50 questions
yoplym
homework_4.docx1. In 2014, Amber invested $40,000 in a cattle-feeding partnership that used nonrecourse
notes to purchase $30,000 of feed, which was used to feed the cattle and expensed. If
Amber’s share of the expense was $50,000, what is the most that Amber can deduct in
2014?
a. $10,000
b. $30,000
c. $40,000
d. $50,000
2. David, a corporate executive, exercised an incentive stock option (“ISO”) granted by
David’s employer to purchase 10,000 shares of the corporation’s stock at the option
price of $1 per share (i.e., the exercise price was $1 per share). The stock is freely
transferable. At the time the option was exercised, the stock was selling for $51 per
share. What is the AMT adjustment that results from David exercising the ISO
(assume that David will NOT dispose of any of the stock during the year)?
a. $0
b. $10,000
c. $500,000
d. $510,000
3. Sam, a single parent, lives in an apartment with Sam’s TWO minor children
each under age 11, whom Jeanette supports. For 2014, Sam will have AGI and
earned income of $19,000. Calculate the amount, if any, of Sam’s earned income
credit.
a. $5,460
b. $5,214
c. $2,000
d. $0
4. Adam and Eve are married and file a joint return. In 2014, Eve worked
fulltime and earned $19,000, while Adam worked fulltime and earned $21,000.
Assume their 2014 AGI equaled $40,000. Assume they incurred $11,000 of child
care expenses during 2014 for their THREE dependent children Catherine,
Mairovis and Maidelin (who are 2, 4 and 6 years old, respectively). What is their
child and dependent care CREDIT amount?
a. $1,320
b. $3,000
c. $6,000
d. $11,000
5. In 2007, Freda received stock from Eva worth $20,000 at the time of the GIFT. At
the time of the gift, Eva’s adjusted basis in the stock was $30,000. What is the gain
or loss that Freda should report for 2014 if she sold the stock to Valerie in 2014 for
$45,000 (ignore any gift tax that may have been paid on the transfer from Eva to
Freda)?
a. There is no gain or loss
b. $45,000 gain
c. $25,000 gain
d. $15,000 gain
6. Now, assume that in the previous question Freda sold the stock to Valerie for $5,000
(instead of $45,000). What is the gain or loss that Freda should report (again, ignore
any gift tax that may have been paid on the transfer from Eva to Freda)?
a. There is no gain or loss
b. $5,000 gain
c. $15,000 loss
d. $25,000 loss
7. Now, assume that in Question 5 Freda sold the stock to Valerie for $25,000 (instead
of $45,000). What is the gain or loss that Freda realized on the sale to Valerie
(again, ignore any gift tax that may have been paid on the transfer from Eva to
Freda)?
a. There is no gain or loss
b. $5,000 loss
c. $5,000 gain
d. $25,000 gain
8. Obaku traded in office equipment with an adjusted basis of $10,000 (and value of
$25,000) for other (like-kind) office equipment then valued at $15,000. Obaku also
received $10,000 in cash as part of the deal. What was Obaku’s recognized gain on
the exchange, if any?
a. $0
b. $10,000
c. $15,000
d. $25,000
9. Matthew traded in computer equipment with an adjusted basis of $22,000 (and a
value of $22,000) for other (like-kind) computer equipment then valued at $12,000.
Matthew also received $10,000 in cash as part of the deal. What was Matthew’s
realized gain on the exchange, if any?
a. $0
b. $10,000
c. $12,000
d. $22,000
10. In 2014, Tana and Danny sold a house to Babajide for $850,000. Prior the 2014 sale,
neither Tana nor Danny had ever excluded a gain from the sale of a personal
residence. Tana and Danny had lived in the house for the last five years and used it
exclusively for personal purposes. Tana and Danny had purchased the house for
$250,000. Tana and Danny started living in the house immediately after purchasing
it and never made any capital improvements to the house or took any depreciation
(or other deductions) against it. Assume there were no selling expenses. How much
of a gain did Tana and Danny realize on the sale to Babajide (assume that Tana and
Danny are married and file a joint return)?
a. $850,000
b. $600,000
c. $50,000
d. $0
11. Assume the facts stated in the previous question. How much of a gain must Tana
and Danny recognize on the sale to Babajide?
a. $850,000
b. $600,000
c. $50,000
d. $0
12. In 2014, Estela will have taxable income of approximately $40,000. In 2014, Estela
will also have a long-term capital loss of $14,000. Estela has no other capital gains
or losses (in 2014 or prior years). For 2014, what is the maximum capital loss
amount that Estela may use to offset her other income?
a. $0
b. $3,000
c. $11,000
d. $14,000
13. Assume the facts stated in the prior question. Assume further that for 2014 Estela
offset her wages (with her capital loss) to the maximum extent permitted by law.
