Individual Income Tax Chapter 5
Showing posts with label Individual Income Tax Chapter 5. Show all posts
Showing posts with label Individual Income Tax Chapter 5. Show all posts

In December 2014, Todd, a cash basis taxpayer, paid $1,200 fire insurance for the calendar year 2015 on a building he held for rental income. Todd deducted the $1,200 insurance premiums on his 2014 tax return. He had $150,000 of taxable income that year. On June 30, 2015, he sold the building and, as a result, received a $500 refund on his fire insurance premiums. As a result of the above:

In December 2014, Todd, a cash basis taxpayer, paid $1,200 fire insurance for the calendar year 2015 on a building he held for rental income. Todd deducted the $1,200 insurance premiums on his 2014 tax return. He had $150,000 of taxable income that year. On June 30, 2015, he sold the building and, as a result, received a $500 refund on his fire insurance premiums. As a result of the above:


a. Todd should include the $500 in 2015 gross income in accordance with the tax benefit rule.

b. Todd should amend his 2014 return and claim $500 less insurance expense.

c. Todd should include the $500 in 2015 gross income in accordance with the claim of right doctrine.

d. Todd should add the $500 to his sales proceeds from the building.

e. None of these choices are correct.


Answer: a. Todd should include the $500 in 2015 gross income in accordance with the tax benefit rule.

Liam was the beneficiary of a life insurance policy on his wife. Liam had paid $20,000 in premiums on the policy. He collected $50,000 on the policy when his wife died from a terminal illness. Because it took several months to process the claim, the insurance company paid Liam $52,000, the face amount of the policy plus $2,000 interest. Liam is not required to recognize any income from the above transactions.

Liam was the beneficiary of a life insurance policy on his wife. Liam had paid $20,000 in premiums on the policy. He collected $50,000 on the policy when his wife died from a terminal illness. Because it took several months to process the claim, the insurance company paid Liam $52,000, the face amount of the policy plus $2,000 interest. Liam is not required to recognize any income from the above transactions.


a. True

b. False


Answer: b. False

Jordan is a cash basis taxpayer. In 2014, she paid state income taxes of $5,000. In early 2015, she filed her 2014 state income tax return and received a $500 refund.

Jordan is a cash basis taxpayer. In 2014, she paid state income taxes of $5,000. In early 2015, she filed her 2014 state income tax return and received a $500 refund.


a. If Jordan itemized her deductions in 2014 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $500, she must include the $500 in her 2015 Federal gross income.

b. If Jordan took the standard deduction on her 2014 Federal income tax return, Jordan must include the $500 in her 2015 Federal gross income.

c. If Jordan itemized her deductions in 2014, she must amend her 2014 Federal income tax return to reduce her itemized deductions.

d. If Jordan took the standard deduction on her 2014 Federal income tax return, Jordan must amend her 2014 tax return.

e. None of these choices are correct.


Answer: a. If Jordan itemized her deductions in 2014 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $500, she must include the $500 in her 2015 Federal gross income.

Jesse served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Jesse's adjusted gross income for 2014?

Jesse, age 19, is a full-time graduate student at City University. During 2014, he received the following payments:


State scholarship for 10 months (tuition and books): $4,000

Loan from college financial aid office: 2,000

Cash support from parents: 2,500

Cash award for being the outstanding resident adviser: 1,000

= $9,500


Jesse served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Jesse's adjusted gross income for 2014?

a. $5,000

b. $1,000

c. $12,000

d. $3,500

e. None of these choices are correct.


Answer: b. $1,000

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