Book 4 Pages 61-120 Flashcards
1
Q
true or false?
self employed individuals can deduct expenses attributable to a home office as an itemized deduction
A
false, they can deduct it as an above the line deduction
2
Q
true or false?
regular employees can deduct expenses attributable to a home office as an itemized deduction
A
true, subject to 2% AGI floor
3
Q
what is the simplified method option in regards to deducting home office expenses?
A
$5 per square foot for a maximum of 300 square feet or $1,500 of deductible expenses
4
Q
does the simplified method under home office expense deductions allow you to deduct depreciation?
A
no
5
Q
does the simplified method under home office expense deductions allow you to carry forward any expenses (loss) above your gross income from the business?
A
no
6
Q
true or false?
seeking new employment in the same trade or business is deductible whether you get the job or not
A
true
7
Q
true or false?
seeking employment in a different trade or business is not deductible
A
true
8
Q
true or false?
no deduction is allowed if you are seeking employment for the first time
A
true
9
Q
true or false?
malpractice insurance is an available itemized deduction
A
true
10
Q
true or false?
medical expenses are an available itemized deduction
A
true
11
Q
are casualty losses itemized or above the line deductions?
A
itemized
12
Q
medical expenses are subject to a ___% AGI floor in order to be deductible
A
10%
13
Q
true or false?
self employed individuals can deduct health insurance premiums as above the line deductions
A
true
14
Q
true or false?
state and local sales tax is deductible
A
true
15
Q
true or false?
state, local, and foreign income taxes are deductible
A
true
16
Q
true or false?
assessments (things that add value to a property) are deductible
A
false
17
Q
in a real estate transfer, if the buyer pays all the tax what happens to the buyer’s basis in the property?
A
it increases by an equal value
18
Q
in a real estate transfer, if the buyer pays all the tax what happens to the seller of the property?
A
the seller’s portion of tax paid is added to the amount realized by the seller
19
Q
in a real estate transfer, if the seller pays all the tax what happens to the buyer’s basis in the property?
A
it decreases by an equal value
20
Q
in a real estate transfer, if the seller pays all the tax what happens to the seller of the property?
A
the buyer’s portion of tax paid is deducted from the amount realized by the seller
21
Q
How much can Robin deduct for her 2017 taxes if she itemizes based on the following info?
her 2016 state tax refund was $700 (she took standard deduction in 2016)
her employer withheld $4,200 of state income tax for 2017
she also paid an additional $1,200 in state income tax estimated payments
A
if she itemizes she can deduct $5,400
the $700 tax refund does not offset against the itemized deductions because the refund is from a year where she took the standard deduction
22
Q
how much of the following expenses can Sherry deduct for 2017?
state taxes withheld $7,200
refund received from over payments of 2016 state tax liability $1,500 (she itemized in 2016)
deficiency assessed and paid for 2015 as a result of audit by the state $3,000
Interest paid on the tax deficiency $500
A
she can deducted $10,200
the interest on the deficiency is personal interest and not deductible
the refund is reported as income under the tax benefit rule and does not affect the deductible amount
23
Q
true or false?
you can deduct state and local sales tax, and state and local income tax in the same year
A
false, only can deduct one
i.e. state and local income taxes = 1
24
Q
true or false?
qualified dividends are not included in investment income
A
true
25
true or false?
| capital gains are included in investment income
false, they are not
26
is investment income an itemized or an above the line deduction?
itemized
27
Mario had the following items of income and expense for the current year:
interest income from bonds = $5,000
interest income from state bonds = $1,000
margin interest expense = $7,000
how much can Mario deduct if he itemizes?
he can only deduct $5,000
although the interest expense is $7,000 he can only deduct up to the amount of his investment income which is $5,000 since the state bonds are tax free
28
what is the maximum loan amount that you can deduct mortgage interest on?
$1 million
29
what is the maximum loan amount that you can deduct Home Equity Line of Credit interest on?
