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(TCOs 1 and 2) The tax law allows an income tax deduction for state and local income taxes or state and local sales taxes paid. Explain the justification for each.

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    1. (TCOs 1 and 2) The tax law allows an income tax deduction for state and local income taxes or state and local sales taxes paid. Explain the justification for each.
  • TCOs 1, 2, 3, and 5) During the year, Marcus had the following transactions:
     
  • Long-term loss on the sale of business use equipment:
  • $6,000
  • Long-term loss on the sale of personal use camper:
  • $2,000
  • Long-term gain on the sale of personal use boat:
  • $1,000
  • Short-term loss on the sale of stock investment:
  • $3,000
  • Long-term loss on the sale of land investment:
  • $4,000


  • How are these transactions handled for income tax purposes? Explain your answer.
  1. (TCOs 4 and 5)  While she was a college student, Juliet worked in a bookstore located near campus. She thinks a bookstore located on the other side of campus would be successful. She incurs expenses of $18,000 (accounting fees, marketing survey, etc.) in exploring its business potential. Her parents have agreed to loan her the money required to start the business. What amount of these investigation costs can Juliet deduct if she

    I. opens the business in July 2011 or

    II. decides not to open the bookstore.
  2. TCOs 4 and 5) In 2011, Emily invests $100,000 in a limited partnership that is not a passive activity. During 2011, her share of the partnership loss is $70,000. In 2011, her share of the partnership loss is $50,000. How much can Emily deduct in 2011 and 2012?
  3. (TCO 7) Audra acquires the following new five-year class property in 2011:

    Asset     Acquisition Date               Cost
    A             January 10                 $106,000
    B             July 5                          $70,000
    C             November 15              $250,000
    Total                                       $426,000

    Audra elects § 179 for Asset C. Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction. If Congress reenacts additional first-year depreciation for 2010, Audra elects not to take additional first-year depreciation. Determine her total cost recovery deduction (including the § 179 deduction) for the year.
  4. (TCOs 6 and 7) Ollie owns a personal use car for which he originally paid $42,000. He trades the car in on a sports utility vehicle (SUV), paying the automobile dealer cash of $24,000. If the negotiated price of the SUV is $45,000, what is Ollie's recognized gain or loss and his adjusted basis for the SUV?
  5. (TCOs 3, 4, and 6) Homer (age 68) and his wife Jean (age 70) file a joint return. They furnish all of the support of Luther (Homer's 90-year-old father), who lives with them. For 2011, they received $6,000 of interest income on city of Chicago bonds and interest income on corporate bonds of $48,000. Compute Homer’s and Jean's taxable income for 2011.
  6. (TCOs 3, 4, and 6) Evan is employed as an assistant manager in the furniture division of a national chain of department stores. He is a recent college graduate with a degree in marketing. During 2011, he enrolls in the evening MBA program of a local university and incurs the following expenses: tuition, $4,300; books and computer supplies, $900; transportation expense to and from the university, $350; and meals while on campus, $300. Evan is single and his annual AGI is less than $65,000. Regarding these expenses, what are Evan's:

    I. Deductions for AGI?

    II. Deductions from AGI?

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