Chapter 6 Learning Objective 1. Distinguish between deductions for and from AGI 1 Deductions for AGI may be located A) on the front page of Form 1040. B) on Schedule C as a deduction. C) on Schedule E as a deduction. D) All of the above are true. Answer: D Explanation: D) "For AGI" deductions include trade or business expenses located on Schedule C, rent expenses included on Schedule E, and those items specifically included on the face of the Form 1040. Page Ref.: I:6-4 2 On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except A) alimony. B) home mortgage interest. C) student loan interest. D) moving expenses. Answer: B Explanation: B) Home mortgage interest is an itemized deduction or deduction from AGI. Learning Objective-2. Discuss special disallowance rules for deductions Wash Sale 3 Ms. Rich had the following transactions in GM Corp. common stock. Asset Date Transaction Number Description Amoun t GM Corp. stock 1-2-Year 1 Bought: 4,000 shares Cost $20,000 GM Corp. stock 12-31-Year 2 Sold: 4,000 shares Selling Price $12,000 GM Corp. stock 1-2-Year3 Bought: 3000 shares Cost $9,000 How much loss may she deduct for Year 2 and what is the basis of the stock bought in Year 3? Loss Basis Loss Basis D a. $2,000 $9,000 c. $0 $15,000 b . $0 $9,000 d. $2,000 $15,000 Anwer: Realized loss: (12,000-20,000)=-8000 Disallowed loss from the wash sale: 8000*3000/4000=6000 Deductible loss(recognized loss): 8000-6000=2000 The Basis for new shares=cost + disallowed loss=9,000+6,000=15,000
4 Heinrich, a calendar year taxpayer, owns 1,000 shares of Vanity Corporation common stock, which he purchased for $4,000 in January 01, Year 1. Heinrich sells all of his shares on December 29, Year 1, for $2,500. On January 23, Year 2, he purchases 600 shares of Vanity Corporation common stock. What is the amount of Heinrich's recognized loss in Year 1? a. $ - 0 - b. $ 600 c. $ 900 d. $1,500 e. $4,000 B Anwer: Realized loss: (2,500-4,000)=-1500 Disallowed loss from the wash sale: 1500*600/1000=900 Deductible loss(recognized loss): 1500-900=600 5 Sylvia owns 1,000 shares of Sidney Sails, Inc., for which she paid $18,000 several years ago. On March 15 of the current year, she purchases 400 additional shares for $5,000. Sylvia sells the original
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- Fall '12
- Financial Accounting, Taxation in the United States, Wash sale