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Chapter 8
1. To recognize such basic personal living costs as food and clothing, each individual taxpayer is allowed a personal
exemption of $3,950 in 2014.
a.
True
b.
False
2. To qualify as a qualifying child, an individual must meet five tests. These are the age test; the non-support test; the
principal residence test; relationship test; and the citizen or residency test.
a.
True
b.
False
3. To qualify as a qualifying relative, an individual must meet three of five tests. These are the gross income test; the
support test; the relationship or member of the household test; the citizen or residency test; and the joint return test.
a.
True
b.
False
4. To qualify as a head of household, an unmarried taxpayer must pay more than half of the cost of maintaining a home
that is the principal residence for more than half the year of a qualified dependent or an unmarried child who qualifies as a
dependent.
a.
True
b.
False
5. Philip has been working in Spain for the last three years. He and his wife Barbara adopted Juan who will not qualify as
a dependent since he is not a U.S citizen.
a.
True
b.
False
6. In addition to the regular standard deduction taxpayers who are blind qualify for a second standard deduction of the
same amount.
a.
True
b.
False
7. Under the legislative grace concept, Congress allows certain personal expenses to be deducted when they exceed the
standard deduction.
a.
True
b.
False
8. Unreimbursed medical costs are deductible only to the extent that they exceed 3.0% of the taxpayer's adjusted gross
income.
a.
True
b.
False
Chapter 8
9. Carlos had $3,950 of state taxes withheld from his salary this year. If he deducts the full amount as an itemized
deduction and receives a refund in the following year, he must file an amended return and reduce the deduction he
received by the amount of the refund.
a.
True
b.
False
10. Morris and Marianne have a $310,000 mortgage on their personal residence and a $90,000 mortgage on their
mountain retreat. The interest on both of them qualifies as deductible qualified home mortgage interest.
a.
True
b.
False
11. Any charitable contributions made in excess of the individual's limitation on charitable contributions can be carried
forward seven years.
a.
True
b.
False
12. Unreimbursed meals and entertainment paid by employees are subject to the 2-percent of adjusted gross income
annual limitation on miscellaneous deductions
a.
True
b.
False
13. Eric, who is 18 years old, sells magazine subscriptions door-to-door for commissions. He earned $2,900 this year and
he will have to pay tax on this income at his parent's tax rate.
a.
True
b.
False
14. To qualify for the child- and dependent-care credit, the taxpayer must have earned income and must incur qualified
expenses for the care of qualified individuals.
a.
True
b.
False
15. The American Opportunity Scholarship Tax Credit provides for a 100% tax credit on the first $2,000 of qualifying
expenses and a 50% tax credit for the next $2,000 of qualifying expenses paid during the year for each qualifying student.
a.
True
b.
False
16. Alan is a 23-year old student at Upper State College. He earned $4,200 at a summer job.
I.
Because he earns over $4,000 his parents cannot claim him as a dependent on their return.
II.
Alan cannot claim a personal exemption for himself if his parents can claim him as a
Chapter 8
dependent.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
17. Mary Lou is a 22-year old student at Wilson College. She earned $4,300 at a summer job, which is less than half of
her support.
I.
Mary Lou can claim a personal exemption for herself even if her parents claim her as a
dependent.
II.
Because Mary Lou is a full-time college student, and she provides less than half of her own
support, her parents can claim her as a dependent on their return.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
18. Ariel has two children, Christopher and Pat. Christopher is 25 years old and Pat is 22. Both are full time students at
Southern College, have full tuition scholarships, and live at school during the year. Christopher graduated in June. Which
test will prevent Ariel from claiming both Pat and Christopher as dependents?
a.
Age test.
b.
Gross income test.
c.
Principal residence test.
d.
Non-support test.
e.
Full time student test.
19. To be a qualifying relative, an individual must meet certain tests. These tests include,
I.
the citizen or residency test.
