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Exam 6: Individual for Agi Deductions

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Question 51

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Which taxpayer would not be considered a material participant of an activity?

A) Taxpayer materially participated in the activity for any five of the preceding ten years.
B) Taxpayer participated on a regular,continuous,and substantial basis during the year.
C) Taxpayer participated 95 hours during the year and participation is not less than any other participants for the year.
D) Taxpayer participated in the activity for 995 hours during the year.
E) None of the choices are correct.

F) C) and D)
G) A) and D)

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Question 52

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Michelle is an active participant in the rental condominium property she owns.During the year,the property generates a ($15,000) loss; however,Michelle has sufficient tax basis and at-risk amounts to absorb the loss.If Michelle has $115,000 of salary,$10,000 of long-term capital gains,$3,000 of dividends,and no additional sources of income or deductions,how much loss can Michelle deduct?

A) Zero; losses from rental property are passive losses and can only be offset by passive income.
B) $4,000.
C) $11,000.
D) $15,000.
E) None of the choices are correct.

F) A) and B)
G) A) and C)

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Question 53

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Alfredo is self-employed and he uses a room in his home as his principal place of business.He meets clients there and doesn't use the room for any other purpose.The size of his home office is 600 square feet.The size of his entire home is 3,000 square feet.During the current year,Alfredo received $10,000 of gross income from his business activities and he reports $7,500 of business expenses unrelated to his home office.For his entire home,he reported $10,000 of mortgage interest,$2,000 of property taxes,$2,500 of home operating expenses,and $4,500 of depreciation expense.What amount of home office expenses is Alfredo allowed to deduct in the current year? Indicate the amount and type of expenses he must carry over to next year,if any.

Roy,a resident of Michigan,owns 25 percent of a fourplex in the nearby college town of Ann Arbor with three other friends.The fourplex is rented to students who attend the University of Michigan.Roy's responsibility is to approve new tenants each year and take care of any maintenance issues.During the year,the rental property generated a $25,000 loss,which was split equally among Roy and his three friends.Assuming Roy's only source of income was $145,000 of salary,how much of the rental loss can Roy deduct this year and what amount must be carried forward?

Which of the following is a true statement?

Tatia,age 38,has made deductible contributions to her traditional IRA over the past few years.When her account balance was $32,000,she transferred the entire $32,000 out of her traditional IRA and immediately into a Roth IRA.Her current marginal tax rate is 24 percent.What amount of tax and penalty is she required to pay on this rollover?

Self-employed taxpayers can deduct the cost of health insurance as a "for" AGI deduction as long as they do not actually participate in their spouses' employer-provided health plan.

Tyson owns a condominium near Laguna Beach,California.This year,he incurs the following expenses in connection with his condo: $\begin{array}{l}\begin{array}{lll}\text { Insurance } \\\text { Mortgage interest} \\\text { Property taxes } \\\text { Repairs and maintenance } \\\text { Utilities } \\\text { Depreciation }\end{array}\begin{array}{lll}1,000 \\7,500 \\3,200 \\800 \\1,700 \\5700\end{array}\end{array}$ During the year,Tyson rented the condo for 100 days,receiving $25,000 of gross income.He personally used the condo for 60 days.Assuming Tyson uses the Tax Court method of allocating expenses to rental use of the property.What is Tyson's net rental income for the year (assume there are 365 days in the year)?

Jamison is self-employed and he works out of an office in his home.After allocating the home-related expenses between the business office and the rest of the home,which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct?

Bryan,who is 45 years old,had some surprise medical expenses during the year.To pay for these expenses (which were claimed as itemized deductions on his tax return) ,he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA) .Assuming his marginal ordinary income tax rate is 12%,what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because:

Rental or royalty expenses are deductible "for" AGI.

An individual who forfeits a penalty for prematurely withdrawing a certificate of deposit (CD)is allowed to net the penalty against the interest income from the CD.

In 2018,Jessica retired at the age of 65.The current balance in her traditional IRA was $200,000.Over the years,Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account.If Jessica receives a $50,000 distribution from the IRA,what amount of the distribution is taxable?

In general,total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home.(This is net Schedule C income before home office expenses.)

To be deductible,business expenses must be directly related to a business activity.

Bruce is employed as an executive and his wife,Marie,is a self-employed realtor.Besides Bruce's salary,Bruce and Marie own a warehouse that they rent to a local business for storage.This year they paid $1,250 for electric service in the warehouse.Marie also paid self-employment tax of $6,200 and Bruce had $7,000 of Social Security taxes withheld from his pay.Marie paid $45 fee to rent a safe deposit box to store records associated with her realty operation.Which of the following is a true statement?

To qualify under the passive activity rental real estate exception,the taxpayer must (1)own at least 15 percent of the property and (2)participate in the process of making management decisions.

Generally,losses from rental activities are considered to be active losses.

All investment expenses are itemized deductions.