____ 21. On September 3, 2009, Able purchased § 1244 stock in Red Corporation for $6,000. On December 31, 2009, the stock was worth $8,500. On August 15, 2010, Able was notified that the stock was worthless. How should Able report this item on his 2009 and 2010 tax returns? a. 2009—$0; 2010—$6,000 ordinary loss. b. 2009—$0; 2010—$6,000 long-term capital loss. c. 2009—$2,500 short-term capital loss; 2010—$8,500 short-term capital loss. d. 2009—$2,500 short-term capital gain; 2010—$3,800 ordinary loss. e. None of the above. ____ 22. John files a return as a single taxpayer. In 2010, he had the following items: • Salary of $100,000. • Loss of $65,000 on the sale of § 1244 stock acquired two years ago. • Interest income of $8,000. Determine John’s AGI for 2010. a. 0. b. $43,000. c. $55,000. d. $58,000. e. None of the above. ____ 23. Which of the following events would produce a deductible loss? a. Erosion of personal use land due to rain or wind. b. Termite infestation of a personal residence over a several year period. c. Damages to personal automobile resulting from a taxpayer’s willful negligence. d. A misplaced diamond ring. e. None of the above. ____ 24. In 2010, Wally had the following insured personal casualty losses (arising from one single casualty). Wally also had $48,000 AGI for the year. [Remember, you must consider the loss at the time of the casualty. How much did Wally lose due to the casualty even? Then determine how much of that total loss is deductible on his tax return for 2010.] Fair Market Value Insurance Asset Adjusted Basis Before After Recovery A $9,200 $8,000 $1,000 $2,000 B 3,000 4,000 –0– 500 C 3,700 1,900 –0– 800 Wally’s casualty loss deduction is: a. $3,700. b. $3,800. c. $4,500. d. $8,600. e. $9,500. ____ 25. John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows: Cost basis $250,000 Value before the fire 400,000 Value after the fire 100,000 Insurance recovery 270,000 John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows: Cost basis $80,000 Value before the accident 6,000 Value after the accident 20,000 Insurance recovery –0– What is John’s deductible casualty loss? a. $0. b. $15,800. c. $15,900. d. $35,900. e. None of the above. ____ 26. Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year. a. $3,750. b. $14,650. c. $14,750. d. $18,750. e. None of the above. ____ 27. Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in February of the following year. No assets were purchased in the following year. Grape Corporation’s cost recovery would begin: a. In the current year using a mid-quarter convention. b. In the current year using a half-year convention. c. In the following year using a mid-quarter convention. d. In the following year using a half-year convention. e. None of the above. ____ 28. Which of the following assets would be subject to cost recovery (”depreciation”)? a. A world renowned work of art by the painter Picasso hanging on a doctor’s office wall. b. A Ming Dynasty (Chinese) antique vase in a doctor’s waiting room. c. Improvements to a parking lot used by a doctor’s patients. d. a., b., and c. e. None of the above. ____ 29. Hazel purchased a new business asset (five-year property) on November 30, 2010, at a cost of $100,000. This was the only asset acquired by Hazel during 2010. On January 7, 2011, Hazel placed the asset in service. She did not elect to expense any of the asset cost under § 179, nor did she elect straight-line cost recovery. Hazel did elect not to take additional first-year (bonus) depreciation. On October 25, 2012, Hazel sold the asset. Determine the cost recovery for 2012. a. $9,600. b. $16,000. c. $26,000. d. $38,000. e. None of the above. ____ 30. Alice purchased office furniture on September 20, 2010, for $100,000. On October 10, she purchased business computers for $80,000. Alice did not elect to expense any of the assets under § 179, nor did she elect straight-line cost recovery. If Congress reenacts additional first-year depreciation for 2010, Alice does elect not to take additional first-year (bonus) depreciation. Determine the cost recovery deduction for the business assets for 2010, recognizing that furniture is a 7 year asset, and computers are a 5 year asset: a. $6,426. b. $14,710. c. $25,722. d. $30,290. e. None of the above. ____ 31. Bonnie purchased a new business asset (five-year property) on March 10, 2010, at a cost of $20,000. She also purchased a new business asset (seven-year property) on