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Exam 5: Gross Income: Exclusions

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Question 61

Multiple Choice

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Denny was neither bankrupt nor insolvent but was short of cash and could not make the mortgage payments on his personal residence in 2012. The bank that held the mortgage agreed to reduce the principal on the debt from $100,000 to $80,000 so that Denny's monthly mortgage payments could be reduced to a manageable amount. Denny also had a vacation home with a mortgage whose payments were beyond his means.The mortgage holder on the vacation home agreed to reduce the mortgage from $60,000 to $50,000.The value of the personal residence was $80,000 and the value of the vacation home was $45,000 at the dates of the debt reduction.

A) Denny is not required to recognize any income as a result of the reduction in the principal of the mortgages.
B) Denny is required to recognize $5,000 income from the reduction in the mortgage on the vacation home, but has no gross income from the reduction in the mortgage principal on his personal residence.
C) Denny is required to recognize $10,000 income from the reduction in the mortgage on the vacation home, but nothing for the reduction in the mortgage on his personal residence.
D) Denny is required to recognize $10,000 income from the reduction in the mortgage on the vacation home and $20,000 income for the reduction in the mortgage on his personal residence.
E) None of the above.

F) C) and E)
G) A) and D)

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Question 62

Multiple Choice

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Olaf was injured in an automobile accident and received $25,000 for his physical injury, $10,000 for his loss of income, and $50,000 punitive damages.As a result of the award, the amount Olaf must include in gross income is:

A) $10,000.
B) $50,000.
C) $60,000.
D) $85,000.
E) None of the above.

F) A) and B)
G) A) and E)

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Question 63

Multiple Choice

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A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

A U.S.citizen worked in a foreign country for the period July 1, 2011 through August 1, 2012.Her salary was $10,000 per month.Also, in 2011 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2012.Which of the following is correct?

A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2012. His total itemized deductions in 2012 were $18,000. In 2013, he received a $900 refund of his 2012 state income tax.The taxpayer must include the $900 refund in his 2013 Federal gross income in accordance with the tax benefit rule.

Mother participated in a qualified state tuition program for the benefit of her son.She contributed $15,000.When the son entered college, the balance in the fund satisfied the tuition charge of $20,000.When the funds were withdrawn to pay the college tuition for her son, Mother must include $5,000 ($20,000 - $15,000) in her gross income.

Kristen's employer owns its building and provides parking space for its employees. The value of the free parking is $150 per month. Karen's employer does not have parking facilities, but reimburses its employee for the cost of parking in a nearby garage, up to $150 per month.

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay. However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds. An officer incurred $1,500 in medical expenses and was reimbursed for that amount. An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities, bar, and restaurant, 60% of all of Casino's employees, the meals are provided for the convenience of the Casino.However, the hotel workers, demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?

Ed died while employed by Violet Company.His wife collected $40,000 on a group term life insurance policy that Violet provided its employees, and $6,000 of accrued salary Ed had earned prior to his death. All of the premiums on the group term life insurance policy were excluded from the Ed's gross income.Ed's wife is required to recognize as gross income the $46,000 she received.

All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee) . None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums. If the change is made, the employee's after-tax and insurance pay will:

Carla is a deputy sheriff. Her employer requires that she live in the county where she is employed. Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing. Carla must include the housing supplement in her gross income.

Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each.Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company.She must include in gross income:

A U.S.citizen who works in France from February 1, 2011 until January 31, 2012 is not eligible for the foreign earned income exclusion in 2011 but is eligible for it in 2012.

Ron, age 19, is a full-time graduate student at City University.During 2012, he received the following payments: Ron served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Ron's adjusted gross income for 2012?