What is the amount of Estela’s capital loss carryover to 2015?
a. $0
b. $3,000
c. $11,000
d. $14,000
14. Glori is a single taxpayer in the 35% tax bracket. Glori wants to minimize her 2014
tax liability. Which of the following provides the LARGEST tax benefit to Glori
(assume that she may legally take advantage of each item in its entirety for 2014)?
a. A $5,000 deduction from adjusted gross income
b. A $10,000 deduction from gross income
c. A $1,000 tax credit
d. Options “b” and “c” would provide the same amount of tax benefit
15. What was the MAXIMUM EARNED INCOME CREDIT amount that Christopher
and Ellice could possibly take for 2014? Assume they are U.S. taxpayers filing a
joint return with ONE qualifying child.
a. $0
b. $1,000
c. $3,000
d. $3,305
16. Which item MOST resembles an interest free loan from the U.S. government?
a. The American Opportunity tax credit
b. The earned income credit
c. The child tax credit
d. First-time homebuyer credit for a closing that occurred in June of 2008
17. In early 2014, Amy sold her personal residence to Myrtho for $500,000. At the time
of the sale, Amy’s adjusted basis was $200,000. Within three months of the sale,
Amy moved into a new residence she purchased for $600,000. What is Amy’s basis
in her new residence?
a. $200,000
b. $300,000
c. $550,000
d. $600,000
18. Which of the following is TRUE?
a. When compared to deferrals, exclusions are more permanent in nature
b. Section 1031 provides for an elective deferral upon certain exchanges
c. When compared to exclusions, deferrals are more permanent in nature
d. All of the above
19. Catherine’s business property (located in Rizwan County USA) was condemned by
the proper local authorities. Immediately before the condemnation, the property
had a fair market value of $400,000 and Catherine’s adjusted basis in the property
was $200,000. The local authorities replaced Catherine’s condemned property with
similar Rizwan County property having a fair market value of $300,000. What is
Catherine’s realized gain or loss relating to these matters?
a. $0
b. Gain of $300,000
c. Gain of $100,000
d. Loss of $100,000
20. Assume the facts stated in the prior question. What is Catherine’s recognized gain
or loss relating to such matters?
a. $0
b. Gain of $300,000
c. Gain of $100,000
d. Loss of $100,000
21. Assume the facts stated in the prior two questions. What is Catherine’s basis in the
Rizwan County property she received as a result of the condemnation (i.e., what is
Catherine’s basis in the newly acquired property)?
a. $0
b. $200,000
c. $300,000
d. $400,000
22. In 2014, Mairovis and Kevin sold a house to Jose for $700,000. Mairovis and Kevin
had purchased the house for $800,000 in 2005 (during the real estate boom).
Mairovis and Kevin started living in the house immediately after purchasing it and
never made any capital improvements to it or took any depreciation (or other
deductions) against it. Assume there were no selling expenses. How much of a
LOSS may Mairovis and Kevin recognize on the sale to Jose (assume that Mairovis
and Kevin are married and file a joint return and itemize deductions)?
a. $100,000
b. $100,000 less 10% of their AGI
c. $99,900 less 10% of their AGI
d. $0
23. Santosh purchased land for $70,000 in 1988. The land was valued at $1,000,000 on
June 1, 2014, when Santosh died. Santosh’s relative Jean inherited the land. What
basis would Jean have in the land as a result of the inheritance?
a. $0
b. $70,000
c. $1,000,000
d. Santosh’s adjusted basis on June 1, 2014 (if different than $70,000)
24. Assume the same facts stated in the previous question. Which of the following is
most likely TRUE, if Jean sold the land in September 2014 for $1,200,000?
a. Jean’s 2014 gain is short-term
b. Jean’s 2014 gain is long-term
c. In 2014, Jean should “recapture” any depreciation previously taken by Santosh on
the land
d. In 2014, Jean will be taxed on the appreciation that occurred while Santosh held
the land (provided that such appreciation was previously not taxed)
25. Which of the following statements is most likely TRUE for Joel (a typical individual
taxpayer in the 35% tax bracket)?