$100k
30
true or false?
| the borrower can deduct points up to funds provided plus the seller's paid points
true
31
how much can Steph deduct given the following info and what happens to the basis of her home? What happens to Tim?
she takes out a $100k mortgage
she is charged 1 percentage point
tim who sold her the home also paid one percentage point to help her get the mortgage
steph only provides $750 as a down payment
steph can deduct $1,750 and her basis gets reduced by $1,000 (the amount Tim paid)
Tim's amount realized gets reduced by the $1,000
32
if interest is paid for a business use or the production of income is it deductible ___ AGI
for (above the line)
33
if interest is paid for personal use (investment interest and qualified residence interest) it is deductible ___ AGI
from (itemized)
34
true or false?
| credit card debt interest is deductible
false
35
true or false?
| auto loan interest is deductible
false
36
During the current year, Albert paid the following interest charges:
mortgage $9,000
loan for household furniture $800
loan to purchase state bond $750
if Albert itemizes how much can he deduct?
$9,000
the furniture is nondeductible consumer interest
the loan to purchase state bonds is not deductible
37
When are points on a home loan deductible?
in the current year that they were paid
38
true or false?
| is termite damage a casualty loss
no
39
true or false?
| a tornado is a casualty loss
true
40
true or false?
| earthquakes are a casualty loss
true
41
true or false?
| floods are not a casualty loss
false, they are
42
are theft losses considered deductible casualty losses?
yes
43
when are theft losses deductible?
in the year they are discovered
44
the amount of the casualty loss is the lesser of the ______ or the _______
adjusted basis ; decline in FMV resulting from the event
45
true or false?
casualty losses are reduced by any insurance recovery that would have been received, regardless if a claim was filed or not
true
46
in 2017, Larry had art worth $10,000 with a basis of $15,000 stolen from his apartment. During the year he had a salary of $30,000 and no other deductions. How much can Larry deduct from the theft?
```
use the less of the basis or FMV
FMV = $10,000
subject to 10% agi floor (10% x $30,000) = $3,000
subject to $100 floor
$10,000 - $3,000 - $100 = $6,900
```
47
true or false?
| full time military uniforms are usually not deductible
true
48
true or false?
| work uniforms are not a deductible item
false, they can be if it is a condition of employment and not suitable for everyday wear
49
true or false?
| the unrecovered investment in an annuity contract can be deducted when the taxpayer dies
false
50
churches, educational institutions, hospitals, medical research organizations are known as ____ charities
public
51
True or false?
| American Red Cross or Goodwill are examples of public charities
true
52
true or false?
| cost of childcare while performing charitable activities is deductible
false, it is not
53
true or false?
| donating blood is nondeductible
true
54
true or false?
| rental value of property donated to and used by a qualified charity is deductible
false, it is not
55
noncash property between $____ and $_______ does not need an appraisal
$500 ; $5,000
56
true or false?
| the appraisal costs associated with charitable giving is also included in the charitable gift deduction
false
57
are the appraisal costs associated with charitable giving deductible at all?
yes, as miscellaneous itemized deductions
58
use related property can be deducted up to ____% of a taxpayer's AGI
30%
59
true or false?
| with use related property you can deduct the fair market value
true
60
true or false?
| with use unrelated property a taxpayer is limited to a deduction of the lesser of the basis or the FMV
true
61
Karen is meeting with her client Jack who donated his collection of impressionist paintings to a private art museum. Jack's original purchase price of the painting was $50,000 and the FMV today is $300,000. Jack's gross income for the year was $1 million. How much of the donation can be deducted on his tax return?
