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TXX 5761 – FINAL EXAM |
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Important
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FAILURE TO USE THE PROVIDED ANSWER SHEET WILL
RESULT IN A 15% PENALTY. FAILURE TO SUBMIT
THE ANSWER SHEET AS A WORD DOCUMENT WILL RESULT IN A 15% PENALTY.
1. In 2012, Benjamin invested $12,500 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
Benjamin’s share of the expense was $20,000, how much can Benjamin deduct in 2012?
a.
$0
b.
$10,000
c.
$12,500
d.
$20,000
2. Chervaughn, a corporate executive, exercised an incentive
stock option (“ISO”) granted by Chervaughn’s employer to purchase 10,000 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 $21 per share. What is the AMT adjustment that results from Chervaughn
exercising the ISO (assume that Chervaughn will NOT dispose of any of the stock
during the year)?
a.
$210,000
b.
$200,000
c.
$21
d.
$0
3. Dione, a single parent, lives in an apartment with Dione’s
THREE minor children (John, Joane, and Janiece), whom Dione supports. For 2012, Dione will have AGI and earned
income of $15,000. Calculate the amount,
if any, of Dione’s earned income credit.
a.
$0
b.
$3,000
c.
$5,236
d.
$5,891
4. Nestor and Sonya are married and file a
joint return. In 2012, Sonya worked fulltime
and earned $40,000, while Nestor decided not to work during the year (i.e., Nestor wanted to rest up for 2013
and do some traveling). Assume their 2012
AGI equaled $40,000. Assume they incurred
$12,000 of child care expenses during 2012 for their TWO dependent children, Louis
and Gilbert (ages 2 and 4, respectively). What is their child and dependent
care CREDIT amount?
a.
$0
b.
$2,000
c.
$2,400
d.
$12,000
5. In 2007, Grace received stock from Tricia
worth $50,000 at the time of the GIFT.
At the time of the gift, Tricia’s adjusted basis in the stock was $75,000.
What is the gain or loss that Grace
should report for 2012 if she sold the stock to Neetika in 2012 for $45,000
(ignore any gift tax that may have been paid on the transfer from Tricia to Grace)?
a.
There is no gain or loss
b.
$45,000 gain
c.
$5,000 loss
d.
$30,000 loss
6. Now, assume that in the previous
question Grace sold the stock to Neetika for $60,000 (instead of $45,000). What is the gain or loss that Grace should report
(again, ignore any gift tax that may have been paid on the transfer from Tricia
to Grace)?
a.
There is no gain or loss
b.
$60,000 gain
c.
$10,000 gain
d.
$15,000 loss
7. Now, assume that in Question 5 Grace sold
the stock to Neetika for $100,000 (instead of $45,000). What is the gain or loss that Grace realized on
the sale to Neetika (again, ignore any gift tax that may have been paid on the
transfer from Tricia to Grace)?
a.
There is no gain or loss
b.
$100,000 gain
c.
$50,000 gain
d.
$25,000 gain
8. Adrian traded in computer equipment
with an adjusted basis of $10,000 (and a value of $12,000) for other (like-kind)
computer equipment then valued at $7,000.
Adrian also received$5,000 in
cash as part of the deal. What was Adrian’s
realizedgain on the exchange,
if any?
a.
$0
b.
$2,000
c.
$5,000
d.
$12,000
9. Miguel traded in office equipment with
an adjusted basis of $20,000 (and value of $25,000) for other (like-kind) office
equipment then valued at $18,000. Miguel
also received $7,000 in cash as part
of the deal. What was Miguel’s recognized gain on the exchange,
if any?
a.
$0
b.
$5,000
c.
$7,000
d.
$25,000
10. In 2012, Kristina and Oren sold a house to
Miranda for $1,000,000. Prior the 2012
sale, neither Kristina nor Oren had ever excluded a gain from the sale of a
personal residence. Kristina and Oren
had lived in the house for the last four years and used it exclusively
for personal purposes. Kristina and Oren
had purchased the house for $300,000. Kristina
and Oren 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 Kristina and Oren realize
on the sale to Miranda (assume that Kristina and Oren are married and file a
joint return)?
a. $700,000
b. $500,000
c. $200,000
d. $0
11. Assume the facts stated in the previous
question. How much of a gain must Kristina
and Oren recognize on the sale
to Miranda?
