1. Melissa is single (with no dependents) and has $100,000 in income from salary and $3,000 from investment income. She has expenses of $8,000 in mortgage interest on her home, $2,000 in interest on a boat house she owns, which has a bedroom, kitchen and restroom, $4,000 in interest expense related to money she borrowed to make an investment in a partnership, $2,500 in sales tax expense and $5,000 in charitable deductions. What are Melissa’s total itemized deductions?
2. Same question as #7 except Melissa has salary income of $275,000.
3. Valerie acquires an interest in ABC, LLC, which is treated as a partnership for tax purposes. She also acquires an interest XYZ, LLC, also treated as a partnership for tax purposes. Each entity is engaged in a trade or business. She spends 510 hours working in ABC, LLC’s business and 90 hours working in XYZ, LLC’s business. XYZ LLC has 300 full time employees. ABC, LLC allocates $4,000 of losses to Valerie. XYZ LLC allocates $7,000 of losses to Valerie. Under the passive loss rules, how much of the losses may Valerie deduct?
4. Same as question #3, except that Valerie works 110 hours in XYZ LLC. Under the passive loss rules, how much of the losses may Valerie deduct?
5. Same as question #3 (ignore #4), except that Valerie works 90 hours in each business and XYZ, LLC earns a profit of $2,500. Under the passive loss rules, how much of the losses may Valerie deduct?
6. Allison has a rental property in which she actively participates as the property manager. She does not, however, materially participate in the activity. She has net losses of $30,000 for 2014. Her AGI (not counting the rental losses) is $135,000, all from salary. How much of her rental losses may she deduct for the year?
7. ABC Corporation is a US entity that lent money to a German corporation. During 2014, ABC received interest payments of $3 million, which were subject to a 15% German withholding tax (paid by the borrower directly to the German government). Assume ABC has no other income or expenses and is subject to a 35% US tax rate on all of its income. How much US tax would ABC owe for the year?
8. Alex owns a piece of land with a mortgage of $150,000. A buyer offers to purchase the land for $100,000 in cash plus the assumption of Alex’s debt. Alex’s basis in the property is $175,000. What is Alex’s gain or loss on the sale?
9. Pat owns some land with a fair market value of $400,000 and an adjusted basis of $325,000. He also owes the bank $300,000 on the mortgage. Jeff owns some land with a fair market value of $350,000 and an adjusted basis of $275,000. His mortgage is $200,000. Pat and Jeff agree to exchange properties (each subject to the existing mortgages). Pat will also pay Jeff $50,000 in cash. What is the realized gain, recognized gain and basis in the new properties for both Pat and Jeff?
10. Baker purchased a call option to acquire 1,000 shares of XYZ stock at a strike price of $15 per share. The option premium was $400.
(a) At what share price will the option be “in the money.”
(b) Assume Baker exercises his option. How is the premium accounted for from both Baker’s and the option seller’s perspective?
(c) Assume Baker let the option lapse. How is the premium accounted for from both Baker’s and the option seller’s perspective?
11. Charles sold 1000 shares of ABC stock short at $10 per share. Later, when the market price of ABC stock was $16 per share, he closed the position. What was Charles gain or loss?