a. Joel usually prefers ordinary losses to capital losses
b. Joel usually prefers ordinary income to long-term capital gains
c. Joel usually prefers a $200 credit to a $1,000 deduction
d. Both “a” and “b” are correct
26. Matthew, who owns and operates an ICE CREAM SHOP as a sole proprietor, has
the following property:
STOCKS held for Matthew’s investment
Elaborate ice cream making EQUIPMENT that was inherited from Maidelin
(Matthew’s grandmother) (it is used exclusively in the ICE CREAM SHOP)
CHAIRS that are used exclusively in Matthew’s home
a COMPUTER used exclusively in the ICE CREAM SHOP
Considering the above items, which option below lists the capital asset(s) under
Section 1221?
a. Only the STOCKS
b. Only the STOCKS & CHAIRS
c. Only the EQUIPMENT, CHAIRS & COMPUTER
d. Each of the above assets is a capital asset under Section 1221
27. Obaku recently purchased a piece of land, a building and a truck for a lump sum of
$1,000,000. The fair market value of the land was $500,000, the fair market value of
the building was $650,000, and the fair market value of the truck was $50,000.
What is Obaku’s basis in the TRUCK?
a. $0
b. $41,667
c. $50,000
d. $333,333
28. On September 1, 2001, Jose paid $550 for 1,000 shares of TXX-5761 Inc. common
stock. On August 13, 2014, Jose received a nontaxable 10% common stock dividend
(i.e., 100 additional shares of identical common stock). On August 13, 2014, TXX-
5761 Inc. the common stock was trading on the market for $10 a share. On October
15, 2014, Jose sold the 100 shares he received on August 13, 2014 to Joel. What is
the basis of the 100 shares Jose sold to Joel?
a. $1,000
b. $55
c. $50
d. $0
29. Refer to the facts stated in the prior question. Any gain resulting from the October
15, 2014 sale to Joel will most likely be:
a. Short-term
b. Long-term
c. Both short-term and long-term
d. Neither short-term nor long-term
30. In 2014, Veronica sold a piece of equipment from Veronica’s business for $400,000.
The equipment was purchased in 2010 for $240,000. Assume total of $168,000
depreciation was taken (prior to the sale). What is Veronica’s recognized gain on
the sale?
a. $400,000
b. $328,000
c. $168,000
d. $160,000
31. Refer to the facts stated in the prior question. What amount of the gain (at least)
will be recaptured at Veronica’s ordinary income rate?
a. $400,000
b. $328,000
c. $168,000
d. $160,000
32. Refer to the facts stated in the prior two questions. What amount of the gain will be
treated as Section 1231 gain and (possibly) taxed at the long-term capital gain rate?
a. $400,000
b. $328,000
c. $168,000
d. $160,000
33. Which of the following is most likely Section 1245 property (assume that each item
has been held long-term and is used in a trade or business)?
a. Office Equipment
b. Inventory
c. Office Building
d. Land
34. Which of the following would MOST LIKELY require an adjustment for the
alternative minimum tax?
a. A gambling loss
b. A charitable contribution deduction
c. A deduction for state income taxes
d. Each of the above items requires an adjustment for the alternative minimum tax
35. Which of the following is most likely Section 1231 property (assume that each item
has been held long-term and is used in a trade or business)?
a. Section 1250 property
b. Section 1245 property
c. Land
d. Each of the above items is Section 1231 property
36. Danny was at risk for $40,000 in Partnership X and $30,000 in Partnership Z on
January 1, 2014. Both partnerships are passive activities to Danny (these are
Danny’s only passive activities). Danny’s share of net income from Partnership X
during 2014 is $10,000. Danny’s share of losses from Partnership Z during 2014 is
$50,000. How much is Danny at risk for Partnership X on January 1, 2015?
a. $50,000
b. $40,000
c. $10,000
d. $0
37. Refer to the facts in the previous question. How much is Danny at risk for
Partnership Z on January 1, 2015
a. $80,000
b. $50,000
c. $20,000
d. $0
38. Refer to the facts in the previous questions. What is Danny’s carryover under the
at-risk rules for Partnership Z in 2014?
a. $80,000
b. $50,000
c. $20,000
d. $0
39. Refer to the facts in the previous question. What is Danny’s deductible loss for
Partnership Z in 2014?
