Nontaxable like-kind exchange

Question

Problem 1. For federal tax purposes, royalty income not derived in the ordinary course of a business is classified as:

• Active income
• Portfolio income
• Passive income
• None of the above

Problem 2. Which of the following is not an example of a nontaxable like-kind exchange?

• An ice cream making machine for inventory of Rocky Road ice cream.
• Land for an office building.
• A printer for a computer.
• The trade of an apartment building for a store building.

Problem 3. Al and Amy file a joint return for the 2007 tax year. Their adjusted gross income is $80,000. They had net investment income of $7,000. In 2007, they had the following interest expenses:

Personal credit card interest $4,000;
Home mortgage interest $8,000; and
Investment interest (on loans used to buy stocks) $10,000.

What is the interest deduction for Al and Amy for the 2007 tax year?

• $8,000
• $15,000
• $12,000
• $18,000

Problem 4. Charitable contribution deductions for cash donations made by individuals to public charities are limited to:

• 50% of AGI
• 40% of AGI
• 30% of AGI
• 20% of AGI

Problem 5. The following taxes were paid by Tim: Real estate taxes on his home: $2,000; State income taxes: $900; and State gasoline tax (personal use of automobile): $150.

In itemizing his deductions, what is the amount that Tim may claim as a deduction for taxes?

• $2,000
• $2,900
• $3,050
• $0

Problem 6. Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $60,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh's $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh's gain on the sale?

• $50,000
• $105,000
• $75,000
• $60,000

Problem 7. Ben's property, which has an adjusted basis of $85,000, is condemned by the state government. The authorities replace his property with other qualified property which cost them $120,000. What is Ben's recognized gain?

• $0
• $35,000
• $85,000
• $120,000

Problem 8. Sean, a calendar year taxpayer, purchased stock on June 18, 2006, for $8,000. The stock became worthless on June 4, 2007. What is Sean's loss in 2007?

• $8,000 short-term capital loss
• No loss
• $8,000 long-term capital loss
• $8,000 itemized deduction for investments