II.
the gross income test.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
20. To be a qualifying relative, an individual must meet certain tests. These tests include,
I.
the gross income test.
II.
the age test.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
Chapter 8
d.
Neither statement is correct.
21. To be a qualifying relative, an individual must meet certain tests. These tests include,
I.
the citizen or residency test.
II.
the non-support test.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
22. Larry and Louise are both 49 years of age and file a joint return. They provide all of the support for their son, Dylan,
who is 20 years old and is at home until he gets called into the army. His income at part-time jobs is $4,500. Their
daughter, Phyllis, is a 23-year-old full-time student at State University. She lived at school 9 months and provided two
thirds of her own support with a summer job. How many personal and dependency exemptions can Larry and Louise
claim on their income tax return?
a.
1
b.
2
c.
3
d.
4
23. Rosa is a single parent who maintains a home in Durham in which she and her 16-year-old daughter reside. She also
provides most of the support for her son, Carmelo, age 25, who is a full-time student at Duke Law School, lives at home,
and earns $3,500 as a part-time waiter at a local diner. How many personal and dependency exemptions can Rosa claim?
a.
0
b.
1
c.
2
d.
3
24. Will and Brenda of New York City are both age 66 and always file a joint tax return. During the current year they
provide all the support for their son who is 20, has no income, and is a part-time college student. Their daughter, age 22
and a full-time student at Columbia University, has $4,800 of income. What is the total number of personal and
dependency exemptions Will and Brenda can claim?
a.
1
b.
2
c.
3
d.
4
25. Sergio wants to know if he can claim his daughter, Sarah, as a dependent on his income tax return. Sarah lives at home
with her parents all year. Sergio provides $11,500 for her support (i.e., food, shelter, and transportation). Sarah, age 18,
made $13,250 last year by acting and working as a cashier at a restaurant. Sarah saved $9,000 of her income and spent
$4,250 on clothes and entertainment. Can Sergio claim his daughter, Sarah, as a dependent for income tax purposes?
a.
Yes.
Chapter 8
b.
No, Sarah fails the relationship test.
c.
No, Sarah fails the gross income test.
d.
No, Sarah fails the student test.
e.
No, Sarah fails the support test.
26. Kevin wants to know if he can claim his brother, Richard, as a qualifying relative for income tax purposes. Richard is
18 and is a part-time student at City Community College. He lives with Kevin in his home for the entire tax year. Kevin
provides the majority of Richard's support. During the year Richard has the following items of income:
State of Oklahoma bond interest
$1,000
Dividends on General Motors stock
$700
Employee wages from part-time work
$2,900
Can Kevin claim his brother Richard as a dependent for income tax purposes?
a.
Yes.
b.
No, Richard fails the relationship test.
c.
No, Richard fails the gross income test.
d.
No, Richard fails the student test.
e.
No, Richard fails the residency test.
27. Which of the following individuals can be claimed as a dependent in the current year? (Assume any test not mentioned
has been satisfied).
I.
Carl and Diane are divorced. Carl has custody of their 6-year-old son. Diane pays Carl
$500 per month in child support. Carl pays the other $400 per month it costs to support
their son. The divorce decree does not stipulate who gets custody of the son. Carl claims his
son as a dependent.
II.
Lorraine is a 25-year-old college student. She lives with her parents, who also provide her
with $500 monthly support. Lorraine earns $4,600 working part-time for other support. She
may be claimed as a dependent of her parents.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
28. Which of the following individuals can be claimed as a dependent in the current year? (Assume any test not mentioned
has been satisfied).
I.
Kelly's mother, Dana, lives with her for 10 of 12 months during the year. Kelly provides all
the support for Dana during that time. The other two months were spent with Dana's other
daughter, Alice. Dana's annual income consists of $12,750 in Social Security and $1,850 of
savings account interest. Kelly may claim Dana as a dependent.
II.