$300,000 can be deducted
because he donated the art to an art museum it is classified as use related property and therefor can deduct the FMV as long as it doesn't exceed 30% of his AGI, which is $1 million
62
charitable cash gifts have a ____% of AGI deduction limit if made to public charities or private operating foundations and ____% of AGI deduction limit if made to most private nonoperating foundations
50% ; 30%
63
true or false?
| charitable cash gifts are deductible for an amount equal to the fair market value of the cash
true
64
ordinary income property and short-term capital gain property can be deducted for the lesser of _____ or _____ and up to ___% of AGI
adjusted basis ; fair market value ; 50%
65
real property donated to a charity can be deducted in which two ways?
fair market value subject to 30% of AGI
| Basis election subject to 50% of AGI
66
related use tangible property can be deducted in which two ways?
fair market value subject to 30% AGI
| basis election subject to 50% AGI
67
unrelated use tangible property can be deducted by the lesser of ______ or ______ and subject to a ____% of AGI
adjusted basis ; FMV ; 50%
68
intangibles can be deducted in which two ways?
fair market value subject to 30% of AGI
| Basis election subject to 50% of AGI
69
Gina graduated from Mumford University. She donated $2,000 to the athletic department of the university to guarantee priority to purchase two premium season tickets to home football games. In addition Gina purchased two season tickets for the regular price of $500 ($250 each). What is Gina's charitable contribution for the year?
Because Gina is donating money for the right to buy season tickets only 80% of the donation is deductible
$2,000 x 80% = $1,600
70
when a donor or seller transfers property to a charity in exchange for a sum that is less than the FMV of the property transferred
bargain sale to charity
71
Steve owns property with a basis of $60,000 and a current value of $120,000, which he sells to charity for $100,000. How much must Steve realize as gain and how much can he deduct as a charitable contribution?
First you have to allocate basis between the sale and the charitable gift.
adjusted basis for entire property x (amount realized on sale / fmv of entire property)
$60k x ($100k / $120k) = $50k
Steve will realize $50k in capital gain calculated as follows: $100k - $50k ($100k is the sales price & $50k is the adjusted basis allocated to asset sale)
Steve will also have a FMV for charitable income tax deduction purposes of $20,000 calculated as follows: $120,000 - $100,000 ($120k is the FMV and $100k is the sales price)
Steve will also have an adjusted tax basis for charitable income tax deduction purposes of $10,000 calculated as follows:
$60,000 - $50,000 ($60k is the adjusted basis & $50k is basis allocated to sale)
72
Clarence makes the following charitable donations:
Inventory for resale from business with basis of $8k and FMV of $6k (assumed transferred to public school)
Stock acquired 2 years ago with basis of $10k and FMV of $40k (assumed transferred to church)
Coin collection held as an investment for 10 years with a basis of $1k and FMV $10k (assume transferred to boy scouts)
what is Clarence's charitable contribution for the year?
$6k (inventory is considered ordinary income property and requires the lesser of the adjusted basis or FMV to be used for charitable deductions)
$40k (stock is intangible property so the FMV can be used)
$1k (coin collection is tangible property and since it is going to boy scouts it is unrelated use property which means you have to use the lesser of the adjusted basis or FMV
total = $47,000
73
the maximum charitable deduction a C-corp can take in a taxable year is limited to ____% of the corporation's taxable income before certain deductions
10%
74
in the current year , XYZ corp had net income from operations of $60,000 and received a dividend of $4,000 which is eligible for the 70% dividends received deduction. During the year, the corporation donated $8,000 in cash to the University of New Jersey. What is the maximum charitable deduction the corporation can take? What is the corporation's taxable income for the year? How much of the charitable gift can the corporation carry forward and for how long?
$6,400 is the maximum charitable deduction
the 70% dividends received deduction on the $4,000 dividends do not get deducted until after the charitable deductions are determined
i.e. total income subject to the 10% max charitable contribution for corporations is $64,000 ($60k + $4k)
$54,800 is the corporation's taxable income for the year
($64,000 - $6,400 - ($4,000 x 70%))
$1,600 can be carried forward for 5 years
$8,000 - $6,400
75
true or false?
| usually a corporation can deduct the basis of ordinary income property if the property is gifted to charity
true
76
true or false?
| generally a corporation can deduct the FMV of capital gain property if donated to a charity
true
77
if the corporation donates use unrelated property then the deduction is limited to the _____
adjusted basis
78
in determining a corporations AGI for eligible charitable income tax deductions, which deductions are not accounted for?