a. $700,000
b. $500,000
c. $200,000
d. $0
12. In 2012, Pabitra will have taxable income
of approximately $80,000. In 2012, Pabitra
will also have a long-term capital loss of $5,000. Pabitra has no other capital gains or losses
(in 2012 or prior years). For 2012, what
is the maximum capital loss amount that Pabitra may use to offset her other
income?
a. $0
b. $2,000
c. $3,000
d. $5,000
13. Assume the facts stated in the prior
question. Assume further that for 2012 Pabitra
offset her wages (with her capital loss) to the maximum extent permitted by
law. What is the amount of Pabitra’s
capital loss carryover to 2013?
a.
$0
b.
$2,000
c.
$3,000
d.
$5,000
14. Nancy is a single taxpayer in the 35% tax
bracket. Nancy wants to minimize her 2012 tax liability. Which of the following provides the LARGEST
tax benefit to Nancy (assume that she may legally take advantage of each item
in its entirety for 2012)?
a.
A $2,000 tax credit.
b.
A $2,700 exclusion from gross income.
c.
A $2,700 deduction from gross income.
d.
Options “b” and “c” would provide the largest tax benefits.
15.
What was the MAXIMUM EARNED INCOME
CREDIT amount that Patricia and Andres can possibly take for 2012? Assume they are U.S. taxpayers filing a joint
return with ONE qualifying child (Britney).
a.
$1,000
b.
$1,050
c.
$3,000
d.
$3,169
16.
Which item MOST resembles an
interest free loan from the U.S.
government?
a.
The bonus
(i.e., additional first-year) depreciation deduction
b.
The earned
income credit
c.
The American
Opportunity tax credit
d.
The child
tax credit
17. In early 2012, Theresa sold her personal
residence to Krisheral for $500,000. At
the time of the sale, Theresa’s adjusted basis was $100,000. Within three months of the sale, Theresa moved
into a new residence she purchased for $500,000. What is Theresa’s basis in her new
residence?
a.
$100,000
b.
$150,000
c.
$250,000
d.
$500,000
18. Which of the following is TRUE?
a.
Section 1031 provides for an elective deferral upon certain
exchanges
b.
When compared to deferrals, exclusions are more permanent in
nature
c.
Deferrals and exclusions are both temporary in nature
d.
All of the above
19. Melba’s business property (located in Tywana
Town USA) was condemned by the proper local authorities. Immediately before the condemnation, the
property had a fair market value of $500,000 and Melba’s adjusted basis in the
property was $300,000. The local
authorities replaced Melba’s condemned property with similar Tywana Town
property having a fair market value of $400,000. What is Melba’s realized gain or loss relating to these matters?
a.
$0
b.
Loss of $100,000
c.
Gain of $100,000
d.
Gain of $400,000
20. Assume the facts stated in the prior
question. What is Melba’s recognized gain or loss relating
to such matters?
a.
$0
b.
Loss of $100,000
c.
Gain of $100,000
d.
Gain of $400,000
21. Assume the facts stated in the prior two
questions. What is Melba’s basis in the TywanaTown
property she received as a result of the condemnation (i.e., what is Melba’s basis in the newly acquiredproperty)?
a.
$0
b.
$300,000
c.
$350,000
d.
$400,000
22. In 2012, Jacqueline and Jhimmy sold a house
to Chesley for $400,000. Jacqueline and Jhimmy
had purchased the house for $1,000,000 in 2004 (during the real estate boom). Jacqueline and Jhimmy 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 Jacqueline and Jhimmy recognize on the sale to Chesley (assume
that Jacqueline and Jhimmy are married and file a joint return and itemize
deductions)?
a. $0
b. $100,000
less 10% of their AGI
c. $600,000
less 10% of their AGI
d. $600,000
23. Tiffany
purchased land for $100,000 in 1985. The
land was valued at $700,000 on July 1, 2012, when Tiffany died. Tiffany’s son Roberto inherited the land in 2012. What basis would Roberto have in the land as
a result of the 2012 inheritance?
a.
$700,000
b.
$600,000
c.
Tiffany’s
adjusted basis on July 1, 2012 (if different than $100,000)
d.
$0
24. Assume the same facts stated in the
previous question. Which of the
following is most likely TRUE, if Roberto sold the land in August 2012 for $800,000?
a.
Roberto’s 2012
gain is short-term
b.
