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| 1.
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Which of the following statements is incorrect concerning rental activities? |
| | A) | Generally, rental activities are reported on Form E. |
| | B) | All ordinary expenses related to the rental activity are deductible. |
| | C) | Depreciation of capital improvements are not allowed. |
| | D) | Travel expenses related to the rental activity are calculated using the standard mileage rate. |
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| 2.
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On June 1 of the current year, Kayla and Ralph purchased a beach house for $700,000. Of that amount, $400,000 was for the land value. What depreciation deduction they can report in the current year? (You may need to refer to the depreciation tables.) |
| | A) | $0 |
| | B) | $5,910 |
| | C) | $7,880 |
| | D) | $13,790 |
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| 3.
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Eddie and Camilla received $11,600 for rental of a house in Irvine, California. Eddie and Camilla do not use this property for personal use. The rent covers six months from October 1 of the current year to March 31 of next year. The amount also includes a security deposit of $2,000. How much should Eddie and Camilla report as rental income in the current tax year? |
| | A) | $2,000 |
| | B) | $9,600 |
| | C) | $11,600 |
| | D) | $13,600 |
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| 4.
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Which of the following is not considered an ordinary expense for a rental activity? |
| | A) | Management fees |
| | B) | Insurance |
| | C) | Repairs and maintenance |
| | D) | All of the above are ordinary expenses |
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| 5.
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Janet and Jason own a four-plex in Santa Monica. They rent out 3 units and live in the fourth. Their income and expenses for the four-plex are as follows: mortgage interest $11,200, property taxes $9,000, insurance $3,500, utilities $1,500, repairs and maintenance $3,000, depreciation on the entire complex of $8,000, and rental income of $36,000. What amount of net rental income or loss should Janet and Jason report on their tax return? |
| | A) | $200 net loss |
| | B) | $8,850 net income |
| | C) | $15,800 net income |
| | D) | $36,000 net income |
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| 6.
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A property that has been rented for 120 days and used for personal use for 40 days should be categorized as: |
| | A) | Primarily rental |
| | B) | Primarily personal |
| | C) | Personal/rental |
| | D) | All of the above are correct |
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| 7.
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Julian and Nina own a home in Napa Valley and rented it for 14 days for $10,000 to a large corporation. The rest of the year, the home was used by them. What is the proper tax treatment of the $10,000? |
| | A) | The amount should be reported on schedule E |
| | B) | The amount should be reported on schedule C |
| | C) | None of the rental income need to be included in gross income |
| | D) | The amount should be reported as other income |
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| 8.
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Richard owns a cabin in Utah that he rented for $4,000 for 21 days. He lived there for a total of 120 days and, the rest of the year, the house was vacant. The expenses for the home included $8,000 in mortgage interest, $1,200 in property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much net income or loss from the Utah home would Richard report for the current year? |
| | A) | $0 |
| | B) | $1,600 net income |
| | C) | $4,000 net income |
| | D) | $9,100 net loss |
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| 9.
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Leslie and Devin own a beach cottage that they rented 30 days for $4,500. They used the cabin for personal use for 45 days during the year. The allocated expenses related to the cabin total $6,000, resulting in a net loss of $1,500 for this rental activity. What is the proper tax treatment of these amounts by Leslie and Devin? |
| | A) | Report net income of $4,500. |
| | B) | Report rental loss of $1,500. |
| | C) | None of the amounts have to be reported. |
| | D) | Report income and expense on Schedule E but expense cannot exceed income. |
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| 10.
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Which of the following statements is true concerning vacation home properties? |
| | A) | A property rented for more than 15 days and used for personal use for less than 14 days is categorized as primarily rental. |
| | B) | A property rented for more than 15 days and used for personal use for more than 14 days is categorized as primarily personal. |
| | C) | A property categorized as primarily personal is one rented for zero days. |
| | D) | Report all income and expense for a personal/rental property and the net can be either net income or net loss. |
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| 11.
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Colin and Alex own a cabin in the California mountains. During the year, they rented it for 45 days for $10,000 and used it 12 days for personal use. The house was vacant for the remainder of the year. The expenses for the house included $8,000 in mortgage interest, $3,000 in property taxes, $1,200 in utilities, $400 in maintenance, and $3,000 in depreciation. What is their income or loss from the cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses. |
| | A) | $0 |
| | B) | $2,947 net loss |
| | C) | $5,600 net loss |
| | D) | $10,000 net income |
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| 12.
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Royalties can be earned from allowing others the right to use: |
| | A) | A building |
| | B) | Equipment |
| | C) | Furniture |
| | D) | Intangible assets |
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| 13.
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Jeremiah is a full-time professor of psychology at the University of Washington and an author of a psychology textbook. The royalty income he receives from the publisher should be reported on: |
| | A) | Schedule C |
| | B) | Schedule K-1 |
| | C) | Form 1099-MISC |
| | D) | Schedule E |
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| 14.
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Which of the following is not considered a flow through entity? |
| | A) | Trust |
| | B) | Sole proprietorship |
| | C) | Partnership |
| | D) | S corporation |
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| 15.
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Roger, Ellen, Dean and Cindy are equal partners in a local pub. The pub reports the following items for the current year:| Revenue | $1,770,000 | | Business expenses | $1,000,000 | | Investment expenses | $160,000 |
Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040? |
| | A) | $192,500 on Schedule E; $40,000 on Schedule A |
| | B) | $257,667 on Schedule E; $40,000 on Schedule A |
| | C) | $385,000 on Schedule E; $40,000 on Schedule A |
| | D) | $770,000 on Schedule E; $160,000 on Schedule A |
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