Bart is a 22-year-old college student. His tuition of $7,000 is paid by a scholarship he
received for his good high school record. He lives with his parents, who also provide him
with $450 monthly support. Bart earns $1,950 mowing lawns in the neighborhood for other
support. He may be claimed as a dependent of his parents.
a.
Only statement I is correct.
b.
Only statement II is correct.
Chapter 8
c.
Both statements are correct.
d.
Neither statement is correct.
29. For purposes of the relationship test for dependents, which of the following does not qualify as a relative?
a.
Mother.
b.
Nephew.
c.
Cousin.
d.
Grandfather.
e.
Stepbrother.
30. Art is supported entirely by his 3 children who provide for his support as follows:
Allie
48%
Barney
42%
Carrie
10%
If the children file a multiple support agreement, which of the children will be eligible to claim Kenneth as a dependent?
a.
None.
b.
Only Allie.
c.
Only Barney.
d.
Only Allie or Barney.
e.
Either Allie, Barney, or Carrie.
31. Brandon is retired and lives with his son, Charles. Charles and his sister and brother, Heloise and Barney, provide
Brandon's total support:
Charles
$7,000
Heloise
4,000
Barney
2,000
Social Security
7,500
If the children file a multiple support agreement, which of the children are eligible to claim Bramdon as a dependent?
a.
None.
b.
Only Charles.
c.
Only Heloise.
d.
Only Charles and Heloise.
e.
Charles, Heloise, or Barney.
32. During the current year, his three children, Simon, Alvin, and Theodore and his life-long friend, Arlo, with whom he
lives, provide Durbin's support. Durbin's support distribution follows:
Simon
20%
Theodore
55%
Arlo
10%
Alvin
15%
If the children file a multiple support agreement, which of the following are eligible to claim Durban as a dependent?
a.
Only Theodore.
Chapter 8
b.
Only Theodore or Arlo.
c.
Only Arlo.
d.
Theodore, Simon, or Alvin.
e.
Theodore, Simon, Arlo, or Alvin
33. Lillian and Michael were divorced last year. Michael has custody of their two children. Lillian pays $8,600 in child
support payments during the current year. The total cost of supporting the children is $12,500. Michael and Lillian do not
have any special agreement about dependency exemptions. How many total exemptions may Michael claim for the
current year?
a.
0
b.
1
c.
2
d.
3
e.
4
34. Simone and Fillmore were divorced last year. Fillmore has custody of their two children. Simone pays $9,600 in child
support payments during the current year. The total cost of supporting the children is $12,500. Fillmore and Simone do
not have any special agreement about dependency exemptions. How many total exemptions may Simone claim for the
current year?
a.
0
b.
1
c.
2
d.
3
e.
4
35. Thomas has adjusted gross income of $228,000, total itemized deductions of $39,000 and claims 2 personal and 2
dependency exemptions. Which is his filing status?
a.
Single.
b.
Head of household.
c.
Married filing a joint return.
d.
Married filing separately.
36. Which of the following will prevent a couple from filing as married filing joint in 2015?
I.
One spouse dies on June 6, 2015.
II.
The couple is legally married, but is living apart throughout the year.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
37. In October of the current year, Brandy and her husband Ben split up and do not speak to each other. Neither individual
Chapter 8
will cooperate with the other on finalizing the divorce. Ben supports their two children after the split up and maintains
their household. What is Ben's filing status for the current year?
a.
Single.
b.
Head of household.
c.
Surviving spouse.
d.
Married, filing separately.
38. Lilly and her husband Ben have a serious argument. In fact, Lilly moved out in August, left town, and has not been
heard from since. Ben supports their two children after the split up and maintains their household. What is Ben's filing
status for the current year?
a.
Single.
b.
Head of household.
c.
Surviving spouse.
d.
Married, filing separately.