Roberto’s 2012
gain is long-term
c.
In 2012, Roberto
will be taxed on the appreciation that occurred while Tiffany held the land
(provided that such appreciation was previously not taxed)
d.
In 2012, Roberto
should “recapture” any depreciation previously taken by Tiffany on the land
25. Which of the following statements is most likely TRUE for Rebecca
(a typical individual taxpayer in the 35% tax bracket)?
a.
Rebecca usually prefers long-term capital gains to ordinary
income
b.
Rebecca usually prefers capital
losses to ordinary losses
c.
Rebecca usually prefers a $1,200 deduction
to a $1,000 credit
d.
Both “a” and “b” are correct
26. Alexis,
who owns and operates an ICE CREAM SHOP as a sole proprietor, has the following
property:
·
STOCKS held
for Alexis’s investment
·
Elaborate
ice cream making EQUIPMENT that was inherited from Amanda (Alexis’s
grandmother) (it is used exclusively in Alexis’s ICE CREAM SHOP)
·
CHAIRS that
are used exclusively in Alexis’s 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. Rafael recently purchased a piece of
land, a building and a truck for a lump sum of $600,000. The fair market value of the land was $180,000,
the fair market value of the building was $500,000, and the fair market value
of the truck was $20,000. What is Rafael’s
basis in the LAND?
a. $200,000
b. $180,000
c. $154,286
d. $120,000
28. On September 5, 2008, Oren paid $5,500
for 100 shares of TXX-5761 Inc. common stock.
On July 13, 2012, Oren received a nontaxable
10% common stock dividend (i.e., 10
additional shares of identical common stock).
On July 13, 2012, TXX-5761 Inc. the common stock was trading on the
market for $44 a share. On October 15, 2012,
Oren sold the 10 shares he received on July 13, 2012 to Jennifer. What is the basis of the 10 shares Oren
sold to Jennifer?
a.
$550 ($55 x 10)
b.
$500 ($50 x 10)
c.
$440 ($44 x 10)
d.
$0
29. Refer to the facts stated in the prior
question. The gain or loss resulting
from the October 15, 2012 sale to Jennifer will most likely be:
a.
Long-term
b.
Shot-term
c.
Both short-term and long-term
d.
Neither short-term nor long-term
30. In 2012, Nancy sold a piece of equipment
from Nancy’s business for $200,000. The
equipment was purchased in 2008 for $120,000.
It had a useful life of five years and was depreciated on a
straight-line basis. Assume total of $84,000
depreciation was taken (prior to the sale).
What is Nancy’s recognized
gain on the sale?
a.
$80,000
b.
$84,000
c.
$164,000
d.
$200,000
31. Refer to the facts stated in the prior
question. What amount of the gain will
be recaptured at Nancy’s ordinary income rate?
a.
$80,000
b.
$84,000
c.
$164,000
d.
$200,000
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.
$80,000
b.
$84,000
c.
$164,000
d.
$200,000
33. 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.
Land
b.
Section
1245 property
c.
Section
1250 property
d.
Each of the
above items is Section 1231 property
34. 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.
Office
equipment
c.
Office building
d.
Land
35. Which of the following would LEAST LIKELY
require an adjustment for the alternative minimum tax?
a.
A charitable contribution deduction
b.
The medical expense deduction
c.
The standard deduction
d.
Each of the above items requires an adjustment for the
alternative minimum tax
36. Benjamin was at risk for $100,000 in
Partnership X and $50,000 in Partnership Z on January 1, 2012. Both partnerships are passive activities to Benjamin
(these are Benjamin’s only passive activities).
Benjamin’s share of net income from Partnership X during 2012 is $25,000. Benjamin’s share of losses from Partnership Z
during 2012 is $80,000. How much is Benjamin
at risk for Partnership X on January 1, 2013?
a.
$0
b.
$25,000
c.
$100,000
d.
$125,000
37. Refer
to the facts in the previous question. How
much is Benjamin at risk for Partnership Z on January 1, 2013
a.
$0
b.
$30,000
c.
$50,000
d.
$80,000
38. Refer
to the facts in the previous question.
What is Benjamin’s carryover under the at-risk rules for
Partnership Z in 2012?
a.
$0
b.
$30,000
c.
$50,000
d.
$80,000
39. Refer
to the facts in the previous question.
