CPA 02007 Choice a is correct Under the tax benefit rule Farb should report the

Cpa 02007 choice a is correct under the tax benefit

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CPA-02007 Choice "a" is correct. Under the tax benefit rule, Farb should report the $5,000 refund as income in 20X2 since Farb itemizes deductions and would have received a tax benefit from deducting the $8,000 paid in 20X1. Choice "b" is incorrect. Since Farb paid $8,000 in property taxes in 20X1, Farb should deduct it in that year. This is true even though the $8,000 was paid under protest. Do not net the refund against the amount paid and deduct the net amount in 20X2. Choice "c" is incorrect. Since Farb paid $8,000 in property taxes in 20X1, Farb should deduct it in that year. This is true even though the $8,000 was paid under protest. Do not net the refund against the amount paid and deduct the net amount in 20X1. Choice "d" is incorrect. Since Farb paid $8,000 in property taxes in 20X1, Farb should deduct it in that year. There is no need to wait and file an amended 20X1 return in 20X2.
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Regulation 2 Class Questions 5 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. 7. CPA-01934 Jackson owns two residences. The second residence, which has never been used for rental purposes, is the only residence that is subject to a mortgage. The following expenses were incurred for the second residence in 20X1: Mortgage interest $5,000 Utilities $1,200 Hazard insurance $6,000 For regular income tax purposes, what is the maximum amount allowable as a deduction for Jackson's second residence in 20X1?a. $6,200 in determining adjusted gross income. b. $11,000 in determining adjusted gross income. c. $5,000 as an itemized deduction. d. $12,200 as an itemized deduction.CPA-01934 Choice "c" is correct. For a personal residence that is not used for rental purposes, no deduction is allowed for utilities costs or insurance, thus the only deductible amount here is for the mortgage interest. Note that property taxes (not present in this problem) are deductible. In this problem we are not told whether the interest relates to acquisition indebtedness or home equity indebtedness. The deduction for interest on home equity indebtedness is limited to interest on $100,000 of indebtedness, but this is unlikely to be a problem here even if the interest relates solely to home equity indebtedness. This is because of the amount of interest and the fact that there is no debt associated with Jackson's other residence. The deduction for personal residence interest is an itemized deduction. Choice "a" is incorrect. The utilities cost is not deductible; furthermore, the deduction for personal residence interest is an itemized deduction. Choice "b" is incorrect. The insurance cost is not deductible; furthermore, the deduction for personal residence interest is an itemized deduction. Choice "d" is incorrect. For a personal residence, neither insurance costs nor utilities costs are deductible.
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  • The Land, Taxation in the United States, a. b. c.

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