39. Norton's spouse died in 2015. Norton has one child, age 7, living at home. Norton provides all of the support for the
child. The child lives with Norton during 2015, 2016, 2017, and 2018 Norton's most advantageous filing status is
a.
Married filing jointly in 2015, single in 2016, 2017, 2018.
b.
Head of household for all four years.
c.
Head of household in 2015, surviving spouse in 2016, 2017, 2018.
d.
Married filing jointly in 2015, surviving spouse in 2016 and 2017, head of household in 2018.
40. Frank's wife died in 2013. He has not remarried and maintains a home for himself and his dependent daughter. What is
Frank’s filing status for 2015?
a.
Single.
b.
Head of household.
c.
Married, filing separately.
d.
Surviving spouse.
41. Tisha's husband died in 2012. She has not remarried and maintains a home for herself and her dependent son. What is
Tisha's filing status for 2015?
a.
Single.
b.
Head of household.
c.
Married, filing separately.
d.
Surviving spouse.
42. Julian and Judy divorced and Julian received custody of their child. Judy must pay child support of $24,000 annually.
Therefore, Julian agreed in writing to allow Judy to claim the dependency exemption for the child. Julian maintains a
home for himself and the child. For the current year, Julian's filing status and total exemptions claimed are
a.
Single and one exemption.
b.
Single and two exemptions.
Chapter 8
c.
Head of household and two exemptions.
d.
Head of household and one exemption.
43. Georgia is unmarried and maintains a home in which she and her unmarried daughter Karla age 34, live. Karla is an
engineer and earns $52,000 annually. Karla had some severe financial difficulties two years ago and Georgia has been
helping her out ever since. Georgia's spouse died in 2014. What is Georgia's filing status for 2015?
a.
Head of household
b.
Surviving spouse
c.
Married, filing jointly
d.
Single
e.
Married, filing separately
44. Irene is 47 years old, unmarried, and has no children. Irene's mother lives in a nursing home.
I.
Irene can file as head of household because her mother lives in a nursing home.
II.
Because Irene's mother is a lineal descendent, Irene automatically qualifies for head of
household status.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
45. Cory is a 32 years old, unmarried, and has no children. Cory's father lives in a nursing home.
I.
Because Cory's father does not live in the same household, Cory cannot file as a head of
household.
II.
If his father's taxable income is less than $4,000 and the other dependency tests are met,
Cory will file as head of household.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
46. Michael, age 42 and single, has a 13-year-old son, Tony. Tony resides with his mother, Jennifer, in her home.
Pursuant to the terms of their divorce, Michael properly claims Tony as a dependent on his income tax return. Michael
pays child support payments to his ex-wife for support of his child. Jennifer does not claim Tony as her dependent but she
does bear the economic burden of supporting the household in which they reside. What is the maximum amount of the
2015 standard deduction that Michael qualifies for?
a.
$6,300
b.
$12,600
c.
$9,250
d.
$5,000
47. Bruce, 65, supports his mother who lives with him. What is the maximum amount of the 2015 standard deduction that
Bruce qualifies for?
a.
$6,300
b.
$8,700
c.
$9,250
d.
$10,500
e.
$10,800
48. Paul, age 40 and single, has an 8-year-old son, Larry. Larry resides with his mother, Susan, in her home. Pursuant to
the terms of their divorce, Paul properly claims Larry as a dependent on his income tax return. Paul pays child support
payments to his ex-wife for support of his child. Susan does not claim Larry as her dependent but she does bear the
economic burden of supporting the household in which they reside. What is the maximum amount of the 2015 standard
deduction that Susan qualifies for?
a.
$6,300
b.
$9,250
c.
$9,600
d.
$12,600
e.
Susan does not qualify to claim a standard deduction.
49. Samantha incurs the following medical expenses for the current year:
Face-lift for cosmetic purposes
$800
Dentist fees
500
Doctors' fees for Samantha's daughter
400
How much may Samantha include as qualified medical expenses on her current tax return before any limitation?
a.
