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Exam 10: Individuals: Income, deductions, and Credits

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Question 51

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The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

A) True
B) False

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Question 52

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In 2015,Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah.In addition,she spent $250 for meals while away from home.In total,Allison may take a charitable contribution deduction of $112 (800 miles × $.14)relating to her transportation.

A) True
B) False

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Question 53

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Travis and Andrea were divorced.Their only marital property consisted of a personal residence (fair market value of $400,000,cost of $200,000) ,and publicly-traded stocks (fair market value of $800,000,cost basis of $500,000) .Under the terms of the divorce agreement,Andrea received the personal residence and Travis received the stocks.In addition,Andrea was to receive $50,000 for eight years. I.If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years) ,the payments will qualify as alimony. II) Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III) If Travis sells the stocks for $900,000,he must recognize a $400,000 gain.

Phyllis,a calendar year cash basis taxpayer who itemized deductions totaling $20,000,overpaid her 2014 state income tax and is entitled to a refund of $400 in 2015.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2015.She is required to recognize that amount as income in 2015.

The American Opportunity credit is available per eligible student,while the lifetime learning credit is calculated per taxpayer.

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Bill paid $2,500 of medical expenses for his daughter,Marie.Marie is married to John and they file a joint return.Bill can include the $2,500 of expenses when calculating his medical expense deduction.

On December 31,2015,Lynette used her credit card to make a $500 contribution to the United Way,a qualified charitable organization.She will pay her credit card balance in January 2016.If Lynette itemizes,she can deduct the $500 in 2015.

Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship.Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

Contributions to public charities in excess of 50% of AGI may be carried back 3 years or forward for up to 5 years.

A phaseout of certain itemized deductions applies for all taxpayers who choose to itemize their deductions.

In April 2015,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2014.Even though it relates to 2014,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2015.

Al contributed a painting to the Metropolitan Art Museum of St.Louis,Missouri.The painting,purchased six years ago,was worth $40,000 when donated,and Al's basis was $20,000.If this painting is immediately sold by the museum and the proceeds are placed in the general fund,Al's charitable contribution deduction is $20,000 (subject to percentage limitations).

For all of the current year,Randy (a calendar year taxpayer)allowed the Salvation Army to use a building he owns rent-free.The building normally rents for $24,000 a year.Randy will be allowed a charitable contribution deduction this year of $24,000.

Under the terms of a divorce agreement,Kim was to pay her husband Tom $7,000 per month in alimony.Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21.The husband has custody of their son.For a twelve-month period,Kim can deduct from gross income (and Tom must include in gross income) :

Kevin and Sue have two children,ages 8 and 14.They spend $6,200 per year on eligible employment related expenses for the care of their children after school.Kevin earned a salary of $20,000 and Sue earned a salary of $18,000.What is the amount of the credit for child and dependent care expenses?

John told his nephew,Steve,"if you maintain my house when I cannot,I will leave the house to you when I die." Steve maintained the house and when John died Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

Rick and Carol Ryan,married taxpayers,took out a mortgage of $160,000 when purchasing their home ten years ago.In October of the current year,when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage,the Ryans took out a home equity loan for $110,000.They used the funds to purchase a sailboat to be used for recreational purposes.The sailboat does not qualify as a residence.What is the maximum amount of debt on which the Ryans can deduct home equity interest?