10 May WHAT AMOUNT IF ANY SHOULD MR. STONE REPORT AS INTEREST INCOME ON HIS 2012 TAX RETURN?
1. (TCO E) In 2012 Uriah Stone received the following payments:• Interest on refund of federal income tax for 2011: $400• Interest on award for personal injuries in 2009 automobile accident: $300• Interest on municipal bonds: $1 500• United States savings bonds interest (Series H): $1 000What amount if any should Mr. Stone report as interest income on his 2012 tax return?2. (TCO G) Would any of the following items be deductible on an individual’s income tax return? If so would the item be deductible for or from AGI? Explain each item.(a) Hobby expenditures of $2 000 in excess of hobby gross income(b) $3 000 loss on the sale of a personal sailboat(c) Interest of $8 000 on money borrowed to purchase tax-exempt securities (Points : 17)3. (TCO F) Michael and Mary Mason sold for $380 000 in November of 2012 their residence that they had purchased in 2002 for $75 000. They made major capital improvements during their 10-year ownership totaling $25 000.(a) What is their excluded gain? How much must they recognize?(b) Suppose instead that the Masons sold their home for $720 000. They moved into a smaller house costing $220 000. What is their excluded gain? How much must they recognize? (Points : 17)4. (TCO G) John Baron a professional baseball player raises Black Angus cattle under circumstances that would indicate that the activity is a hobby. His adjusted gross income for the year is $50 000 and he has $500 of other miscellaneous itemized deductions all of which are subject to the two-percent floor. During the taxable year the feed for the cattle cost $1 500. The income from the sale of cattle was $1 400.(a) Under the hobby loss rule to what extent is the expense of $1 500 deductible?(b) Under the two-percent-of-adjusted-gross-income limitation how much is the overall deductible amount of his itemized deductions?5. (TCO I) Rick a single individual with a salary of $45 000 incurred and paid the following expenses during the year:Student loan interest: $800Medical expenses: $5 000Alimony: $11 000Mortgage interest on personal residence: $3 000State income taxes: $4 000Moving expenses: $1 500Contribution to a traditional IRA: $2 000Analyze the above expenses and determine which ones are deductible for AGI. Please support your position.6. (TCO I) Kim had the following transactions for 2012:Salary: $48 000Damage award (compensatory) for city bus accident: $18 000Loss on sale of stock investment: $5 600Loan from father to purchase auto: $14 000Alimony paid to ex-wife: $8 000What is Kim’s AGI for 2012?7. (TCO F) Sara owns a sole proprietorship and Phil is the sole shareholder of a C (regular) corporation. Each business sustained a $9 000 operating loss and a $2 000 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners? (Points : 17)8. (TCO B) Dave forms a corporation and transfers property having a basis to him of $22 000 and a fair market value of $29 000 to the corporation for 1 000 shares of $11 par stock. One year later Hank transfers property having a basis to him of $3 500 and a fair market value of $4 500 for 100 shares of the stock. Hank is not related to Dave. The corporation issued no other stock.(a) How much gain does Dave recognize on his exchange? What is the basis to Dave of his 1 000 shares?(b) What gain or loss is recognized by the corporation when it issues its shares to Dave? What is the basis to the corporation of the property it received from Dave?(c) What is the gain or loss that Hank recognizes on this transaction and what is his basis in his 100 shares?9. (TCO F) In 2012 OK Company had a net loss of $82 000 from operations. Jane owns OK Company and works 20 hours a week in the business. She has a large amount of income from other sources and is in the 35% marginal tax bracket. Would Jane’s tax situation be better if OK Company were a proprietorship or a C corporation? Explain why.10. (TCO H) On May 18 2012 Sara purchased 30 shares of ABC stock for $210 and on October 29 2012 she purchased 90 additional shares for $900. On November 28 2012 she sold 48 shares which could not be specifically identified for $576 and on December 8 2012 she sold another 25 shares for $150. What is her recognized gain or loss?
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