What is Benjamin’s deductible loss for Partnership Z in 2012?
a.
$0
b.
$25,000
c.
$50,000
d.
$80,000
40. Refer
to the facts in the previous question.
What is Benjamin’s suspended loss under the passive loss rules for Partnership Z in 2012?
a.
$0
b.
$25,000
c.
$50,000
d.
$80,000
41. In 2012, Joane invested in the LOUIS
Limited Partnership (“LOUIS L.P.”) by paying $20,000 cash and contributing
additional assets worth $10,000 (and having a basis equal to $5,000 on the date
of the contribution). What amount did Joane
have at risk in LOUIS L.P. as of January 1, 2013, if LOUIS L.P. broke even in 2012
(i.e., if LOUIS L.P. had no income or
loss in 2012)?
a.
$30,000
b.
$25,000
c.
$20,000
d.
$5,000
42. Refer to the facts stated in the prior
question. But, for this question, assume
that LOUIS L.P. allocated to Joane net income of $10,000 from operations in 2012.
What amount did Joane have at risk in LOUIS L.P. as of January 1, 2013?
a.
$40,000
b.
$35,000
c.
$30,000
d.
$15,000
43. In 2012, Neetika and John (who file a
joint return) had an interest expense of $6,000 on a loan that was used to
purchase a variety of stock and bonds (all producing taxable income). Assume further that, in 2012, Neetika and John
had net investment income of $2,000.
Assume they itemize deductions, what is their maximum interest expense
deduction in 2012?
a.
$6,000
b.
$4,000
c.
$2,000
d.
$0
44. Assume thatShona
and Kyle file a joint return and have the following items for 2011:
Taxable income: $75,000
Positive adjustments: $25,000
Preferences: $50,000
Regular tax ability: $11,000
What was their 2011 AMT?
a.
$19,643
b.
$11,000
c.
$8,643
d.
$0
45. Assume that a couple that filed a joint
return had 2011 AMTI of $300,000.
What is the amount of their actual 2011 exemption for the AMT?
a. $74,450
b. $37,500
c.
$36,950
d.
$0
46. Dione is negotiating to buy land from Tiffany. What will Dione’s basis be in the land, if Dione
gives Tiffany $100,000 and Dione assumes Tiffany’s mortgage on the land of $70,000?
a.
$170,000
b.
$100,000
c.
$70,000
d.
$30,000
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.
Auto
for computer equipment
c.
Office
building for a warehouse
d.
Office
furniture for office equipment
48. Miguel exchanges undeveloped real estate for developed
real estate on May 3, 2012. On May 3, 2012,
the fair market value of each property is $250,000. Miguel had purchased the undeveloped real
estate on February 3, 2008, for $300,000.
Which of the following is TRUE?
a.
Miguel’s
basis in the developed real estate is $250,000
b.
Miguel’s
basis in the undeveloped real estate was $250,000
c.
Miguel’s
holding period begins on March 3, 2012 for the developed real estate
d.
Miguel’s
holding period begins on February 3, 2008 for the developed real estate
49. In May 2010, Janiece purchased a playground
set at a garage sale for $100. Janiece
is not in the business of buying and selling anything. Janiece researched the
playground set online and discovered it was worth $200. In July 2012, Janiece sold the playground set
through an auction website for that amount (i.e., $200). Which of the following is TRUE considering
these transactions?
a.
Janiece
does not have any income
b. Janiece has a $100 short-term capital gain
c.
Janiece
has a $100 long-term capital gain
d.
Had Janiece
sold the playground set for $50, Janiece could have deducted a $50 short-term
capital loss
50. Andres had the following net Section 1231
results for each of the years shown.
|
Tax |
Net |
Net |
|
2007 |
$10,000 |
|
|
2008 |
$10,000 |
|
|
2009 |
$10,000 |
|
|
2010 |
$10,000 |
|
|
2011 |
$10,000 |
|
|
2012 |
|
$30,000 |
Which of the following is TRUE regarding
the net Section 1231 gain in 2012?
a.
All
$30,000 will all be taxed at Andres’s ordinary income rate
b. All $30,000 will all be taxed at Andres’s
long-term capital gain rate
c.
$10,000
of the $30,000 will be taxed at Andres’s long-term capital gain rate
d.
$10,000
of the $30,000 will be taxed at Andres’s ordinary income rate
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