Tax Questions

51. Jermaine and Kesha are married, file a joint tax return, have AGI of $75,000, and have two children.  Devona is beginning her freshman year at State University during Fall 2005, and Arethia is beginning her senior year at Northeast University during Fall 2005 after having completed her junior year during the spring of that year.  Both Devona and Arethia are claimed as dependents on their parents’ tax return.  Devona’s qualifying tuition expenses and fees total $3,500 for the fall semester, while Arethia’s qualifying tuition expenses and fees total $5,250 for each semester during 2005.  Full payment is made for the tuition and related expenses for both children during each semester.  The HOPE scholarship and lifetime learning credits available to Jermaine and Kesha for 2005 are:

HOPE scholarship credit Lifetime learning credit
a. $1,500                                   $1,050
b. $1,500                                   $2,000
c. $2,250                                   $2,625
d. $2,250                                   $5,250


52. In determining the number of withholding allowances on an employee’s Form W-4, the following is not true:
a. Withholding allowances may be claimed for the taxpayer’s spouse and dependents.
b. Special withholding allowances may be claimed in certain situations.
c. An additional allowance is available if the taxpayer expects to claim a credit for child and dependent care expenses.
d. The number of withholding allowances must agree with the number of personal and dependency exemptions claimed on the taxpayer’s income tax return.



53. Which of the following correctly reflects current rules regarding estimated tax payments for individuals?
a. Employees are not subject to the estimated tax payment provisions.
b. Any penalty imposed for underpayment is deductible for income tax purposes.
c. Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return.
d. No quarterly payments are required if the taxpayer’s estimated tax is under $1,000.
e. None of the above.


54. Alicia buys a beach house for $325,000 which she uses as her personal vacation home.  She builds an additional room on the house for $45,000.  She sells the property for $450,000 and pays $22,000 in commissions and $4,000 in legal fees in connection with the sale.  What is the recognized gain or loss on the sale of the house?
a. $0.
b. $54,000.
c. $80,000.
d. $99,000.



55. Noelle owns an automobile which she uses for personal use.  Her adjusted basis is $22,000 (i.e., the original cost).  The car is worth $15,000.  Which of the following statements is correct?
a. If Noelle sells the car for $15,000, her realized loss of $7,000 is not recognized.
b. If Noelle exchanges the car for another car worth $15,000, her realized loss of $7,000 is not recognized.
c. If the car is stolen and it is uninsured, Noelle may be able to recognize part of her realized loss of $15,000.
d. Only a. and b. are correct.
e. a., b., and c. are correct.


56. Joy sells her personal use boat for $18,000.  She purchased the boat two years ago for $15,000.  What is her recognized gain or loss?
a. $0.
b. $3,000.
c. $15,000.
d. $18,000.
e. None of the above.


57. Cindy purchases a business for $250,000.  The fair market value of the assets of the business is as follows:

Equipment $  90,000
Building   135,000
Goodwill     15,000

What is Cindy’s cost basis in each asset?
a. $90,000   equipment, $135,000 building, $15,000 goodwill.
b. $93,750   equipment, $140,625 building, $15,625 goodwill.
c. $90,000   equipment, $135,000 building, $25,000 goodwill.
d. $100,000 equipment, $150,000 building, $0 goodwill.


58. Individuals with capital gains and/or losses use Schedule D.  Using the 2004 Schedule D as a reference, which of the following is correct?
a. The form is not used unless there is at least $1,000 of capital gain or loss.
b. Part I reports long-term gains and losses.
c. Part III reports qualified dividend income.
d. Part III requires a netting of net short-term capital loss against net long-term capital gain.



59. Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000.  What is the taxable income for 2005?
a. $25,000.
b. $27,000.
c. $28,500.
d. $30,000.

60. Orange Company (a sole proprietorship) acquires an office building for use in its business on June 10, 2004.  The office building becomes a § 1231 asset:
a. On June 11, 2005.
b. On January 1, 2005.
c. On January 1, 2006.
d. On June 1, 2005.
e. When it is sold.


61. Which of the following creates potential § 1245 depreciation recapture?
a. Amortization of purchased goodwill.
b. Section 179 immediate expense deduction.
c. An increase in the value of the property.
d. A decrease in the value of the property.
e. a. and b.




62. Kari owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $45,000.  If Kari sold the property, she would have a $33,000 gain.  The initial characterization of the gain would be:
a. Section 1245 gain.
b. Section 1231 gain.
c. Section 1250 gain.
d. Section 1239 gain.




63. Section 1231 gain that is treated as long-term capital gain carries from the 2004 Form 4797 to the 2004 Form 1040, Schedule D, line ___.
a. 8.
b. 9.
c. 10.
d. 11.