In 2013, Rocio invested $30,000 in a cattle-feeding partnership that used nonrecourse notes to purchase $100,000 of feed, which was used to feed the cattle and expensed. If Rocio’s share of the expense was $50,000, what is the most that Rocio can deduct in 2013?
a. $100,000
b. $50,000
c. $30,000
d. $20,000
2. Gema, a corporate executive, exercised an incentive stock option (“ISO”) granted by Gema’s employer to purchase 1,000 shares of the corporation’s stock at the option price of $1 per share (i.e., the exercise price was $1 per share). The stock is freely transferable. At the time the option was exercised, the stock was selling for $11 per share. What is the AMT adjustment that results from Gema exercising the ISO (assume that Gema will NOT dispose of any of the stock during the year)?
a. $0
b. $10,000
c. $11,000
d. $12,000
3. Wilny, a single parent, lives in an apartment with Wilny’s THREE minor children all under age 12, whom Wilny supports. For 2013, Wilny will have AGI and earned income of $20,000. Calculate the amount, if any, of Wilny’s earned income credit.
a. $0
b. $3,000
c. $5,523
d. $6,044
4. Pedro and Tamella are married and file a joint return. In 2013, Tamella worked fulltime and earned $15,000, while Pedro worked fulltime and earned $19,000. Assume their 2013 AGI equaled $34,000. Assume they incurred $5,000 of child care expenses during 2013 for their ONE dependent child, Melissa (who is 5 years old). What is their child and dependent care CREDIT amount?
a. $5,000
b. $3,000
c. $1,000
d. $750
5. In 2006, Dy received stock from Parbat worth $50,000 at the time of the GIFT. At the time of the gift, Parbat’s adjusted basis in the stock was $75,000. What is the gain or loss that Dy should report for 2013 if she sold the stock to Tanzina in 2013 for $70,000 (ignore any gift tax that may have been paid on the transfer from Parbat to Dy)?
a. There is no gain or loss
b. $70,000 gain
c. $20,000 gain
d. $5,000 loss
6. Now, assume that in the previous question Dy sold the stock to Tanzina for $100,000 (instead of $70,000). What is the gain or loss that Dy should report (again, ignore any gift tax that may have been paid on the transfer from Parbat to Dy)?
a. There is no gain or loss
b. $100,000 gain
c. $50,000 gain
d. $25,000 gain
7. Now, assume that in Question 5 Dy sold the stock to Tanzina for $20,000 (instead of $70,000). What is the gain or loss that Dy realized on the sale to Tanzina (again, ignore any gift tax that may have been paid on the transfer from Parbat to Dy)?
a. There is no gain or loss
b. $55,000 loss
c. $30,000 loss
d. $20,000 gain
8. Jeff traded in office equipment with an adjusted basis of $40,000 (and value of $70,000) for other (like-kind) office equipment then valued at $50,000. Jeff also received $20,000 in cash as part of the deal. What was Jeff’s recognized gain on the exchange, if any?
a. $70,000
b. $30,000
c. $20,000
d. $0
9. Moses traded in computer equipment with an adjusted basis of $30,000 (and a value of $40,000) for other (like-kind) computer equipment then valued at $35,000. Moses also received $5,000 in cash as part of the deal. What was Moses’s realized gain on the exchange, if any?
a. $40,000
b. $10,000
c. $5,000
d. $0
10. In 2013, Alisha and Gabriel sold a house to Yenisey for $1,000,000. Prior the 2013 sale, neither Alisha nor Gabriel had ever excluded a gain from the sale of a personal residence. Alisha and Gabriel had lived in the house for the last five years and used it exclusively for personal purposes. Alisha and Gabriel had purchased the house for $200,000. Alisha and Gabriel started living in the house immediately after purchasing it and never made any capital improvements to the house or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a gain did Alisha and Gabriel realize on the sale to Yenisey (assume that Alisha and Gabriel are married and file a joint return)?
a. $300,000
b. $500,000
c. $800,000
d. $1,000,000
11. Assume the facts stated in the previous question. How much of a gain must Alisha and Gabriel recognize on the sale to Yenisey?
a. $300,000
b. $500,000
c. $800,000
d. $1,000,000
12. In 2013, Lasheca will have taxable income of approximately $50,000. In 2013, Lasheca will also have a long-term capital loss of $22,000. Lasheca has no other capital gains or losses (in 2013 or prior years). For 2013, what is the maximum capital loss amount that Lasheca may use to offset her other income?