$400
b.
$500
c.
$900
d.
$1,300
e.
$1,700
50. Which of the following qualify for the medical expense deduction?
I.
Insulin.
II.
Medicare insurance premiums.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
51. Which of the following qualify for the medical expense deduction?
I.
Over-the-counter cough medicine.
II.
Chiropractic treatments.
Chapter 8
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
52. Carlos incurs the following medical expenses during the current tax year:
Surgeon's fees
$2,000
Medical insurance premiums
600
Hospital fees
800
Prescription drugs
310
Wheel chair
200
Carlos's adjusted gross income for the year is $32,000. He receives a $500 reimbursement from his insurance company.
Determine the amount of his medical expense deduction for the current year.
a.
$- 0 -
b.
$210
c.
$2,360
d.
$2,400
e.
$2,610
53. Marci is single and her adjusted gross income is $30,000. In addition, she pays the following expenses during the year:
Psychiatrist's fee
$800
Hospital bill for medical services and room
1,800
Transportation to/from hospital
100
Prescription drugs
750
Over-the-counter vitamins
200
Chiropractor's fees
700
Marci pays $600 for medical insurance premiums and receives a reimbursement of $1,000 from the insurance company
for her medical expenses. Compute her medical deduction.
a.
$- 0 -
b.
$550
c.
$750
d.
$1,250
e.
$1,450
54. Randy is a single individual who receives a salary of $30,000. During 2015, he has $7,000 withheld for payment of his
federal income taxes and $2,500 for his state income taxes. In 2015, he receives a $400 refund after filing his 2015 federal
tax return and a $50 refund after filing his state tax return.
I.
Randy is allowed a deduction for the $2,500 of state taxes withheld from his salary on his
2015 federal tax return.
II.
If Randy has total itemized deductions of $6,250 on his 2014 federal tax return, he must
include the $50 state tax refund in his 2015 gross income.
a.
Only statement I is correct.
b.
Only statement II is correct.
Chapter 8
c.
Both statements are correct.
d.
Neither statement is correct.
55. Lynnette is a single individual who receives a salary of $36,000. During 2015, she has $6,800 withheld for payment of
her federal income taxes and $2,900 for her 2015 state income taxes. In 2016, she receives a $450 refund after filing her
2015 federal tax return and a $750 refund after filing her 2015 state tax return.
I
If Lynnette has total itemized deductions of $6,000 on her 2015 federal tax return, she must
include the entire $750 refund in her 2016 gross income.
II.
If Lynnette uses the standard deduction in filing her 2015 federal income tax return, the
$750 refund is not taxable in 2016.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
56. Anita receives a state income tax refund of $550 in May 2015. When she filed her 2014 federal income tax return, she
used the standard deduction amount. Although the all-inclusive income concept would require Anita to report the $550 in
her federal gross income for 2015, she may exclude it. What tax concept explains why the exclusion is permitted in this
case?
a.
Wherewithal to pay.
b.
Tax benefit rule.
c.
Ability to pay.
d.
Assignment of income.
e.
Administrative convenience.
57. Morris is a single individual who has total itemized deductions in 2015 of $6,400. His itemized deductions include
$2,000 for state income taxes. After filing his 2015 state income tax return he receives a refund of $275.
a.
Morris must include $275 as income on his 2016 federal income tax return.
b.
Morris must amend his 2015 federal tax return to reflect state income taxes of $1,725 ($2,000 - $275).
c.
If Morris itemizes his tax return in 2016 he must reduce his state tax deduction by $275.
d.
Morris must include $200 as income on his 2016 federal income tax return.
e.
Morris does not have to report any of the state income tax refund on his 2016 tax return.
58. Richard pays his license plate fee for his car in July of the current year. Of the $400 he paid $10 represented a
registration fee, $140 represented a charge based on the weight of the car, and a $200 charge based on the value of the car.
