Tax Credits
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1. George and Jill are husband and wife, ages 67 and 65 respectively. During the year, they receive Social Security benefits of $4,000 and have adjusted gross income of $11,000. Assuming they file a joint return,
their tax credit for the elderly, before considering any possible limitation due to their tax liability, is:
a. $1,125.
b. $750.
c. $450.
d. $375.
e. None of the above.
2. Caleb and Zoe are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents.
Assuming their AGI is $118,200, Caleb and Zoe's child tax credit is:
a. $0.
b. $450.
c. $1,550.
d. $2,000.
e. None of the above.
3. Which of the following decreases adjusted basis?
a. Amortization of bond premium.
b. A corporate distribution to a shareholder treated as a return of capital in which gain is recognized to the shareholder.
c. Dividends received.
d. Only a. and b.
e. All of the above.
4. Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra's adjusted basis for the automobile after the casualty?
a. $0.
b. $7,000.
c. $7,800.
d. $10,200.
e. None of the above.
5. A strip along the boundary of Joy's land is taken for a utility easement. She receives a payment of $7,500 from the utility company. Her basis in the land is $80,000. Which of the following is correct?
a. Joy must include the $7,500 in gross income.
b. Joy must reduce the basis of the land by $7,500.
c. Joy must include the $7,500 in gross income and increase the basis of the land by $7,500.
d. Only a. and c. are correct.
e. a., b., and c. are correct.
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Solution Summary
This solution consists of questions and answers concerning various tax credits, adjusted basis, and casualties/losses.
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1. Both George and Jill are entitled to the Tax Credit for the Elderly and Disabled, they both are 65 or older. Starting with a base amount of $7,500 and subtracting the Social Security benefits of $4,000 leaves an initial amount of $3,500. After the initial calculation the next test is a reduction of one-half of Adjusted Gross Income over a threshhold amount of $10,000. In ...
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