a. $22,000
b. $19,000
c. $3,000
d. $0
13. Assume the facts stated in the prior question. Assume further that for 2013 Lasheca offset her wages (with her capital loss) to the maximum extent permitted by law. What is the amount of Lasheca’s capital loss carryover to 2014?
a. $22,000
b. $19,000
c. $3,000
d. $0
14. Yanela is a single taxpayer in the 35% tax bracket. Yanela wants to minimize her 2013 tax liability. Which of the following provides the LARGEST tax benefit to Yanela (assume that she may legally take advantage of each item in its entirety for 2013)?
a. A $5,000 exclusion from gross income.
b. A $1,000 deduction from gross income.
c. A $500 tax credit.
d. Options “a” and “b” would provide the largest tax benefits.
15. What was the MAXIMUM EARNED INCOME CREDIT amount that Jared and Janice could possibly take for 2013? Assume they are U.S. taxpayers filing a joint return with NO qualifying children.
a. $0
b. $487
c. $1,000
d. $3,000
16. Which item MOST resembles an interest free loan from the U.S. government?
a. First-time homebuyer credit for a closing that occurred in June of 2008
b. The earned income credit
c. The American Opportunity tax credit
d. The child tax credit
17. In early 2013, Kristen sold her personal residence to Jamie for $500,000. At the time of the sale, Kristen’s adjusted basis was $300,000. Within three months of the sale, Kristen moved into a new residence she purchased for $450,000. What is Kristen’s basis in her new residence?
a. $200,000
b. $250,000
c. $300,000
d. $450,000
18. Which of the following is TRUE?
a. When compared to exclusions, deferrals are more permanent in nature
b. When compared to deferrals, exclusions are more permanent in nature
c. Section 1031 provides for an elective deferral upon certain exchanges
d. All of the above
19. Kristen’s business property (located in Yeniseyville USA) was condemned by the proper local authorities. Immediately before the condemnation, the property had a fair market value of $400,000 and Kristen’s adjusted basis in the property was $100,000. The local authorities replaced Kristen’s condemned property with similar Yeniseyville property having a fair market value of $300,000. What is Kristen’s realized gain or loss relating to these matters?
a. $0
b. Loss of $100,000
c. Gain of $200,000
d. Gain of $300,000
20. Assume the facts stated in the prior question. What is Kristen’s recognized gain or loss relating to such matters?
b. Loss of $100,000
c. Gain of $200,000
d. Gain of $300,000
21. Assume the facts stated in the prior two questions. What is Kristen’s basis in the Yeniseyville property she received as a result of the condemnation (i.e., what is Kristen’s basis in the newly acquired property)?
a. $0
b. $100,000
c. $200,000
d. $300,000
22. In 2013, Janice and Jamie sold a house to Melissa for $500,000. Janice and Jamie had purchased the house for $900,000 in 2005 (during the real estate boom). Janice and Jamie started living in the house immediately after purchasing it and never made any capital improvements to it or took any depreciation (or other deductions) against it. Assume there were no selling expenses. How much of a LOSS may Janice and Jamie recognize on the sale to Melissa (assume that Janice and Jamie are married and file a joint return and itemize deductions)?
a. $0
b. $400,000 less 10% of their AGI
c. $399,900 less 10% of their AGI
d. $400,000
23. Inyam purchased land for $400,000 in 1988. The land was valued at $900,000 on July 1, 2013, when Inyam died. Inyam’s son Johnathan inherited the land. What basis would Johnathan have in the land as a result of the inheritance?
a. $900,000
b. $400,000
c. Inyam’s adjusted basis on July 1, 2013 (if different than $400,000)
d. $0
24. Assume the same facts stated in the previous question. Which of the following is most likely TRUE, if Johnathan sold the land in September 2013 for $1,000,000?
a. Johnathan’s 2013 gain is short-term
b. In 2013, Johnathan should “recapture” any depreciation previously taken by Inyam on the land
c. In 2013, Johnathan will be taxed on the appreciation that occurred while Inyam held the land (provided that such appreciation was previously not taxed)
d. Johnathan’s 2013 gain is long-term
25. Which of the following statements is most likely TRUE for Jared (a typical individual taxpayer in the 35% tax bracket)?