dividend received deduction
net operating loss carryback
capital loss carryback
79
the maximum deductible loss for an activity is limited to ___________________________
the amount that the investor has at risk at the end of the current tax year
80
the rule that states the maximum deductible loss for an activity is limited to the amount that the investor has at risk at the end of the current tax year
at risk rule
81
how do you determine the amount that is at risk?
total of cash/property invested - the debt the investor is personally liable for
82
a liability for which the partner has no risk of economic loss if the liability is not satisfied by the partnership
nonrecourse debt
83
true or false?
if a loss is disallowed because of at-risk rules, the loss can be carried forward and taken in the first year the at-risk amount become positive
true
84
in year 1 Bob invested $50k for a 20% interest in a partnership in which he was a material participant during the year. The partnership incurred a loss and Bob's share was $75,000
how much of the loss can Bob claim this year? How much can he carry forward?
$50k
$25k
85
true or false?
| Passive losses may only be deducted against passive income
true
86
a corporation where the primary economic activity is the performance of personal services by the owners of the corporation
personal service corporation
87
closely held corporations may offset passive ____ against active ______ but not ________ income
losses ; income ; portfolio
88
what are the 3 classifications of income and losses?
active, passive, and portfolio
89
prevent the taxpayer from deducting any passive losses against active or portfolio income
passive loss limitations
90
wages, salaries, and other employee compensation are examples of ____ income
active
91
interest, dividends, annuities, and royalties are examples of _____ income
portfolio
92
trade or business income when the taxpayer is a material participant is considered ____ income
active
93
if there is a passive loss from activity 1 equal to $15k, a $30k passive loss from activity 2, and $10,000 of passive income from activity 3 equal to $10,000 , what is the taxpayer's net passive loss?
$35,000 - calculated as follows:
($15,000 / $45,000) x $35,000 = $11,666.67 to activity 1
($30,000 / $45,000) x $35,000 = $23,333.33 to activity 2
94
which conditions create a passive activity?
a taxpayer does not materially participate
| the activity is rental activity
95
true or false?
| if a taxpayer completes more than 500 hours of participation during the year then the activity is not passive
true
96
true or false?
if the individual's participation in the activity constitutes substantially all of the participation in the activity of all individuals for the year then it is considered passive activity
false, it would be an active activity
97
if a taxpayer participates in the activity for more than 100 hours and their participation is equal to or more than any other individual, is it consider passive activity or active?
active
98
true or false?
if a taxpayer materially participates in the activity in at least 5 out of the last 10 years then it is not considered a passive activity
true
99
true or false?
| losses from a publicly traded partnership can only be used to offset income for that same company
true
100
true or false?
| losses from a non publicly traded partnership can only be used to offset income for that same partnership
false, it can be used to offset income from other non publicly traded partnerships not just the same one that has the loss
101
true or false?
| losses from non publicly traded partnerships can only be used offset income from other non publicly traded partnerships
true
102
what is another term for publicly traded partnerships?
master limited partnerships
103
Dana purchased an interest in a non publicly traded partnership that had income in the current year of $15,000. She also purchased interest in a master limited partnership with $20,000 of losses for the year. What are the tax consequences to Dana for the current year?
Dana will recognize $15k of passive income from the non publicly traded partnership
she will not be allowed to deduct the $20k this year because losses from a publicly traded partnership (master limited partnership) can't be used to offset the income from the non publicly traded partnership. She will have a $20,000 carry forward however.
104
if real estate is greater than ____% of a taxpayer's personal services in all trades or businesses for the year then it is not considered a passive activity
50%
105
if the taxpayer performs greater than ___ hours of service in real property trades or business in which the tax payer materially participates then it is not considered passive activity
750 hours
106
individuals can deduct up to $_____ of rental real estate losses against active and portfolio income
$25,000
107
to be eligible for the $25,000 deduction associated with rental real estate losses an individual must meet what two tests?
active participation in the activity (make management decisions)
own 10% or more of all interests in the activity during the year
108
the $25,000 rental real estate loss deduction is phased out between $____ and $____
$100k ; $150k
109
what if your AGI is $110,000 how much of a rental real estate loss can you deduct?