How much of the $400 can Richard deduct on his current-year tax return?
a.
$- 0 -
b.
$60
c.
$140
d.
$200
e.
$400
Chapter 8
59. During the current year, Robbie and Anne pay the following taxes:
State income tax (balance due for last year)
$1,000
Estimated state income tax
2,400
Estimated federal income tax
3,250
Sales tax (Federal Sales tax table)
600
State gift tax
700
Property tax on personal residence
2,450
Real estate tax on condominium in Breckinridge, CO.
1,100
What amount can Robbie and Anne claim as an itemized deduction for taxes on their federal income tax return for the
year?
a.
$5,850
b.
$6,950
c.
$7,550
d.
$8,050
e.
$11,300
60. Ricardo pays the following taxes during the year:
Real estate taxes on his personal residence
$2,500
Real estate taxes on rental property
2,000
State sales taxes
600
State income taxes
4,000
City income taxes
1,000
Federal income taxes
5,400
What is the amount Ricardo can deduct for taxes as an itemized deduction for the year?
a.
$7,500
b.
$8,100
c.
$9,500
d.
$12,900
e.
$15,500
61. Ronald pays the following taxes during the year:
Real estate taxes on his personal residence
$2,500
Real estate taxes on rental property
2,000
State sales taxes (from Federal Sales tax table)
1,000
State income taxes
1,400
Federal income taxes
5,400
What is the amount Ronald can deduct for taxes as an itemized deduction for the year?
a.
$3,500
b.
$3,900
c.
$4,900
d.
$6,900
e.
$12,300
62. Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer?
I.
State income tax.
II.
Property tax on property owned in Alberta, Canada.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
63. Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer?
I.
State income tax.
II.
State excise tax on gasoline.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
64. Gerald purchases a new home on June 30, 2015. During January 2016, he receives his real estate tax statement for
calendar year 2015 showing $1,800 payable. Gerald pays the $1,800 on March 1, 2016. The seller of the residence had
credited Gerald with $900 of the 2015 taxes on the closing statement. What is the amount of real estate taxes that Gerald
may claim as an itemized deduction in 2016?
a.
$- 0 -
b.
$450
c.
$900
d.
$1,800
e.
$2,700
65. Hank, whose adjusted gross income is $100,000, purchases a new principal residence in the current year for $250,000.
He borrows $220,000 from a local mortgage company and pays loan origination fees of $1,600. During the year, Hank
pays $7,000 of interest on the loan. What is Hank's allowable interest deduction for the year?
a.
$7,000
b.
$7,750
c.
$8,500
d.
$8,600
e.
$10,100
66. Wayne purchases a new home during the year, borrowing $725,000 from Century National Bank to finance the
purchase. He also pays $7,250 in points and $4,500 in loan origination fees. During the year he pays interest of $71,000
on the loan. What is Wayne's allowable interest deduction?
a.
$- 0 -
b.
$7,250
c.
$71,000
Chapter 8
d.
$78,250
e.
$82,750
67. Baylen, whose adjusted gross income is $60,000, purchases a new home during the year, borrowing $300,000 from
Century National Bank to finance the purchase. He also pays $3,000 in points and $4,500 in loan origination fees. During
the year he pays interest of $14,000 on the loan. What is Baylen's allowable interest deduction?
a.
$14,000
b.
$15,800
c.
$17,000
d.
$18,800
e.
$23,300
68. Debra and Ken refinance their personal residence on July 1, 2015. They borrow $96,000 over a 20-year period and
paid points of $1,920. For 2015, what amount of the points is deductible?
a.
$- 0 -
b.
$48
c.
$96
d.
$480
e.
$960
69. Carlyle purchases a new personal residence for $230,000. He makes a down payment of $30,000 and finances the
balance at a very favorable interest rate. To obtain the favorable rate, points equal to 3% of the loan balance are paid at the
closing. What amount of the points can Carlyle deduct in the current year?
a.