a. Jared usually prefers long-term capital gains to ordinary income
b. Jared usually prefers capital losses to ordinary losses
c. Jared usually prefers a $1,000 deduction to a $700 credit
d. Both “a” and “b” are correct
26. Gabriel, who owns and operates an ICE CREAM SHOP as a sole proprietor, has the following property:
· STOCKS held for Gabriel’s investment
· Elaborate ice cream making EQUIPMENT that was inherited from Tanzina (Gabriel’s grandmother) (it is used exclusively in the ICE CREAM SHOP)
· CHAIRS that are used exclusively the ICE CREAM SHOP
· a COMPUTER used exclusively in the ICE CREAM SHOP
Considering the above items, which option below lists the capital asset(s) under Section 1221?
a. Only the STOCKS
b. Only the STOCKS & CHAIRS
c. Only the EQUIPMENT, CHAIRS & COMPUTER
d. Each of the above assets is a capital asset under Section 1221
27. Jeff recently purchased a piece of land, a building and a truck for a lump sum of $500,000. The fair market value of the land was $200,000, the fair market value of the building was $350,000, and the fair market value of the truck was $50,000. What is Jeff’s basis in the TRUCK?
a. $166,667
b. $50,000
c. $41,667
d. $0
28. On September 1, 2005, Pedro paid $550 for 10 shares of TXX-5761 Inc. common stock. On August 13, 2013, Pedro received a nontaxable 10% common stock dividend (i.e., 1 additional share of identical common stock). On August 13, 2013, TXX-5761 Inc. the common stock was trading on the market for $70 a share. On November 15, 2013, Pedro sold the 1 share he received on August 13, 2013 to Wilny. What is the basis of the 1 share Pedro sold to Wilny?
a. $70
b. $55
c. $50
d. $0
29. Refer to the facts stated in the prior question. The gain or loss resulting from the November 15, 2013 sale to Wilny will most likely be:
a. Long-term
b. Short-term
c. Both short-term and long-term
d. Neither short-term nor long-term
30. In 2013, Tanzina sold a piece of equipment from Tanzina’s business for $400,000. The equipment was purchased in 2009 for $240,000. It had a useful life of five years and was depreciated on a straight-line basis. Assume total of $168,000 depreciation was taken (prior to the sale). What is Tanzina’s recognized gain on the sale?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
31. Refer to the facts stated in the prior question. What amount of the gain will be recaptured at Tanzina’s ordinary income rate?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
32. Refer to the facts stated in the prior two questions. What amount of the gain will be treated as Section 1231 gain and (possibly) taxed at the long-term capital gain rate?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
33. Which of the following is most likely Section 1245 property (assume that each item has been held long-term and is used in a trade or business)?
a. Inventory
b. Business Equipment
c. Office Building
d. Land
34. Which of the following is most likely Section 1231 property (assume that each item has been held long-term and is used in a trade or business)?
a. Section 1250 property
b. Section 1245 property
c. Land
d. Each of the above items is Section 1231 property
35. Which of the following would MOST LIKELY require an adjustment for the alternative minimum tax?
a. A deduction for state income taxes
b. A gambling loss
c. A charitable contribution deduction
d. Each of the above items requires an adjustment for the alternative minimum tax
36. Pedro was at risk for $25,000 in Partnership X and $30,000 in Partnership Z on January 1, 2013. Both partnerships are passive activities to Pedro (these are Pedro’s only passive activities). Pedro’s share of net income from Partnership X during 2013 is $20,000. Pedro’s share of losses from Partnership Z during 2013 is $60,000. How much is Pedro at risk for Partnership X on January 1, 2014?
a. $0
b. $20,000
c. $25,000
d. $45,000
37. Refer to the facts in the previous question. How much is Pedro at risk for Partnership Z on January 1, 2014
a. $0
b. $20,000
c. $30,000
d. $60,000
38. Refer to the facts in the previous questions. What is Pedro’s carryover under the at-risk rules for Partnership Z in 2013?
a. $0
b. $10,000
c. $20,000
d. $30,000
39. Refer to the facts in the previous question. What is Pedro’s deductible loss for Partnership Z in 2013?
a. $0
b. $20,000
c. $30,000
d. $60,000
40. Refer to the facts in the previous question. What is Pedro’s suspended loss under the passive loss rules for Partnership Z in 2013?
