Chapter 6 MC Flashcards
Five years ago John purchased a portfolio of public-purpose municipal bonds for $85,000. During the current year he received $8,000 interest on these bonds. At the end of the current year he sold these bonds for $95,000. How much taxable income must John report for the current year as a consequence of owning and disposing of these bonds?
$10,000 Any gain from the sale of tax-exempt securities is subject to federal income taxation. Since the bonds are public-purpose bonds, the interest is tax exempt.
This year Joe Carlton gave rental real estate worth $50,000 to his daughter Susan as a wedding present. Joe’s adjusted basis in the property was $10,000. After Susan received the property, it generated $5,000 in income this year. Which of the following amounts will Susan have to include as income this year?
Only the $5,000 of income generated by the gifted property is includible in Susan’s gross income.
Which of the following statements concerning the income tax treatment of disability income insurance benefits is (are) correct? I. Benefits received from policies paid for by an employer are generally included in the employee’s gross income. I. Benefits from policies owned and paid for by the insured are taxable income to him or her when received.
I only II is incorrect because benefits on disability policies personally owned and paid for by the insured are not taxable.
Which of the following is (are) included in the gross income of an individual taxpayer? I. damages other than punitive damages received on account of a physical personal injury suffered by the taxpayer II. property received by the taxpayer as an inheritance
Neither I nor II I is incorrect because damages (other than punitive damages) received on account of a physical personal injury are generally not taxable. II is incorrect because property received by inheritance is generally not taxable.
All the following statements concerning benefits paid from dependent care assistance programs are correct EXCEPT
The annual dollar limit on excludible benefits for married taxpayers filing jointly is $10,000. The answer is (A). The dollar limit is $5,000.
All the following statements concerning the income tax treatment of benefits received by an employee under an employer-financed nondiscriminatory accident and health plan are correct EXCEPT
(B) Benefits received in excess of the amount of expenses actually incurred for medical treatment are excludible from the employee’s gross income. Benefits received in excess of medical expenses incurred will be includible in gross income.
