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Exam 5: Gross Income and Exclusions

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Question 71

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A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

A) True
B) False

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Question 72

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Constructive receipt represents the principle that cash-basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

A) True
B) False

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Question 73

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Brad was disabled for part of the year and he received $11,500 of benefits from a disability plan purchased by Brad's employer as a nontaxable fringe benefit.Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

The maximum amount of net capital losses individuals may deduct against their ordinary income per year is:

Workers' compensation benefits are excluded from gross income.

Graham has accepted an offer to do graduate work in the chemistry department at State University.The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals.Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant.What amount must Graham include in his gross income?

The date on which stock options are no longer subject to forfeiture is called the vesting date.

This year, Fred and Wilma, married filing jointly, sold their home (sales price $750,000; cost $200,000) .All closing costs were paid by the buyer.Fred and Wilma owned and lived in their home for 20 years.How much of the gain is included in gross income?

Trevor received a gift of $25,000 in cash from his rich uncle.Trevor must include $15,000 of this gift in his gross income this year.

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life.The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments.The cost of the annuity to Larry was $620,000.How much of the first $3,000 payment should Larry include in gross income?

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year.Last year Victoria claimed itemized deductions of $14,590.Victoria's itemized deductions included state income taxes paid of $3,750.How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $12,000?

This year Zach was injured in an auto accident.As a result he received the following payments. Zach received $18,000 of disability pay.Zach has disability insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $4,300 in disability premiums for Zach this year. Zach's hospital bills totaled $4,500 and were paid by his health insurance.Zach has health insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

Kevin bought 200 shares of Intel stock on January 1, 2019, for $50 per share with a brokerage fee of $100.Then, Kevin sells all 200 shares for $75 per share on December 12, 2019.The brokerage fee on the sale was $150.What is the amount of the gain/loss Kevin must report on his 2019 tax return?

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Gross income includes all income realized during the year.

This year Kelsi received a $1,900 refund of state income taxes that she paid last year.Last year Kelsi claimed itemized deductions of $13,100, including $2,800 of state income taxes.How much of the refund, if any, must Kelsi include in gross income if the standard deduction last year was $12,000?

Wendell is an executive with CFO Tires.At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of 1 percent.Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing federal interest rate.Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO.On December 31, CFO forgave the loan and remaining interest.What amount of gross income does Wendell recognize from the loan this year?

Caroline is retired and receives income from a number of sources.The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased after her retirement.Calculate Caroline's gross income. $\begin{array}{llcc} \text { Distributions from qualified pension plan } &\$5,400 \\ \text { Interest on bonds issued by City of Austin, Texas } &2,500\\ \text {Social Security benefits } &8,200\\ \text {Interest on U.S. Treasury bills } &2,300\\ \text {Interest on bonds issued by Ford Motor Company } &1,900\\ \text { Interest on bonds issued by City of Quebec, Canada} &2,750\\\text { Disability insurance benefits }&9,500\end{array}$

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.