a. $0
b. $10,000
c. $20,000
d. $50,000
41. In 2013, Rocio invested in the LASHECA Limited Partnership (“LASHECA L.P.”) by paying $50,000 cash and contributing additional assets worth $40,000 (and having a basis equal to $20,000 on the date of the contribution). What amount did Rocio have at risk in LASHECA L.P. as of January 1, 2014, if LASHECA L.P. broke even in 2013 (i.e., if LASHECA L.P. had no income or loss in 2013)?
a. $50,000
b. $70,000
c. $90,000
d. $110,000
42. Refer to the facts stated in the prior question. But, for this question, assume that LASHECA L.P. allocated to Rocio net income of $20,000 from operations in 2013. What amount does Rocio have at risk in LASHECA L.P. as of January 1, 2014?
a. $50,000
b. $70,000
c. $90,000
d. $110,000
43. In 2013, Kristen and Jared (who file a joint return) had an interest expense of $10,000 on a loan that was used to purchase a variety of stock and bonds (all producing taxable income). Assume further that, in 2013, Kristen and Jared had net investment income of $6,000. Assume they itemize deductions, what is their maximum interest expense deduction in 2013?
a. $10,000
b. $6,000
c. $4,000
d. $0
44. Assume that Johnathan and Janice file a joint return and have the following items for 2013:
Taxable income: $75,000
Positive adjustments: $25,000
Preferences: $50,000
Regular tax ability: $10,608
What was their 2013 AMT?
a. $0
b. $7,384
c. $10,608
d. $17,992
45. Assume that a couple that filed a joint return had 2013 AMTI of $400,000. What was the amount of their actual 2013 exemption for the AMT?
a. $80,800
b. $19,275
c. $7,800 (i.e., $3,900 x 2)
d. $0
46. Moses is negotiating to buy land from Tamella. What will Moses’s basis be in the land, if Moses gives Tamella $100,000 and Moses assumes Tamella’s mortgage on the land of $80,000?
a. $20,000
b. $80,000
c. $100,000
d. $180,000
47. Which of the following is LEAST likely to qualify as a like-kind exchange under Section 1031 (assume all of the assets are used for business)?
a. Improved real estate for unimproved real estate
b. Office building for a warehouse
c. Office furniture for office equipment
d. Unimproved real estate for computer printer
48. Gabriel exchanges undeveloped real estate for developed real estate on October 30, 2013. On October 30, 2013, the fair market value of each property is $600,000. Gabriel had purchased the undeveloped real estate on February 14, 2005, for $400,000. Both properties are considered investment property for Gabriel. Which of the following is FALSE?
a. Gabriel will realize a gain of $200,000 from the October 30, 2013 transaction
b. Gabriel will recognize a gain of $200,000 from the October 30, 2013 transaction
c. Gabriel’s basis in the developed real estate is $400,000
d. If Gabriel sells the developed real estate in June of 2014 for a gain, the gain will most likely be treated as a long-term gain
49. In October 2012, Melissa purchased a playground set at a garage sale for $100. Melissa is not in the business of buying and selling anything. Melissa researched the playground set online and discovered it was worth $1,000. In December 2013, Melissa sold the playground set through an auction website for that amount (i.e., $1,000). Which of the following is TRUE considering these transactions?
a. Melissa does not have any income
b. Had Melissa sold the playground set for $50, Melissa could have deducted a $50 ordinary loss
c. Melissa has a $900 long-term capital gain
d. Melissa has a $900 short-term capital gain
50. Johnathan had the following net Section 1231 results for each of the years shown.
|
Tax Year |
Net Section 1231 LOSS |
Net Section 1231 GAIN |
|
2008 |
$0 |
$0 |
|
2009 |
$0 |
$0 |
|
2010 |
$0 |
$0 |
|
2011 |
$5,000 |
|
|
2012 |
$2,000 |
|
|
2013 |
|
$20,000 |
Which of the following is TRUE regarding the net Section 1231 gain in 2013?
a. All $20,000 will all be taxed at Johnathan’s ordinary income rate
b. All $20,000 will all be taxed at Johnathan’s long-term capital gain rate
c. $2,000 of the $20,000 will be taxed at Johnathan’s long-term capital gain rate
d. $7,000 of the $20,000 will be taxed at Johnathan’s ordinary income rate
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