a. $50,000
b. $30,000
c. $10,000
d. $0
40. Refer to the facts in the previous question. What is Danny’s suspended loss under
the passive loss rules for Partnership Z in 2014?
a. $50,000
b. $30,000
c. $20,000
d. $0
41. In 2014, Jeanette invested in the ANALEYDA Limited Partnership (“ANALEYDA
L.P.”) by paying $70,000 cash and contributing additional assets worth $10,000 (and
having a basis equal to $5,000 on the date of the contribution). What amount did
Jeanette have at risk in ANALEYDA L.P. as of January 1, 2015, if ANALEYDA
L.P. broke even in 2014 (i.e., if ANALEYDA L.P. had no income or loss in 2014)?
a. $5,000
b. $70,000
c. $75,000
d. $80,000
42. Refer to the facts stated in the prior question. But, for this question, assume that
ANALEYDA L.P. allocated to Jeanette net income of $20,000 from operations in
2014. What amount does Jeanette have at risk in ANALEYDA L.P. as of January 1,
2015?
a. $25,000
b. $55,000
c. $95,000
d. $100,000
43. In 2014, Tana and Kevin (who file a joint return) had an interest expense of $6,000
on a loan that was used to purchase a variety of stock and bonds (all producing
taxable income). Assume further that, in 2014, Tana and Kevin had net investment
income of $4,000. Assume they itemize deductions, what is their maximum interest
expense deduction in 2014?
a. $6,000
b. $4,000
c. $3,000
d. $0
44. Assume that Christopher and Eva file a joint return and have the following items
for 2014:
Taxable income: $75,000
Positive adjustments: $30,000
Preferences: $45,000
Regular tax ability: $10,463
What was their 2014 AMT?
a. $17,654
b. $10,463
c. $7,191
d. $0
45. Assume that a couple that filed a joint return had 2014 AMTI of $375,000. What
was the amount of their actual 2014 exemption for the AMT?
a. $0
b. $7,900 (i.e., $3,950 x 2)
c. $27,475
d. $82,100
46. Alix is negotiating to buy land from Shicquonna. What will Alix’s basis be in the
land, if Alix gives Shicquonna $100,000 and Alix assumes Shicquonna’s mortgage on
the land of $30,000?
a. $130,000
b. $100,000
c. $70,000
d. $30,000
47. Which of the following is LEAST likely to qualify as a like-kind exchange under
Section 1031 (assume all of the assets are used for business)?
a. Improved real estate for computer equipment
b. Improved real estate for unimproved real estate
c. Office building for a warehouse
d. Office furniture for office equipment
48. Valerie exchanges undeveloped real estate for developed real estate on July 30, 2014.
On July 30, 2014, the fair market value of each property is $500,000. Valerie had
purchased the undeveloped real estate on February 14, 2004, for $300,000. Both
properties are considered investment property for Valerie. Which of the following is
FALSE?
a. Valerie will realize a gain of $200,000 from the July 30, 2014 transaction
b. Valerie will recognize a gain of $200,000 from the July 30, 2014 transaction
c. Valerie’s basis in the developed real estate is $300,000
d. If Valerie sells the developed real estate in June of 2015 for a gain, the gain will
most likely be treated as a long-term gain
49. In October 2014, Santosh purchased a playground set at a garage sale for $100.
Santosh is not in the business of buying and selling anything. Santosh researched the
playground set online and discovered it was worth $700. In November 2014,
Santosh sold the playground set through an auction website for that amount (i.e.,
$700). Which of the following is TRUE considering these transactions?
a. Santosh does not have any income
b. Had Santosh sold the playground set for $25, Santosh could have deducted a $75
ordinary loss
c. Santosh has a $600 short-term capital gain
d. Santosh has a $600 long-term capital gain
50. Glori had the following net Section 1231 results for each of the years shown below.
Tax Year Net Section 1231 LOSS Net Section 1231 GAIN
2009 $0 $0
2010 $0 $0
2011 $0 $0
2012 $5,000
2013 $15,000
Which of the following is TRUE regarding the net Section 1231 gain in 2014?
a. Only $10,000 of the $30,000 will be taxed at Glori’s ordinary income rate
b. Only $20,000 of the $30,000 will be taxed at Glori’s ordinary income rate
c. All $30,000 will all be taxed at Glori’s ordinary income rate
d. All $30,000 will all be taxed at Glori’s long-term capital gain rate
