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Exam 6: Deductions and Losses: in General

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Question 71

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Which of the following statements is correct?

A) If a personal residence is rented for fewer than 15 days, the rent income is not included in gross income and no expenses can be deducted.
B) If a personal residence is rented for more than 14 days, the rent income must be included in gross income and all the related expenses can be deducted.
C) If a personal residence is rented for more than 14 days and the personal use days exceed 14 days and 10% of the rental days, the rent income must be included in gross income, but the expense deductions are limited to the amount of gross income.
D) Only a. and b.
E) Only a. and c.

F) D) and E)
G) A) and B)

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Question 72

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Brenda invested in the following stocks and bonds during 2011.

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Question 73

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Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1)the business is not acquired; and (2)the business is acquired?

Angela,a real estate broker,had the following income and expenses in her business: How much net income must Angela report from this business?

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use on November 1,2011.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:

Taylor,a cash basis architect,rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1,2011.In order to guarantee no rent increases during an 18-month period,he signed an 18-month lease and prepaid the $90,000 on February 1,2011.How much can Taylor deduct as rent expense for 2011?

Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

Alton sells land with an adjusted basis of $150,000 and a fair market value of $140,000 to his mother,Shirley,for $140,000.Alton reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $148,000.

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

Which of the following is not a "trade or business" expense?

If a vacation home is used for personal use less than 15 days and is rented for more than 14 days during a year,the property is treated as primarily rental property.

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

A cash basis taxpayer who charges an expense on a bank credit card is allowed to claim a deduction currently,whereas a cash basis taxpayer who charges an expense on a department store credit card is not allowed to claim a deduction until payment is made.

The Code defines what constitutes a trade or business.