Problem 1: Ahmad is considering making a $1,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?
a. $0, take neither the itemized deduction nor the tax credit.
b. $250, take the tax credit.
c. $280, take the itemized deduction.
d. Both options produce the same benefit.
e. None of the above.
Problem 2: Molly has generated general business credits over the years that have not been utilized. The amounts generated and not utilized follow:
2003 $ 5,000
2004 15,000
2005 10,000
2006 8,000
In the current year, 2007, her business generates an additional $30,000 general business credit. In 2007, based on her tax liability before credits, she can utilize a general business credit of up to $40,000. After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2007 is available for future years?
a. $0.
b. $2,000.
c. $23,000.
d. $28,000.
e. None of the above.
Problem 3: Several years ago, Shirley purchased a structure for $150,000 that was originally placed in service in 1929. Three and one-half years ago she incurred qualifying rehabilitation expenditures of $200,000. In the current year, Shirley sold the property in a taxable transaction. Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.
a. $0.
b. $8,000.
c. $12,000.
d. $16,000.
e. None of the above.
Problem 4: Green Company, in the renovation of its building, incurs $8,000 of expenditures that qualify for the disabled access credit. The disabled access credit is:
a. $7,750.
b. $4,000.
c. $3,875.
d. $3,750.
e. None of the above.
Problem 5: Which, if any, of the following correctly describes the earned income credit (EIC)?
a. Would be available regardless of the amount of the taxpayer's adjusted gross income.
b. Not available to a surviving spouse.
c. A taxpayer must have a qualifying child to take advantage of the credit.
d. Is a refundable credit.
e. None of the above.