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Exam 5: Gross Income and Exclusions

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Question 1

True/False

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When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

A) True
B) False

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Question 2

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Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).

A) True
B) False

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True

Question 3

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Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

Aubrey and Justin file married filing separately. This year, Aubrey earned salary of $130,000, and Justin earned salary of $88,000. Aubrey and Justin live in a community property state. How much income earned will Justin report on his tax return for this year?

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years. Charles paid $180,000 for the annuity. How much of the first $20,000 payment should Charles include in gross income?

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount) .

Hank is a U.S. citizen and is doing a three to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days) . He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars) ?

The receipt of prizes and awards is generally taxable.

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.

For tax purposes, unearned income is income that has not yet been realized.

NeNe is an accountant and a U.S. citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

This year, Barney and Betty sold their home (sales price $810,000; cost $220,000) . All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

This year Joseph joined the board of directors for a company. Besides his director's fees, Joseph received the following employee benefits: The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation. At the time of the transfer the stock was listed at $4 per share. What amounts, if any, should Joseph include in gross income this year?

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of Social Security payments. What amount must Bart include in his gross income for the Social Security payments?

Unemployment benefits are excluded from gross income.

Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $110,000. How much of her salary will she be allowed to exclude from gross income in the United States?

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to pay Barney $59,700 per year for five years (or until Barney's death or remarriage) and $14,400 per year until their daughter, Pebbles, turns 19 years old. What amount (if any) is included in Barney's gross income in 2020?

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