FINAL EXAM 674 (1)
Indicate whether the statement is true or false.
Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended
losses of $80,000. An $80,000 passive loss can be deducted on Kim’s final income tax return.
For purposes of computing the credit for child and dependent care expenses, the qualifying employment-
related expenses are limited to an individual’s actual or deemed earned income.
If the buyer assumes the seller’s liability on the property acquired, the seller’s amount realized is decreased by
the amount of the liability assumed.
The maximum amount for the § 121 exclusion (exclusion of gain on sale of principal residence) that can
reduce taxable income for an unmarried taxpayer is $250,000 and for a married taxpayer is $500,000.
Quela, who is single, sells her principal residence which she has owned and occupied for 8 years. Prior to the
sale, she made certain repairs to the house. In addition, she incurred realtor’s commissions and attorney fees
associated with the sale. Quela can reduce the amount realized by the cost of the repairs, the realtor’s
commission, and the attorney’s fee.
Original issue discount is amortized over the life of the bond.
A lease cancellation payment received by a lessee is generally not treated as an exchange because the lease
extinguished is not a capital asset.
Lease cancellation payments received by a lessor are always ordinary income because they are considered to
be in lieu of rental payments.
The net capital gain included in an individual taxpayer’s AMT base is eligible for the alternative tax rate on
net capital gain.
In 2010, Daniel exercised an incentive stock option (ISO), acquiring stock with a fair market value of
$210,000 for $165,000. His AMT basis for the stock is $210,000, his regular income tax basis for the stock is
$165,000, and his AMT adjustment is $45,000 ($210,000 – $165,000).
Thrush Corporation files Form 1120, which reports taxable income of $110,000. The corporation’s tax is
A partnership must provide any information to the partners that the partners would need to calculate
deductions not permitted at the partnership level, such as for oil and gas depletion or the corporate dividends
Partner Bob purchased his partnership interest for $10,000. If Bob sells the partnership interest after three
years, his gain or loss is determined by reference to this unadjusted $10,000 cost basis.