November 20, 2010, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnie did elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2010 for these assets. a. $5,858. b. $7,464. c. $9,586. d. $19,429. e. None of the above. ____ 32. Carlos purchased an apartment building on November 16, 1989, for $1,000,000. Determine the cost recovery for 2010 using the appropriate Table presented on pages 8-30 to 8-33. [These amounts are rounded to within $5.00 from that which would have resulted if you used the formula approach.] a. $36,360. b. $32,100. c. $45,500. d. $331,850. e. None of the above. ____ 33. In 2009, Gail had a § 179 deduction carryover of $15,000. In 2010, she elected § 179 for an asset acquired at a cost of $115,000. Gail’s § 179 business income limitation for 2010 is $127,000. Determine Gail’s §179 deduction for 2010. [Don’t rush! Take your time and remember that §179 has certain restrictions.] a. $15,000. b. $115,000. c. $128,000. d. $130,000. e. None of the above. ____ 34. On June 1, 2010, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) If Congress reenacts additional first-year depreciation for 2010, she does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2011. [Be careful! It’s a TWO step calculation]. a. $3,060. b. $3,290. c. $3,430. d. $6,720. e. None of the above. ____ 35. Ryan performs services for Jordan. Which, if any, of the following factors indicate that Ryan is an employee, rather than an independent contractor? a. Ryan provides his own support services (e.g., work assistants). b. Ryan obtained his own training (i.e., job skills). c. Ryan is paid based on tasks performed. d. Ryan does not make his services available to others. e. None of the above. ____ 36. A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons: a. Avoids the cutback adjustment as to business meals. b. All of the self-employment tax is deductible for income tax purposes. c. Work-related expenses are deductible as a business expense and deducted FOR AGI and not subject to the 2%-of-AGI floor for Miscellaneous Deductions on Schedule A. d. A Schedule C does not have to be filed. e. None of the above. ____ 37. Michael is the city sales manager for “Chick-Stick,” a national fast food franchise. Every working day, Michael drives his car as follows: Miles Home to office 20 Office to Chick-Stick No. 1 15 Chick-Stick No. 1 to No. 2 18 Chick-Stick No. 2 to No. 3 14 Chick-Stick No. 3 to home 30 Michael’s deductible mileage is: a. 0 miles. b. 30 miles. c. 47 miles. d. 77 miles. e. None of the above. ____ 38. Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows: Miles Home to office 10 Home to Garnet 30 Office to Garnet 35 For these three months, Amy’s deductible mileage for each workday is: a. 0. b. 30. c. 35. d. 60. e. None of the above. ____ 39. Recognizing that there is a cutback adjustment of 50% for meals and entertainment, which of the following trips, if any, will qualify for the travel expense deduction? a. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice. b. Dr. Brown, a surgeon, attends a two-day seminar on financial planning. c. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills. d. Myrna went on a two-week vacation in Boston. While there, she visited her employer’s home office to have lunch with former co-workers. e. None of the above. ____ 40. During the year, Peggy went from Nashville to Quito (Ecuador) on a required business engagement. She spent four days on business, two days on travel, and four days on vacation. Peggy’s total expenses were: Air fare $3,000 Lodging 1,600 Meals 1,200 Entertainment 400 Peggy’s deductible expenses are: This problem is very challenging, so take your time. Recognize that this is foreign business travel where there is both business and pleasure combinged. The two travel days had no expenses for meals included. Ignore transportation costs to and from the airport; assume that he shared the ride with someone else who paid for the costs. a. $2,500. b. $2,800. c. $3,100. d. $4,300. e. None of the above. ____ 41. As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct? a. Work at the new location need not involve a full-time job—part-time job will suffice. b. The taxpayer has two years in which to satisfy the 39-weeks or 78-weeks requirement. c. The time test is waived for persons whose move follows retirement. d. The moving expense deduction can be claimed in a tax year even though the taxpayer has not yet met the time test, assuming