EXAM

1.For the year ended December 31, current year, David, a married taxpayer filing a joint return, reported the following:

Investment income from interest        $24,000

Investment expenses other than interest         4,000

Interest expense on funds borrowed in 2005 to purchase investment property         70,000

What is the maximum amount that David can deduct in the current year as investment interest expense?

$7,000

$20,000

$21,000

$24,000

5 points

Question 2

Charlie took a $7,000 distribution from his educational savings account and used $6,500 to pay for qualified higher education expenses. On the date of the distribution, his educational savings account had a $28,000 balance including the $21,000 he had contributed. How much of the $7,000 distribution is tax free?

$0

$7,000

$6,500

$6,875

5 points

Question 3

The expenses associated with the rental of a residence used for both personal and rental purposes are subject to three possible tax treatments. Which of the following is not included as one of the three?

If a residence is rented for fewer than 15 days during the year the rental period is disregarded and the residence is regarded as a personal residence for tax purposes.

If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as rental property.

If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.

If the residence is rented for 15 days or more and is used for personal purposes for more than 14 days or 10 percent of the days rented, whichever is greater, allocable rental expenses are allowed only to the extent of rental income.

5 points

Question 4

To be deductible, the cost of uniforms must be:

A required condition of employment and not be suitable for everyday use

A required condition of employment yet can be suitable for everyday wear

Required by the employer and written in their dress code

Voted on by the employees of the organization and later incorporated into the employee hand book

5 points

Question 5

In most cases, a taxpayer reports rental income and the related expenses on Schedule E.

True

False

5 points

Question 6

The American Opportunity credit

Is 50 percent of the first $1,200 of tuition and fees paid and 100 percent of the next $1,200

Is available for 2 years of post-secondary education

Is fully refundable even if the credit exceeds the tax liability

Is available for qualifying expenses paid on behalf of the taxpayer and his or her spouse, in addition to those paid for dependents

5 points

Question 7

American Opportunity and lifetime learning credits:

Can be added to the amount of any tax-free scholarships received to increase the amount of the credit

Can be taken for room and board as well as tuition

Can be used for tuition and fees

Can only be taken if the taxpayer is married filing a separate return

5 points

Question 8

Ashton paid the following interest expense during the current tax year:

Qualified home mortgage interest      $11,000

Credit card interest     1,000

Personal bank loan interest     3,000

What is the amount of Ashton's interest deduction for the current tax year?

$3,000

$11,000

$12,300

$15,000

5 points

Question 9

In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.

True

False

5 points

Question 10

Which of the following is not an itemized deduction on Schedule A?

Alimony paid

Casualty losses

Medical expenses

Personal property tax

5 points

Question 11

Mortgage interest on a taxpayer's personal residence is deductible on Schedule A.

True

False

5 points

Question 12

For the current tax year, Sally, who is divorced, reported the following items of income:

Interest income           $ 600

Wages4,000

Earnings from self-employment          3,000

She maintains a household for herself and her 1-year-old son who qualifies as her dependent. What is the maximum earned income credit available to her for the current year, using the tables?

$1,029

$1,369

$2,389

$3,169

13. Donald and Jamie rent out their residence in Dallas to friends for 10 days while they vacation in Europe. They collect $1,500 of rental income. How is the rental income treated on their tax return? Explain

14.Wilson and Joan , both in their 30's, file a joint income tax return for 2013. Wilson's wages are $25,000 and Joan's wages are $33,000 for the year. Their total adjusted gross income is $58,000, and Joan is covered by a qualified pension plan at work but Wilson is not.

a.                   What is the maximum amount that Wilson and Joan may each contribute to their Roth IRAs?

b.         If Joan's wages are $110,000 for 2013, instead of $33,000, and their adjusted gross income is $135,000, (1) what is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts, and (2) what is the maximum amount they could each contribute to Roth IRAs instead? (show all work and label each answer clearly)

15. Donald for 9 months and lives in his vacation home for the remainder of the year. His gross rental income for the current year is $7,200. The expenses attributable to the vacation home for the entire year are as follows:

Real estate taxes         $2,000

Interest on mortgage loan       4,000

Utilities           1,200

Repairs/maintenance   600

Depreciation    3,500

What amount would Donald report as net income or loss from the rental of the vacation home?

16. Phillip took a $1,500 distribution from his educational savings account and used $1,200 to pay for qualified education expenses. Before the distribution, Phillip's account balance was $4,000, of which $1,000 was earnings. Calculate the following:

a.       The tax-free return of capital

b.      His new adjusted basis for his savings account

c.       Distribution of earnings potentially subject to tax

d. The excludable portion of the earnings

e. The taxable portion of her earnings