



6. On June 1, 2010, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) If Congress reenacts additional first-year depreciation for 2010, James does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2010.

A) $1,776.

B) $1,836.

C) $6,576.

D) $8,000.



7. On November 1, 2010, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $500,000 of the purchase price to a patent. The patent will expire in seven years. Determine the total amount that Red may amortize for 2010 for the patent.

A) $0.

B) $5,556.

C) $33,333.

D) $500,000.



8. On January 15, 2010, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Vern incurred expenses during 2010 of $500,000. The percentage depletion rate is 22%. Determine Vern’s depletion deduction for 2010.

A) $150,000.

B) $175,000.

C) $176,000.

D) $200,000.

E) $250,000.


9. In 2010, Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant. The LLC reported losses of $340,000 in 2010 and $180,000 in

2011. Joanne’s share of the LLC’s losses was $68,000 in 2010 and $36,000 in 2011. How much of these losses can Joanne deduct?

A) $68,000 in 2010, $36,000 in 2011.

B) $68,000 in 2010, $22,000 in 2011.

C) $0 in 2010, $0 in 2011.

D) $68,000 in 2010, $0 in 2011.



10. Nick, an attorney, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business.

A) If Nick participates for 500 hours and the employee participates for 520 hours during the year, Nick qualifies as a material participant.

B) If Nick participates for 600 hours and the employee participates for 1,000 hours during the year, Nick qualifies as a material participant.

C) If Nick participates for 120 hours and the employee participates for 120 hours during the year, Nick does not qualify as a material participant.

D) If Nick participates for 95 hours and the employee participates for 5 hours during the year, Nick probably does not qualify as a material participant.



Quiz 101. Albert purchased a tract of land for $140,000 in 2006 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2010 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2010?

A) $40,000.

B) $60,000.

C) $80,000.

D) $100,000.



2. Alicia buys a beach house for $325,000 which she uses as her personal vacation home. She builds an additional room on the house for $45,000. She sells the property for $450,000 and pays $22,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

A) $0.

B) $54,000.

C) $80,000.

D) $99,000.



3. Kimmy sells her personal use automobile for $19,000. She purchased the car three years ago for $35,000. What is Kimmy’s recognized gain or loss?

A) $0.

B) $19,000.

C) ($16,000).

D) ($35,000).



4. Which of the following statements is correct?

A) Realized gains on the sale of personal use assets are taxable.

B) Realized losses on the sale of personal use assets are disallowed.

C) If a personal use asset is sold at a realized gain and another personal use asset is sold at a realized loss, the gain is taxable and the loss is disallowed.

D) Only a. and b. are correct

E) a., b., and c. are correct.


5.

Which of the following qualify as a like-kind exchange?

A) Inventory of a retail hardware store for inventory of a plumbing wholesaler.

B) Investment land for a building to be used in a trade or business.

C) General partnership interest for a limited partnership interest.

D) Rental house for a house to be used as a principal residence.



6. Shontelle received a gift of income-producing property with an adjusted basis of $50,000 to the donor and fair market value of $40,000 on the date of gift. Gift tax of $6,000 was paid by the donor. Shontelle subsequently sold the property for $45,000. What is the recognized gain or loss?

A) $5,000.

B) $4,000.

C) ($5,000).

D) ($11,000).



7. Al owns stock with an adjusted basis of $100,000 and a fair market value of $300,000. He gives the stock to Jane on July 1, 2009. When Jane dies, the fair market value of the stock is $900,000. Jane’s will provides that Al is to receive the stock. Which of the following is false?

A) If Jane dies on June 1, 2010, Al’s basis for the stock is $100,000.

B) If Jane dies on August 1, 2010, Al’s basis for the stock is $900,000.

C) If Jane dies on June 15, 2010, Al’s basis is $300,000.

D) If Jane dies on July 1, 2010, Al’s basis is $100,000.

E) All of the above are true.


8. Kahil exchanges a drill press that is used in his business for another drill press. The old drill press had an adjusted basis of $5,000 and the new drill press has a fair market value of $30,000. What is Kahil’s recognized gain or loss and the basis of the new drill press?

A) $0 and $5,000.

B) $0 and $30,000.

C) $25,000 and $5,000.

D) $25,000 and $30,000.



9. In October 2010, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange. Ben bought his real estate in 2000 while Jerry purchased his in 2003. In addition to the realty, Jerry receives Pearl, Inc. stock worth $10,000 from Ben. Jerry’s realized gain is $25,000. On what date does the holding period for Jerry’s realty received from Ben begin? When does the holding period for the stock he receives begin?

A) 2000, 2010.

B) 2000, 2000.

C) 2003, 2003.

D) 2003, 2010.



10. Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000 which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya’s realized and recognized gain?

A) $310,000 realized and $310,000 recognized gain.

B) $310,00 realized and $0 recognized gain.

C) $110,000 realized and $110,000 recognized gain.

D) $110,000 realized and $0 recognized gain.



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