$- 0 -
b.
$3,000
c.
$4,000
d.
$6,000
e.
$6,600
70. Certain interest expense can be carried forward if not deductible in the current year. Which of the following types of
interest can be carried forward and deducted in a future year?
a.
Credit card interest.
b.
Personal car loan interest.
c.
Interest on a loan to buy common stock.
d.
Home equity loan interest.
71. Brock incurs $950 interest on his GMAC auto loan, $150 interest on a loan with Computer Express to buy a multi-
media equipped computer (personal use), $500 interest on his credit cards, and $1,000 investment interest. Brock's net
investment income is $650. Brock's deductible interest amount is
a.
$- 0 -
b.
$350
Chapter 8
c.
$650
d.
$1,000
e.
$1,600
72. Bender borrows $200,000 from his uncle's bank and invests the proceeds in various common stocks. He pays $9,000
in interest on the loan during the current year. The stocks produce $7,200 of dividend income, all taxed at the rate of 15%.
Bender reports adjusted gross income of $100,000 in the current year. If the dividend income is his only investment
income, how much of the interest expense is deductible by Bender?
a.
$7,000
b.
$7,200
c.
$9,000
d.
None of this interest is deductible.
73. Randolph borrows $100,000 from his uncle's bank and invests the proceeds in various corporate bonds. He pays
$9,000 in interest on the loan during the current year. The bonds produce $7,200 of interest income. Randolph reports
adjusted gross income of $100,000 in the current year. If the interest income is his only investment income, how much of
the interest expense is deductible by Randolph?
a.
$7,000
b.
$7,200
c.
$9,000
d.
None of this interest is deductible.
74. Linc, age 25, is single and makes an annual contribution to his church of $2,000. Linc always uses the standard
deduction when filing his income tax return. Determine the amount of Linc's deduction for charitable contributions.
a.
$- 0 -
b.
$200
c.
$560
d.
$1,000
e.
$2,000
75. Louise makes the following contributions during the current year:
Purchase of raffle ticket from
church
$50
Cash given to church
200
Chamber of Commerce dues
500
Stock acquired in 2003 donated to State University
(Cost = $1,000; FMV = $1,800)
Clothing donated to Goodwill
(Cost = $800; FMV = $200)
Volunteer work at local hospital
(Candy-striper uniform @ $40)
If Louise's gross income is $35,000, what is her allowable charitable contribution?
a.
$1,440
Chapter 8
b.
$2,240
c.
$2,290
d.
$2,790
e.
$2,840
76. Armando has AGI of $80,000 and makes the following charitable contributions:
•
$10,000 cash to American Heart Society.
•
$8,000 cash to Redemption Church.
•
$24,000 worth of AOL stock acquired in 2005 with a basis of $10,000 to Upper State
University.
What is Armando's maximum charitable deduction in the current year?
a.
$18,000
b.
$24,000
c.
$28,000
d.
$40,000
e.
$42,000
77. Homer has AGI of $41,500, and makes the following donations in the current year:
•
$1,000 cash to the United Way.
•
100 hours contributed to the Red Cross to help flood victims (Homer's normal billing rate is $40
per hour in his consulting business).
•
15 old dress shirts to Goodwill Industries, (original cost $300; fair market value $60).
•
$1,000 cash to an old friend, Sam, to help cover his medical bills
What is Homer's charitable contribution deduction for the current year?
a.
$1,000-
b.
$1,060
c.
$1,300
d.
$2,060
e.
$6,300
78. Kristin has AGI of $120,000 in 2014 and 2015. She makes cash contributions to the American Cancer Society of
$63,000 in 2014 and $65,000 in 2015. Kristin's charitable contribution carryover from 2015 is:
a.
$- 0 -
b.
$3,000
c.
$5,000
d.
$8,000
e.