$20,000
$25k - ($110k - $100k x 50%)
110
what is Larry's AGI based off the following info:
Salary for managing an S corp = $50k
Dividend income from stock = $1,000
loss from a 20% limited partnership interest = $4,000
loss from a 10% interest in an S corp, which he work full time managing one of the branches = $3,000
AGI = $48,000
the $3,000 loss from the limited partnership is a passive loss and cannot be deducted because limited partners aren't materially participants
111
Reggie is a high-income wage earner currently earning $180k annually. Recently, he has invested $30k for a 15% interest in a RELP as limited partner. Operations of the activity resulted in a loss of $300k of which Reggie's share was $45k. Reggie does not have any passive income in the year. Can Reggie claim a deduction/loss this year? If so how much?
No he cannot claim a loss or deduction because he did not have passive income
$15,000 of Reggie's loss is suspended due to the at risk rule ($45k - $30k)
The other $30k is suspended under the passive activity loss rules
112
Mavis died owning an investment in a passive activity for which she had a basis of $50k. The FMV of her investment in the activity was $70k. She had suspended losses in the activity of $40k. What is the deduction allowed on Mavis's final tax return?
$20k
| FMV - basis
113
true or false?
| the personal exemption increases if over 65
false
114
true or false?
| the standard deduction increases if over 65
true
115
what is the standard deduction for a 55 year old who is also blind, based on 2017?
$7,900
$6,350 + $1,550
116
what is the standard deduction for a 68 year old couple who are both blind, based on 2017?
$17,700
$12,700 + (4 x $1,250)
117
what is the age test for qualifying a child as a dependent?
under age 19 or under age 24 and is full time student
permanently disabled qualifies as well
118
what is the support test for qualifying a child or relative as a dependent?
must not provide 50% of own support
119
true or false?
| only one person can claim a dependency exemption for an individual
true
120
who gets to claim a child as a dependent if the child lives with both parents an equal amount of time?
the parent with the higher AGI
121
who gets to claim a child as a dependent if neither person is the child's parent?
person with the higher AGI
122
Erin and Brian are both age 50 and file a joint return for the current year. They provided all the support for their 19 year old unmarried daughter, who had no income and lived with them for the entire year. Their 23 year old son, a full time student at a university had $5,000 in income and provided 70% of his own support.
How many exemptions can they Erin and Brian claim?
3
one for each of them and one for their daughter
no exemptions for son because he provided 70% of his own support
123
Dennis age 50, filed a joint return with his wife, Kelly, age 24. Their son Derek was born December 16 of the taxable year. Dennis provided 60% of the support for his 73 year old widowed mother until May 1 when she died. His mother's only income was from SSI totaling $4k which she used $1k of for her own support.
How many exemptions can Dennis and Kelly claim?
4
124
Andre provided more than one half of the support for his cousin, his niece, and his foster parent. None of them lived in Andre's household. None of these relatives had any income nor did any of them file an individual or joint return. All of these relatives are US citizen .
Which of the people is considered a qualifying relative to Andre?
only the niece
125
Claudia age 15 has lived with her older sister Nancy age 19 for the past two years . There are no parents living in the home. Nancy provides all of Claudia's support.
Can Nancy claim Claudia as a dependent?
yes
126
Gary and Lori are the parents of Neil, age 6. They provide 100% of Neil's support. Under the divorce settlement entered into in 2009, Lori is the custodial parent. Gary is required by the same agreement to provide health insurance to Neil through his employer.
Who can claim Neil as a dependent?
Only Lori
Gary can claim Neil as a dependent child for medical insurance purposes
127
true or false?
| if you divorce your spouse you can never claim your former brother/sister in law as dependent
false, you can. Death/Divorce do not affect your ability to claim them as a dependent
128
for 2017 what is the standard deduction for people who can be claimed as a dependent by another in the same year?
the greater of $1,050 or earned income plus $350
129
Andrea is claimed as a dependent on her parents' return. She earned $2,900 and received dividend income of $2,000. What is Andrea's standard deduction for the year?
