Problem 1: Betty Jones files a return as a single taxpayer. Items of income received by Betty in 2011 were as follows.
Interest on savings account with Bank of America: $100
Interest on state income tax refund: $50
Gambling winnings: $4,800
Dividends from mutual life insurance company on life insurance policy: $1,000
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the premiums paid to the company.
(a) How much should Betty include in her 2011 taxable income as interest?
(b) How much should Betty report as dividend income for 2011?
(c) How much should Betty include in taxable other income for her state lottery winnings?
Problem 2: When might a taxpayer prefer a sale over a like-kind exchange that would result in the non-recognition of gain under Section 1031?
Problem 3: Differentiate between the following: active income, passive income, and portfolio income.
Problem 4: A review of Bearing's Year 2 records disclosed the following tax information.
Wages $30,000
Taxable interest and qualifying dividends 4,000
Schedule C trucking business net income 32,000
Rental (loss) from residential property (35,000)
Limited partnership (loss) (5,000)
Bearing actively participated in the rental property and was a limited partner in the partnership. Bearing had sufficient amounts at risk for the rental property and the partnership. What is Bearing's Year 2 adjusted gross income?
Problem 5: Smith has an adjusted gross income (AGI) of $130,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?
Problem 6: For the year ended December 31, Year 6, Taylor Corp. had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows.
Taxable Income:
Year 1 $ 5,000
Year 2 10,000
Year 3 20,000
Year 4 50,000
Year 5 50,000
What amount of net operating loss will be available to Taylor for the year ended December 31, Year 7?
Problem 7: Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year.
Wages $ 30,000
Unemployment compensation 6,000
Pension distribution (100% taxable) 4,000
A state tax refund from the previous year 650
What is Randolph's gross income?
Problem 8: Alex Smith purchased 30 shares of XYZ stock on April 30, 2010 for $210, and on September 1, 2010, he purchased 90 additional shares for $900. On November 8, 2010, he sold 48 shares, which could not be specifically identified, for $528, and on December 15, 2010, he sold another 25 shares for $50. What is his recognized gain or loss?
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