Test Bank For Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg

Test Bank For Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg

Chapter 4 Business Income and Expenses Part II

1. If a residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, no allocation of expenses is required and the taxpayer may claim a deduction for the full amount of the expenses.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   If a residence is primarily used as a rental, the expenses must still be allocated between personal and rental days.

POINTS:   1

DIFFICULTY:   Challenging

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:4-01 – LO:4-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

2. Net losses on the rental of vacation homes are limited to 15 percent of total gross income.

  a.  True

  b.  False

ANSWER:   False

RATIONALE:   Expenses attributable to vacation homes used primarily as personal residences are limited to the income generated from the rental of the property.

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:4-01 – LO:4-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

3. In most cases, an individual taxpayer reports rental income and the related expenses on Schedule E.

  a.  True

  b.  False

ANSWER:   True

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:4-01 – LO:4-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

4. When a residence is rented for less than 15 days during the year, the rental income is excluded from gross income.

  a.  True

  b.  False

ANSWER:   True

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   True / False

HAS VARIABLES:   False

LEARNING OBJECTIVES:   ITF.WABG.16.LO:4-01 – LO:4-01

NATIONAL STANDARDS:   United States – BUSPROG: Analytic

STATE STANDARDS:   United States – AK – AICPA: FN-Reporting

KEYWORDS:   Bloom’s: Knowledge

5. Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2016. The gross rental income from the home is $4,500. For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000. What is Lester’s allowable net loss from renting his vacation home?

  a.  $5,500 loss

  b.  $3,000 loss

  c.  $500 loss

  d.  $250 loss

  e.  None of the above

ANSWER:   e

RATIONALE:   Lester’s calculated loss is:

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 Gross income  $4,500

 Real estate taxes (50% x $800)  (400)

 Interest (50% x $3,000) (1,500)

Utilities (50% x $2,200)   (1,100)

Depreciation (50% x $4,000)  (2,000) 

 Net rental loss ($500)

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