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Taxes and Expenses questions help?

13.Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra’s 80-year old dependent grandfather who lived with Sandra, requires full-time medical and nursing care, he was moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur:
-Room at Twilight$4,500
-Meals for Arthur at Twilight$850
-Doctor and nurse fees$700
-Cable TV service for Arthur’s room$107
-Total$6,157
Twilight has medical staff in residence. Disregarding the 7.5% floor, how much, if any, of these expenses qualify for a medical deduction by Sandra
a.$6,157
b.$6,050
c.$5,200
d.$1,550
e.None of the above
14.Which of the following is correct?
a.If an activity is classified as a trade or business, the net loss can be deducted
b.If an activity is classified as a hobby, none of the expenses can be deducted
c.If an activity is classified as a hobby, part of the expenses may be deductible
d.Only a. and c. are correct
e.a.,b.,c. are correct
15.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 max amount of debt on which they can deduct home equity interest?
a.$50,000
b.$100,000
c.$220,000
d.$230,000
e.None of the above
16.Terry pays $8,000 this year to become a charter member of Mammoth University’s Athletic Council. The membership ensures that Terry will receive choice seating at all of Mammoth’s home basketball games. In addition, Terry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution?
a.$6,200
b.$6,400
c.$8,000
d.$10,200
e.None of the above
17.During the year, Kirk travels from Trenton to Oslo (Norway) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows ( meals and lodging reflect only the business portion):
-Air fare$3,300
-Lodging$900
-Meals and entertainment$1,500
Presuming no reimbursement, Kirk’s deductible expenses are:
a.$5,700
b.$4,950
c.$3,850
d.$2,750
e.None of the above
18.Terry and Jim are both in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The Businesses incur the following expenses:
Terry Jim
-Employee Salaries$200,000$200,000
-Payoffs to policemen$25,000$25,000
-Rent and utilities$50,000$50,000
-Cost of goods sold$-0-$125,000
Which of the following statements is correct?
a.Neither Terry or Jim can deduct any of the above expenses in calculating the business profit
b.Terry should report profit from his business of $225,000 and Jim should report profit from his business of $375,000
c.Jim should report profit from his business of $500,000
d.Jim should report profit from his business of $250,000
e.Terry should report profit from his business of $250,000
19.Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home- building project for Habitat for Humanity ( a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter’s assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily’s deduction associated with this charitable activity?
a.$600
b.$1,200
c.$1,800
d.$2,200
e.$3,700c
20.Which of the following assets would be subject would be eligible for cost recovery?
a.Improvements made to the physical therapy room used by a doctor’s patients
b.An antique vase in a doctor’s waiting room
c.A painting by Picasso hangin on a doctor’s office wall
d.a and c
e.a, b and c
21.Saul is single, under age 65, and has gross income of $50,000. His deductible expenses are as follows:
-Alimony $12,000
-Charitable contributions$2,000
-Contribution to a traditional IRA$5,000
-Expenses Paid on rental property$6,000
-Interest on Home mortgage and property taxes on personal Residence $7,000
-State income tax$2,200
What is Saul’s AGI?
a.$27,000
b.$33,000
c.$32,000
d.$15,800
e.None of the above

3 years ago - 2 answers

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Home Equity Debt
You may not deduct interest on more than $100,000 of home equity debt for your main home and secondary residence. Home equity debt means any loan whose purpose is not to acquire, to construct, or substantially to improve a qualified home, or any loan whose purposes was to substantially improve a qualified home but exceeds the home acquisition debt limit. The home equity debt limit is reduced to $50,000 if you are married filing separately. Your deduction for home equity interest may be reduced even below the $100,000 limit if your indebtedness exceeds the fair market value of your home.
For example, you borrowed $300,000 in a home equity line of credit, and the amount you borrowed did not exceed the fair market value of your house. You used $150,000 to add a new family room to your house. You spent the remaining $150,000 to pay for college tuition. Half of the loan is treated on home acquisition debt (the amount used to substantially improve your home). The other half is treated as home equity debt (the amount not used to improve your home). You would be able to deduct interest only up to the $100,000 limit on home equity debt portion of the loan. Assuming you paid $21,000 interest on the loan, the amounts you can deduct would break down like this:

$10,500 - Fully deductible home acquisition debt (half the loan)
$7,000 - Deductible home equity debt (two-thirds of the home equity portion of the loan)
$3,500 - Non-deductible home equity debt (the interest paid on the home equity debt exceeding $100,000)

In addition, this taxpayer would have to report $7,000 as an AMT adjustment on Form 6251.

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3 years ago

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by Aaliyah Roberts - 3 years ago