Federal Tax Accounting

ACC 105 INCOME TAX

Exam3

Name Instructor: Roy Elkes

Show your work.

1. In 1990 David purchased land for $100,000. In 1996 he takes out a nonrecourse mortgage on the land for $30,000. In 2012 he sells the land for $50,000 and the buyer takes over the mortgage, which was $25,000. David paid commissions of $2,000. How much gain or loss did David have on the sale in 2012?

-100000 -30000 +5000+25000-2000 = -57000

Which mean David lost $57000 on the sale in 2012

2. Jan is the sole shareholder of XYZ Corporation. She contributed $180,000 to buy all the capital stock. The stock in XYZ qualifies as Section 1244 stock. After 8 years she sells the stock for $70,000. How much loss is she going to report and what is the character of the loss?

Since Jan is the sole shareholder of XYZ Corporation, the capital loss is $110000, the ordinary loss is $50000

3. Fred had the following transactions in 2012.

Loss of $8,000 on a Section 1244 stock sale

Loss of $4,000 on sale of a personal automobile

Loss of $10,000 on sale of Section 1231 property

Fred never had a Section 1231 gain or loss before. On his 2012 tax return, how much gain or loss should he recognize and what is the character of the gain or loss?

4 In 2012, Kim reports the following transactions:

Salary $140,000

Interest 25,000

Income from Activity A 50,000

Loss from Activity B (20,000)

Loss from Activity C (40,000)

Activities A, B, and C are all passive activities. For 2012, how much is Kim’s AGI and how much, if any, carryover does she report?

140000 + 25000 +50000 -20000 -40000 = 155000

4. Jack has the following items of income and loss in the year 2012:

Salary $80,000

Income from Activity A 25,000

Gain from Activity B 1,000

Loss from Activity C ( 3,000)

A, B, and C are all passive activities.

Jack has suspended losses of $20,000 attributable to Activity C from prior years. During 2005 Jack sells Activity C and realizes a $16,000 taxable gain.

As a result of these transactions, how much is Jack’s AGI in 2012?

5. Phil has a home, which he purchased in 1990 for $55,000. In 2012, the home was appraised for $75,000. A tornado damaged the home and reduced its value to $45,000. Phil had no tornado insurance. Before any limitations or reductions, how much is Phil’s casualty loss?

6. Dan owns a home he purchased in 1990 for $30,000. In 2012, the home was appraised for $130,000. A blizzard damaged Dan’s home reducing its value to $65,000. Dan has no insurance. His AGI is $80,000. Dan’s deductible loss after limitations is how much?

7. In 2000, Jan loaned Susan $2,000 out of friendship. Susan signed a note payable that contained interest payments and a maturity date. In 2012, Susan died without paying the note. She was insolvent. How should Jan report this transaction on her tax return in 2000 and in 2012?

8. In 2000, Max, an accrual basis taxpayer, did some work for John and billed him $8,000. John signed a note for the debt. In 2012, John goes bankrupt without having paid anything.

a) How much income, if any, will Max report in 2000?

b) What will Max report in 2012?

9. Lilly had the following transactions:

Salary $30,000

Self employment income 10,000

Deductible IRA contribution 2,000

Self-employment tax of 1,412

How much is Lilly’s AGI?

30000 + 10000 -2000 -1412 = 36588

10. Gene had the following items of income and loss in 2012. He is single, aged 30.

Salary $40,000

Rental income 24,000

Rental expense 27,000

Interest income 3,000

Mortgage interest on personal

residence 9,000

In 2012 how much is Gene’s AGI?

40000 +24000 +3000 -27000 -9000 = 31000

11. Sandy pays the following legal and accounting fees in 2012.

Legal fees in connection to her business $8,000

Legal fees related to purchase of personal residence 3,000

Tax return fees allocable to Schedule C 1,500

Tax return fees for rest of return 800

How much of these deductions are for AGI?

12. On November 1 of 2012, Louise, a cash basis taxpayer signs a lease for office space and begins her business. The lease is for 3 years and is payable monthly. On November 1, 2012, Louise pays $10,800 for the entire 36-month lease. How much can Louise deduct in 2012 on her tax return?

13. On Oct 1, 2012, Jane refinances her home and borrows $150,000. She pays 1 point. The loan is secured by her residence and the charging of points is an established practice in the area. The term of the loan is 20 years beginning on Oct 1. How much, if any, of the points can Jane deduct in 2012?

14. Sam bought a house for $210000 on January 3, 1989 and took out a mortgage for $170000. When the house appreciated to $450000 and the mortgage was down to $110000, he refinanced the home and took out a mortgage of $230000. On how much of the new loan can he deduct interest expense on schedule A?

15. Jim sells stock with an adjusted basis of $18,000 to his son Steve for its fair market value of $14,000. After 3 years Steve sells the stock for $21,000 to an outside party.

a) How much gain or loss will Jim recognize when he sells his stock to Steve?

b) How much gain or loss will Steve recognize when he sells his stock to the outside party?

16. Rita has a hobby. She likes to paint. In 2012 Rita sold some of her paintings for $2,400. She had the following expenses related to her painting.

Supplies $1,400

Depreciation 1,000

Utilities 800

a) How much can she deduct in 2012 for supplies?

b) How much can she deduct in 2012 for depreciation?

c) How much can she deduct in 2012 for utilities?

20. In 2012, Angela has the following medical expenses:

Doctor visits $ 3,000

Hospital expenses 8,000

Vitamins 200

$11,200

She paid $1,500 in insurance premiums. She was reimbursed by her insurance company for $5,400. How much can she deduct for medical expenses?

21. Jack and Jill had the following medical expenses:

Hospital bill $3,000

Doctor visit 2,000

Nonprescription drugs 800

Membership in health

club to improve Jack’s

general health 1,200

They also built a swimming pool to get more exercise. The cost of the pool was $9,000. Their house was appraised $3,900 higher because of the pool.

How much can they deduct as itemized deductions on their tax return?

22. In December 2012, Fran had surgery and was billed $10,000. In December 2012, she paid $2,000 in cash and charged $7,000 on her credit card. In 2013, she paid the $7,000 credit card bill and paid the hospital the $1,000 she owed. How much can she deduct in 2012 as an itemized deduction?

23. In 2012, your employer withheld $1,800 in state income tax from your wages. In 2012, you paid $300 in state tax from tax year 1999. In 2012 you received a refund of $150 when you filed your state tax on April 15, 2012 for tax year 2011. How much of the taxes can you deduct as itemized deductions for 2012?

24. You had the following taxes withheld by your employer:

Federal Income Tax $3,200

State Income Tax 1,400

Local Income Tax 500

Social Security Tax 1,900

You paid $300 for your license plates, which were registration fees. How much can you deduct as itemized deductions?

25. Which of the following types of interest are itemized deductions?

a) Mortgage interest on your rental property

b) Credit card interest

c) Investment interest

d) Mortgage interest on your personal residence

e) Interest on your personal car

f) Mortgage interest on your building used in your business