Problem 1: In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year, 2007 (which is not a leap year). The tax is payable on June 1, 2007. On May 1, 2007, Reggie sells his house to Dana for $250,000. On June 1, 2007, Dana pays the entire real estate tax of $7,950 for the year ending December 31, 2007. How much of the property taxes may Reggie deduct?
a. $0.
b. $2,614.
c. $2,625.
d. $7,950.
e. None of the above.
Problem 2: Tony is married and files a joint tax return for 2007. He has investment interest expense of $95,000 for a loan made to him in 2007 to purchase a parcel of unimproved land. His income from investments [dividends (not qualified) and interest] totaled $18,000. After reducing his miscellaneous deductions by the applicable 2% floor, the deductible portion amounted to $2,800. In addition to $1,400 of investment expenses included in miscellaneous deductions, Tony paid $3,600 of real estate taxes on the unimproved land. Tony also has a $4,500 net long-term capital gain from the sale of another parcel of unimproved land. Calculate Tony's maximum investment interest deduction for 2007.
a. $95,000.
b. $18,000.
c. $17,500.
d. $13,000.
e. None of the above.
Problem 3: Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 in 1989. In May of 2007, when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage, they took out a home equity loan for $220,000. They used the funds to purchase a single engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which they can deduct home equity interest?
a. $50,000.
b. $100,000.
c. $220,000.
d. $230,000.
e. None of the above.
Problem 4: In 2007, Terry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Terry will receive choice seating at all of Mammoth's home basketball games. Also
in 2007, Terry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution?
a. $6,200.
b. $6,400.
c. $8,000.
d. $10,200.
e. None of the above.
Problem 5: In 2007, Roseann makes the following donations to qualified charitable organizations:
Basis Fair Market Value
Inventory held for resale in
Roseann's business(a sole proprietorship) $3,000 $2,600
Stock in ABC, Inc. held as an investment
(acquired two years ago) 6,000 15,000
Comic book collection held as an investment
(acquired six years ago) 1,500 7,000
The ABC stock and the inventory were given to Roseann's church, and the comic book collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Roseann's charitable contribution deduction for 2007 is:
a. $10,500.
b. $19,100.
c. $24,600.
d. $25,000.
e. None of the above.