tax 7

copy_of_a360_problems_mod07_1.xlsx

PR 7-1

Roberta is an accountant employed by a local firm. During the year, Roberta incurs the following unreimbursed expenses:
	Item	Amount
	Travel to client locations	$ 750
	Subscriptions to professional journals	215
	Taking potential clients to lunch	400
	Photocopying	60
			Solution
a. Identify which of these expenses are deductible and the amount that is deductible. Indicate whether they are deductible for or from AGI.
b. Would the answers to Part a. change if the accounting firm reimburses Roberta for there expenses?
c. Assume all of the same facts as in Part a., except that Roberta is self-employed. Identify which of the expenses are deductible, and indicate whether they are deductions for or from AGI.

During the year, Kent, a single taxpayer, reports the following items of income and expense:
			Solution
Income:		Amount
	Salary	$ 150,000
	Dividends	800
	Interest income on savings	1,500
	Rental income from a small apartment he owns	8,000
Expenses:
	Medical	6,000
	Interest on principal residence	7,000
	Real property taxes on principal residence	4,300
	Charitable contributions	4,000
	Casualty loss - personal	6,100
	Miscellaneous itemized deductions	1,200
	Loss from sale of stock held for two years	2,000
Expenses incurred on rental income:
	Maintenance	500
	Property taxes	1,000
	Utilities	2,400
	Depreciation	1,700
	Insurance	800
Alimony payments to former wife		10,000
Required:
Assuming all of these items are deductible and that the amounts are before any limitations, what is Kent's taxable income for the year?
Note: Use a format similar to the Tax Formula for Individual from Module 3.

Rentals R Us incurs the following expenditures on an apartment building it owns:
			Solution
	Item	Amount
	Replace the roof	$ 25,000
	Repaint the exterior	7,000
	Install new locks	1,500
	Replace broken windows	1,200
	Replace crumbling sidewalks and stairs	7,000
Required:
Discuss the proper tax treatment for these expenditures.

Sam is a sole proprietor who owns, leases, and manages several apartment complexes and office buildings. During the current year, Sam incurs the following expenses:
Required:
1. Which of these expenditures are deductible?
2. Are they for or from AGI deductions?								Solution
a. $200 in attorney's fees for title searches on a new property Sam has acquired.
b. $450 in legal fees in an action brought to collect back rents.
c. $500 to his CPA for the preparation of his federal income tax return. $400 is for the preparation of Schedule C (Profit or Loss from Business)
d. $300 in attorney's fees for drafting a will.
e. $250 in attorney's fees in an unsuccessful attempt to prevent the city from rezoning the area of the city where several of his office buildings are located.

Chuck, a dentist, raises prize rabbits for breeding and showing purposes. Assume that the activity is determined to be a hobby. During the year the activity generates the following items of income and expense:
			Solution
	Item	Amount
	Sale of rabbits for breeding stock	$ 800
	Prizes and awards	300
	Property taxes on rabbit hutches	200
	Feed	600
	Veterinary fees	500
	Depreciation on rabbit hutches	250
Required:
a. What is the total amount of deductions Chuck may take during the year with respect to the rabbit raising activity?
b. Identify which expenses may be deducted and indicate whether they are deductions for or from AGI.
c. By what amount is the cost basis of the rabbit hutches to be reduced for the year?

During the current year, Kim incurs the following expenses with respect to her beachfront condominium in Hawaii:
			Solution
	Item	Amount
	Insurance	$ 500
	Repairs and maintenance	700
	Interest on mortgage	3,000
	Property taxes	1,000
	Utilities	800
In addition to the expenses listed above, Kim could have deducted a total of $8,000 depreciation if the property had been acquired only for investment purposes. During the year, Kim uses the condominium 20 days for vacation. She also rented it out for a total of 60 days during the year, generating total gross income of $9,000
Required:
What is the total amount of deductions for and from AGI that Kim may take during the current year with respect to the condominium?
What is the effect on the basis of the condominium?