$3,250
$2,900 + $350
130
what are the five filing status categories?
```
single
MFJ
MFS
Head of household
qualifying widow(er) with dependent child also called surviving spouse
```
131
an unmarried, separated, or divorced individual who does not qualify for another status must file as a _____ taxpayer
single
132
true or false?
if a married couple files as married filing separately they can still take the credit for child and dependent care expenses
fasle
133
true or false?
| if a married couple files as married filing separately they can still take the earned income credit
false
134
true or false?
| if a married couple files as married filing separately they can still take education credits
false
135
unmarried individuals who maintain a household for a qualifying person for more than one half of the tax year
Head of Household
136
if filing as head of household does an unmarried child have to be claimed as a dependent to be a qualified person
no
137
if filing as head of household does a married child have to be claimed as a dependent to be a qualified person
yes
138
if filing as head of household does a parent have to be claimed as a dependent to be a qualified person?
yes
139
which of the following qualified persons does not have to live in the household for more that 50% of the year to still be a qualified person under head of household filing:
single child
married child
other relative
parents
parents only can live in another home for more than 50% of the year
140
John's wife died in 2015. John has not remarried and for 2016 and 2017 he maintained a home for himself and his dependent child. Can John file a joint return for years 2016 and 2017? What about 2018?
yes because he is considered a qualifying widower with a dependent child
For 2018 he could file as head of household because the qualifying widower with dependent child filing only lasts for two years
141
true or false?
if you are single individual and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes
true
142
true or false?
if you are head of household and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes
true
143
true or false?
if you are surviving spouse and your income does not exceed the exemption amount plus the applicable standard deduction then you still have to file taxes
false, you do not have to file
144
true or false?
if you are married and filing jointly and your income does not exceed the exemptions amount plus the applicable standard deduction then you do not have to file taxes
true
145
in 2017, a single individual who is claimed by a parent as a dependent has earned income of only $3,900. Would this person need to file a return?
no, because earned income would be less than the standard deduction amount of $4,250 ($3,900 + $350)
146
In 2017, a single, blind individual who is claimed as dependent by a parent has unearned income of $1,200. Does this individual need to file a return?
no, because gross income does not exceed the standard deduction of $2,600 ($1,050 + $1,550)
$1,050 is being used because it is greater than the earned income which is $0. $1,550 is the additional standard deduction for being blind
147
In 2017, a single individual claimed as a dependent by a parent has earned income of $2,000 and unearned income of $1,800. Does this individual need to file a return?
Yes, because gross income is more than the applicable standard deduction
gross income = $3,800
standard deduction = ($2,000 +$350) = $2,350
148
which form should a taxpayer use to file taxes if taxable income is less than $100k and no dependents or adjustments to income are claimed?
1040EZ
149
which form should a taxpayer use to file taxes if the only adjustments to income are for deductible IRA contributions and student loan interest?
1040A
150
what form allows a tax payer to file an extension?
4868
151
dollar for dollar reductions of the income tax liability of the taxpayer
tax credits
152
tax credits that are paid to the taxpayer even if the amount exceeds the taxpayer's tax liability
refundable credits
153
tax credits that at best reduce a taxpayer's tax liability to zero
nonrefundable tax credits
154
true or false?
| the credit for elderly or disabled is a nonrefundable credit
true
155
this credit applies to taxpayers 65 and older or those under 65 who are retired an permanently or totally disabled
credit for elderly or disabled
156
if the tax in the foreign jurisdiction is more than the US tax, then taking the tax credit is generally _______ advantageous
more
157
true or false?
| a taxpayer can take advantage of both the foreign tax credit and the foreign earned income exclusion
false
158
true or false?
| the adoption credit is a nonrefundable credit
true
159
the child tax credit is reduced $____ for every $________ above MAGI threshold
$50 ; $1,000
160
true or false?
