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Exam 6: Deductions and Losses: in General

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Question 51

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If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.

A) True
B) False

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Question 52

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Ordinary and necessary business expenses,other than cost of goods sold,of an illegal drug trafficking business do not reduce taxable income.

A) True
B) False

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Question 53

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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 1,2014.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 1,2014.How much can Taylor deduct as rent expense for 2014?

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?

Calculate the net income includible in taxable income for the following hobby:

If a taxpayer can satisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity can be deducted in excess of the gross income from the activity.

The legal cost of having a will prepared is not 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 1,2014.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.

Only some employment related expenses are classified as deductions for AGI.

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

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

For a taxpayer who is engaged in a trade or business,the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

Janet is the CEO for Silver,Inc. ,a closely held corporation.Her total compensation for 2014 is $5 million.Of this amount,$2 million is a salary and $3 million is a bonus.The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million × 5% = $3 million).The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors (1 of the 5 directors is an outside director)of Silver.How much of Janet's compensation can Silver deduct for 2014?

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.

For a vacation home to be classified in the personal/rental use category,what attributes must be present?

LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.

Section 212 expenses that are related to rent and royalty income are deductions for AGI.

Melba incurred the following expenses for her dependent daughter during the current year: $\begin{array} { l } \text {Payment of principal on daughter's automobile loan }&\$3,600\\ \text {Payment of interest on above loan }&2,900\\ \text { Payment of daughter's property taxes}&1,800\\ \text {Payment of principal on daughter's personal residence loan }&2,800\\ \text { Payment of interest on daughter's personal residence loan}&7,00\\\\ \text {How much may Melba deduct in computing her itemized deductions? }&\\\end{array}$

For a vacation home to be classified in the primarily rental use category,what attributes must be present?

Under what circumstance can a bribe be deducted?