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· Question 1
2 out of 2 points
Cory incurred and paid the following expenses:
Tax return preparation fee
$ 600
Moving expenses
2,000
Investment expenses
500
Expenses associated with rental property
1,500
Interest expense associated with loan to finance tax-exempt bonds
400
Calculate the amount that Cory can deduct (before any percentage limitations).
· Question 2
2 out of 2 points
Bob and April own a house at the beach. The house was rented to unrelated parties for 8 weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows:
Gross rental income
$4,000
Less: Mortgage interest and property taxes
$3,500
Other allocated expenses
2,000
(5,500)
Net rental loss
($1,500)
What is the correct treatment of the rental income and expenses on Bob and Aprils joint income tax return for the current year assuming the IRS approach is used if applicable?
· Question 3
2 out of 2 points
Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses.
Terry
Jim
Employee salaries
$200,000
$200,000
Bribes to police
25,000
25,000
Rent and utilities
50,000
50,000
Cost of goods sold
0
125,000
Which of the following statements is correct?
· Question 4
2 out of 2 points
Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?
Selected Answer:
All of the above are relevant factors.
· Question 5
2 out of 2 points
Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows:
Mortgage interest
$9,000
Real estate taxes
3,000
Utilities
2,000
Maintenance
1,000
Insurance
500
Depreciation (rental part)
4,000
Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are:
Response Feedback:
Since the property is classified as personal/rental use, the general rule is that the deductible expenses cannot exceed the gross income. Thus, under the general rule, the deductible expenses would be limited to $6,000. However, this ceiling does not apply to expenses that otherwise would be deductible as itemized deductions. Consequently, all of the mortgage interest and real estate taxes can be deducted ($9,000 + $3,000 = $12,000).
· Question 6
2 out of 2 points
Which of the following statements is correct in connection with the investigation of a business?
· Question 7
2 out of 2 points
Which of the following is a deduction for AGI (itemized deduction)?
· Question 8
0 out of 2 points
Purchased goodwill must be capitalized, but can be amortized over a 60-month period.
· Question 9
2 out of 2 points
Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.
· Question 10
2 out of 2 points
The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).