| room and board are qualifying expenses under the american opportunity tax credit
false
161
____% of the american opportunity tax credit is refundable
40%
162
the child tax credit is a _____ credit
refundable
163
under the lifetime learning credit a taxpayer may claim ____% of qualified expenses up to $_____
20% ; $10,000
164
true or false?
| both the lifetime learning credit and american opportunity tax credit can be claimed if married filing separately
false, neither can be claimed
165
assumes that depreciation is uniform throughout the useful life of the assets
straight line depreciation
166
how to calculate straight line depreciation
(Cost - residual value) / useful life
167
Under MACRS depreciation residential real estate has a depreciation life of ____ years and non residential real estate has a depreciation life of ____ years
27.5 years ; 39 years
168
the maximum write-off under section 179 for tangible personal property used in a trade or business is $__________ for 2017
$510,000
169
In 2017 ABC corporation purchased and placed in service a piece of machinery costing $25,000. Assuming ABC corp had taxable income of $22,000 (without regard to section 179 expense) what would be the maximum section 179 expense that ABC could take for 2017?
$22,000 would be the maximum section 179 expense ABC could take because you can't take more than your taxable income. ABC can carry forward $3,000
170
In 2017, Betty Corp purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,040,000. What portion of the cost may Betty elect to treat as an expense rather than as a capital expenditure assuming net taxable income of $4million? What is the new basis of the purchased machinery?
$500,000 calculated as follows
$510,000 is the normal maximum write off, but because the equipment was purchased for more than $2,030,000 the write off gets reduced by the excess between the purchase price and $2,030,000
$510,000 - ($2,040,000 - $2,030,000)
new basis = $2,040,000 - $500k = $1,540,000
171
Certain intangible assets are amortized over ____ years (copyrights, trademarks, patents, etc.)
15 years
172
Maria acquired a business on July 1 of the current year. The purchase price included a copyright valued at $30k. How much can Maria claim as amortization this year and in following years?
This year = 6 months of having copyright or 50% of the year x $30k / 15 = $1k
Following years = $30k / 15 = $2k
173
depletion method in which the asset basis is divided by the estimated total number of recoverable units of the asset and then multiplied by the number of units sold
cost depletion
174
depletion method a statutory percentage is applied to the gross income from the property limited to 50% of AGI
percentage depletion
175
Cole owns a sulfur mine that had 100,000 total estimated tons when he purchased it for $2million. In the current year 20,000 tons were extracted and 18,000 tons were sold. The statutory depletion % for sulfur is 22%. Gross income for the year was $1million. How much depletion deduction can Cole take?
under cost method he can take $360k calculated as follows:
($2million / 100k) x 18,000 = $360k
under the percentage depletion method he can take $220k calculated as follows:
$2million x 22% = $220k
176
Peggy a cash-basis taxpayer has the following items of income for the current year:
salary = $40k
bonus check issued and available at payroll office =$5k
Borrowed $10k on home equity loan
original issue discount bond accrual amount = $2k
US Savings bond that increased in redemption value = $200 (last year she elected to include this redemption value increase in her income)
what is Peggy's gross income?
$47,200
177
true or false?
for both cash basis and accrual basis tax payers an increase in redemption value of a original issue discount must be included in income in the year the increase occurs
true
178
requires reporting of expenses when incurred and income when earned for any single tax year
accrual method
179
method that states that expenses do not have to be paid to be deductible nor does income have to be received to be taxable
accrual method
180
In Year 1, ABC Corp entered into a contract to build a hotel that will be completed by December year 2. The contract price was $2million and the estimated cost of construction was $1million. During year 1, actual costs incurred were $600k. In year 2, the hotel was completed at a total cost of $1.1 million. What net income will ABC corp report for years 1 and 2?
Year 1 = $2 million x ($600k / $1 million) - $600k = $600k
| Year 2 = $2 million - $1.2 million - $500 = $300k
181
allows the taxpayer to defer revenue recognition until the contract is completed
completed contract method
182
if the total amount of property placed in service exceeds $_____ the $510,000 section 179 allowance is reduced dollar for dollar
$2,040,000