$34,000
79. Linda's personal records for the current year show the following facts:
•
Pays $11,000 to St. John's Church. $4,000 is for her daughter's tuition in the church's middle
school and she contributes the balance when she attends church.
•
Linda has diabetes and gives $800 to the American Diabetes Association in hopes that she will
Chapter 8
benefit from a cure
•
Pays $300 in annual dues to the Moose Lodge.
•
National Airways, Inc., common stock with a fair market value of $2,000 to the March of
Dimes. The stock was purchased 4 years ago for $3,000.
Linda's AGI for the current year is $32,000. What is her charitable contribution deduction?
a.
$7,000
b.
$9,000
c.
$9,800
d.
$10,800
e.
$13,800
80. Which of the following properties from an income tax standpoint will be the best one for Juan to contribute to his
favorite charity?
a.
Stock acquired in 1992, basis = $13,000, FMV = $10,000.
b.
Stock acquired in 1996, basis = $7,000, FMV = $10,000.
c.
Inventory items acquired in 2004, basis = $8,000, FMV = $10,000.
d.
Inventory items acquired in 2010, basis = $18,000, FMV = $10,000.
e.
Juan should be indifferent between giving any of the above properties from an income tax standpoint because
they each have the same fair market value.
81. Dorchester purchased investment realty in 2001 for $25,000. During the current year he contributes it to the American
Heart Association to use as the site for its new local headquarters. The realty has a value of $52,000 on the contribution
date, and Dorchester's AGI is $100,000. Dorchester's maximum current year contribution deduction is
a.
$- 0 -
b.
$25,000
c.
$30,000
d.
$50,000
e.
$52,000
82. Patricia contributes artwork to the art museum at Tech University. Her AGI is $50,000. She paid $10,000 for the
artwork in 1987, but its fair market value at the contribution date is $30,000. What is Patricia's maximum current year
charitable deduction?
a.
$- 0 -
b.
$10,000
c.
$15,000
d.
$25,000
e.
$30,000
83. Smokey purchases undeveloped land in 1999 for $20,000. In the current year he contributes the property to the Camp
Fire Girls of America to use as their summer camp. The fair market value of the land at the date of the contribution is
$25,000. If Smokey's AGI is $100,000, what is his maximum deductible charitable contribution?
a.
$5,000
Chapter 8
b.
$20,000
c.
$25,000
d.
$30,000
e.
$50,000
84. In 2005, Victor acquires an Andy Warhol painting for $32,000. During the current year he donates the painting to the
city museum. Its fair market value at the date of the contribution is $38,000. If Victor's adjusted gross income is $66,000
and he elects to reduce the contribution to its basis, his deductible contribution is
a.
$18,000
b.
$19,800
c.
$32,000
d.
$33,000
e.
$38,000
85. Hugh donates investment real estate to Habitat for Humanity. The property cost him $10,000 six years ago. The fair
market value of the property at the date of the contribution is $18,000. Hugh's AGI is $80,000. What is the maximum
amount Hugh can deduct as a charitable contribution?
a.
$- 0 -
b.
$5,000
c.
$10,000
d.
$18,000
e.
$24,000
86. Moran pays the following expenses during the current year:
Subscription to Time magazine
$80
Dues paid to professional organizations
300
Attorney's fee for tax advice related to his divorce
200
Life insurance premiums
600
Valid business entertainment
500
Fees for investment advise to acquire taxable securities
300
If Moran itemizes his deductions and his adjusted gross income is $35,000, what is his allowable deduction for the above
expenses?
a.
$- 0 -
b.
$350
c.
$700
d.
$1,050
e.
$1,300
87. Julius is an employee of a large consulting firm. During the year he incurs the following expenses in his job, none of
which are reimbursed by his employer. Julius's adjusted gross income is $100,000 before considering these expenses.
Commuting between his home and office
$3,000
Local travel to and from his office to visit clients
$4,000
Local travel to and from his home to visit clients
$3,000
