Tax Questions Missed

Question 1

Jeffrey has one mortgage on his primary home of $550,000 and another mortgage on his second home of $400,000. This year, he paid $14,500 in mortgage interest on his primary residence and $11,000 in mortgage interest on his second home. Both mortgages were taken out in 2018.

How much of the mortgage interest is deductible to Jeffery if he itemizes in the current year?

• $25,500
• $14,500
• $20,132
• $6,804

ITEMIZED DEDUCTIONS

Answer 1

Interest paid from a mortgage on a primary and secondary residence up to $750,000 of debt acquired post 12/2017 is deductible if the taxpayer itemizes. In this case, Jeffrey’s qualifying mortgage debt exceeds the $750,000 threshold ($550,000 + $400,000 = $950,000).

As a result, a portion of the mortgage interest paid is deductible. To find the specific percentage, divide the limit ($750,000) by the total qualifying mortgage debt ($950,000) and multiply by the mortgage interest paid ($14,500 + $11,000 = $25,500).

$750,000 ÷ $950,000 = 0.7895

0.7895 x $25,500 = $20,132

Question 2

Cristina and Greg have a house in rural Massachusetts that they rented out for 92 days this summer and used for their own enjoyment for 24 days. Which of the following statements regarding the tax treatment of their property is CORRECT?

• The property can produce passive losses that can be used to offset active and portfolio income.
• Expenses must be allocated between personal use & rental use.
• All expenses allocated to the rental property are allowed.
• The rental income is not required to be reported.

Answer 2

Cristina and Greg rented their property for 92 days. When taxpayers rent a property for greater than 14 days they ‘pass’ the rental use test.

The couple personally used the same property for 24 days. By using the property for the greater of 14 days or 10% of the days rented (i.e., 0.10 x 92 = 9.2 days), the taxpayers ‘fail’ the personal use test.

By having a ‘pass’ on the rental use test and a ‘fail’ on the personal use test, the property is categorized as a ‘mixed-use’ property. Therefore, the expenses must be allocated between personal use & rental use.

https://learn.bostonifi.com/content/course/422/lesson/1606/content/32630

Question 3

The monthly penalty for failure to pay is ____.

• 0.5%
• 5.0%
• 25%
• 20%

Answer 3

A penalty of 0.5% per month (or fraction thereof) up to a maximum of 25% for failure to pay the tax that is due.
https://learn.bostonifi.com/content/course/422/lesson/1606/content/32618

Question 4

Each of the following statements about the deduction for self-employed health insurance premiums are correct EXCEPT:

• 50% of health insurance premiums for self-employed individuals are deductible.
• Applies to coverage for the self-employed individual, spouse, and dependents.
• The available deduction is limited to earned self-employment income.
• This deduction is only available if other health insurance coverage options are not available.

Answer 4

100% of health insurance premiums for self-employed individuals are deductible.

More info: Adjustments to Income: Above-the-Line Deductions.

Question 5

In a price environment with falling prices, inventory value using the FIFO method will be ___________ and inventory value using the LIFO method will be ___________.

• realistic; understated
• understated; realistic
• overstated; understated
• realistic; overstated

Answer 5

In a price environment with falling prices, inventory value using the FIFO method will be realistic and inventory value using the LIFO method will be overstated.

More info: Inventory Valuations / Accounting Method.

Question 6

The property to be received in the exchange must be identified within ____ days after the date of the transfer of the property relinquished in the exchange.

• 45
• 180
• 30
• 60

Answer 6

The property to be received in the exchange must be identified within 45 days after the date of the transfer of the property relinquished in the exchange.

https://learn.bostonifi.com/content/course/422/lesson/1606/content/32626