Chapter 4 Homework

Chapter 4 – Homework

Which of the following is true about the rental of real estate?

All of these choices are correct.

John owns a second home in Palm Springs, CA. During the year, he rented the house for $4,000 for 36 days and used the house for 14 days during the summer. The house remained vacant during the remainder of the year. The expenses for the home included $5,000 in mortgage interest, $600 in property taxes, $900 for utilities and maintenance, and $3,500 of depreciation. What is John’s deductible rental loss, before considering the passive loss limitations?

$3,200

Helen, a single taxpayer, has modified adjusted gross income (before passive losses) of $130,000. During the tax year, Helen’s rental house generated a loss of $15,000. Assuming Helen is actively involved in the management of the property, what is the amount of Helen’s passive loss deduction from the rental house?

$10,000

Which of the following is not classified as portfolio income for tax purposes?

All of these choices are classified as portfolio income.

Nancy has active modified adjusted gross income before passive losses of $75,000. She has a loss of $10,000 on a rental property she actively manages. How much of the loss is she allowed to take against the $75,000 of other income?

$10,000

Norm is a real estate professional with a real estate trade or business as defined in the tax law. He has $80,000 of business income and $40,000 of losses from actively managed real estate rentals. How much of the $40,000 in losses is he allowed to claim on his tax return?

$40,000

Which of the following type of insurance is not deductible as self-employed health insurance?

Disability Insurance

All of the following are deductible as moving expenses except:

All of these choices are deductible moving expenses.

Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2015. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can deduct for contributions to his and his wife’s individual retirement accounts for the 2015 tax year? You may assume that neither taxpayer is an active participant in another qualified retirement plan.

$11,000

Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2015 joint income tax return of $45,000, before considering any IRA deduction. Martha and Rob have no earned income. What is the amount of Martha’s maximum deductible IRA contribution?

$0

Donna, age 42 and a single taxpayer, has a salary of $100,000 and interest income of $22,000. What is the maximum amount Donna can contribute to a Roth IRA? In your computations, carry out any division to two decimal places.

$3,300

Mary has a Roth IRA held more than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Mary is 55 years old and she takes a distribution of $40,000. How much of the distribution will be taxable to Mary?

$10,000 (40,000-30,000)

Marge has a Roth IRA held more than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Marge is 65 years old and she takes a distribution of $38,000. How much of the distribution will be taxable to Marge?

$0

Mindy has a Roth IRA held longer than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Mindy is 55 years old and she takes a distribution of $38,000 after retiring on disability. How much of the distribution will be taxable to Mindy?

$0

What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2015?

April 18, 2016

What is the maximum tax-deferred contribution that can be made to a Section 401(k) plan for an employee under age 50?

$18,000

Paul, age 37, participates in a Section 401(k) plan which allows employees to contribute up to 15 percent of their salary. His annual salary is $90,000 in 2015. What is the maximum he can contribute, on a tax-deferred basis under a salary reduction agreement, to this plan?

$13,500

Bob earns $40,000 during the current year. His employer contributes $2,000 (5 percent of Bob’s salary) to a qualified retirement plan for Bob. This pension plan is what kind of plan?

Defined contributions

When taxpayers receive distributions from qualified retirement plans, how much time is allowed to roll over the amount received into a new plan to avoid paying taxes on the distribution in the current year, assuming there are no unusual events?

60 days

Tom quits his job with $125,000 in his employer’s qualified retirement plan. Since he is broke, Tom instructs the plan trustee to pay him the balance of his retirement account. How much will Tom receive when he gets his check from the retirement plan?

$100,000

Betty owns three separate IRA accounts with different banks. She wishes to consolidate her three IRAs into one IRA in 2015. How many distribution rollovers may Betty make in 2015?

One

Dick owns a house that he rents to college students. Dick receives $750 per month rent and incurs the following expenses during the year:

Sherry rents her vacation home for 6 months and lives in it for 6 months during the year. Her gross rental income during the year is $4,150. Total real estate taxes for the home are $950, and interest on the home mortgage is $3,000. Annual utilities and maintenance expenses total $1,800, and depreciation expense is $4,500.

Calculate Sherry’s net income (or loss) from the vacation home for this tax year.

If an amount is zero, enter “0”.

Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1985. He also acquired a rental house in 2015, which he actively manages. During 2015, Walter’s share of the partnership’s losses was $30,000, and his rental house generated $20,000 in losses. Walter’s modified adjusted gross income before passive losses is $125,000.

If an amount is zero, enter “0”.

Calculate the amount of Walter’s allowable deduction for rental house activities for 2015.

$12,500

Calculate the amount of Walter’s allowable deduction for the partnership losses for 2015.

$0

What may be done with the unused losses, if anything?

The unused losses may be carried forward to future tax years to reduce passive income in those years.