that he or she will meet the time test in the 39 or 78 week work period after the actual move. e. None of the above. ____ 42. Carolyn is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During 2010, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $3,900 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and from campus). Disregarding the 2%-of-AGI limitation, as to the MBA program, Carolyn has a: (Consider Code Section 222). a. Deduction for and deduction from AGI of $0. b. Deduction for AGI of $3,900 and deduction from AGI of $700. c. Deduction for AGI of $4,000 and deduction from AGI of $600. d. Deduction for AGI of $4,100 and deduction from AGI of $500. e. None of the above. ____ 43. The § 222 deduction for tuition and related expenses is available: a. Regardless of the amount of a taxpayer’s AGI. b. To cover room and board expenses to attend college. c. To a married taxpayer filing a separate return. d. Even if a taxpayer claims the standard deduction. e. None of the above. ____ 44. Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Gambling losses (to the extent of gambling gains). b. Moving expenses (not reimbursed by employer). c. Teaching supplies (up to $250) purchased by a fifth grade teacher. d. Union dues of an employed machinist. e. None of the above. ____ 45. Nancy had an accident while skiing on vacation. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her nose, which was not injured in the accident. The surgery to restore her appearance cost $12,000 and the surgery to reshape her nose cost $5,000. How much of Nancy’s surgical fees will qualify as a deductible medical expense (before application of the 7.5% limitation)? a. $0. b. $5,000. c. $12,000. d. $17,000. e. None of the above. ____ 46. Rosita is employed as a systems analyst. For calendar year 2010, she had AGI of $120,000 and paid the following medical expenses: [Review pages 10-3 through 10-9] Medical insurance premiums $3,900 Doctor and dentist bills for José and Carmen (Rosita’s parents) 8,250 Doctor and dentist bills for Rosita 6,750 Prescribed medicines for Rosita 300 Nonprescribed insulin for Rosita 825 José and Carmen would qualify as Rosita’s dependents except that they file a joint return. Rosita’s medical insurance policy does not cover them. Rosita filed a claim for $3,150 of her own expenses with her insurance company in December 2010 and received the reimbursement in January 2011. What is Rosita’s maximum allowable medical expense deduction for 2010? a. $2,775. b. $11,025. c. $17,325. d. $17,775. e. None of the above. ____ 47. During 2010, Sam, a self-employed individual (he has a qualified business), paid the following amounts: Real estate tax on residence $3,900 State income tax 1,400 Real estate taxes on land in Canada (held as an investment) 900 State sales taxes on personal purchased items 1,950 State occupational license fee required Sam to be in business 250 Personal property tax (ad valorem tax) on value of his personal automobile 200 What amount can Sam claim as taxes in itemizing deductions from AGI? a. $6,600. b. $6,950. c. $7,200. d. $8,600. e. None of the above. ____ 48. Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 in 1989. In May of this year, when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage, they took out a home equity loan for $220,000. They used the funds to purchase a single engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which they can deduct home equity interest? [Reference the text regarding limitations on home equity loan interest deductions.] a. $50,000. b. $100,000. c. $220,000. d. $230,000. e. None of the above. ____ 49. Betty owned stock in General Corporation that she donated to a museum (a qualified charitable organization) on June 28, 2010. What is the amount of Betty’s charitable contribution deduction assuming that she had purchased the stock for $13,400 on January 17, 2009, and the stock had a value of $18,800 when she made the donation? a. $5,400. b. $13,400. c. $16,100. d. $18,800. e. None of the above. ____ 50. Nick made the following contributions this year to the University of the West: Cash $ 84,000 Stock in Palm Corporation (a publicly traded corporation) 126,000 Nick acquired the stock in Palm Corporation as an investment two years ago at a cost of $56,000. Nick’s current AGI is $252,000. What is Nick’s current charitable contribution deduction? a. $75,600. b. $84,000. c. $126,000. d. $210,000. e. None of the above.