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Exam 6: Individual for Agi Deductions

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Question 1

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Harriet owns a second home that she rents to others.During the year, she used the second home for 10 personal days and for 200 rental days.Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is incorrect?

A) Harriet's deductible expenses are not limited to the amount of gross rental income from the property.
B) Harriet will be allowed to deduct all of the mortgage interest on the loan secured by the property.
C) Harriet is required to include all of the rental receipts in gross income.
D) Harriet is required to allocate all expenses associated with the home to rental use or personal use.

E) B) and C)
F) A) and C)

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Question 2

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Taxpayers renting a home would generally report the rental income and expenses on Schedule E.

A) True
B) False

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Question 3

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Excess business losses are carried back and then forward as net operating losses.

The phrase "ordinary and necessary" means that an expense must be appropriate in and helpful for generating a profit.

Expenses of a vacation home allocated to rental use are deductible for AGI.

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?

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.)

Compared to the Tax Court method of allocating expenses between rental use and personal use, the IRS method tends to allocate more expenses to personal use than does the Tax Court method.

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to the rental use is always the ratio of rental days over rental days plus personal-use days.

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.

Taxpayers who use a home for both personal and rental use generally must allocate expenses associated with the home to the personal use and the rental use.

Which of the following statements regarding IRAs is false?

Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to individual retirement accounts (IRAs).

Tyson (48 years old) owns a traditional IRA with a current balance of $50,000.The balance consists of $30,000 of deductible contributions and $20,000 of account earnings.Tyson's marginal tax rate is 25 percent.Convinced that his marginal tax rate will increase in the future, Tyson receives a distribution of the entire $50,000 balance of his traditional IRA.He retains $12,500 to pay tax on the distribution and he contributes $37,500 to a Roth IRA.What amount of income tax and penalty must Tyson pay on this series of transactions?

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.

Rayleen owns a condominium near Orlando, Florida.This year, she incurs the following expenses in connection with her condo: $\begin{array}{llcc} \text { Insurance} & \$1,250 \\ \text { Mortgage interest} &7,000\\ \text {Property taxes } &2100\\ \text {Repairs and maintenance } &800\\ \text { Utilities } &2,300\\ \text { Depreciation } &9,000\\\end{array}$ During the year, Rayleen rented the condo for 130 days and she received $25,000 of rental receipts.She did not use the condo at all for personal purposes during the year.Rayleen is considered to be an active participant in the property.Rayleen's AGI from all sources other than the rental property is $130,000.Rayleen does not have passive income from any other sources.What is Rayleen's AGI?

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 a $45 fee to rent a safety-deposit box to store records associated with her realty operation.Which of the following is a true statement?

Which of the following is a true statement?

Ashton owns a condominium near San Diego, California.This year, he incurs the following expenses in connection with his condo: $\begin{array}{llcc} \text { Insurance} & \$1,300 \\ \text { Mortgage interest} &8,000\\ \text {Property taxes } &2,000\\ \text {Repairs and maintenance } &900\\ \text { Utilities } &2,200\\ \text { Depreciation } &10,000\\\end{array}$ During the year, Ashton rented the condo for 120 days and he received $24,000 of rental receipts.He did not use the condo at all for personal purposes during the year.Ashton is considered to be an active participant in the property.Ashton's AGI from all sources other than the rental property is $120,000.Ashton does not have passive income from any other sources.What is Ashton's AGI?

In 2019, 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?