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Assignment #2

Chapter 3
Q28

During the year, Tamara had capital transactions resulting in gains (losses) as follows:

Sold stock in ABC Company (acquired two years ago)

($1,500)

Sold collectible coins (held for more than one year)

$2,000

Sold stock in XYZ Company (acquired six months ago)

($4,100)

old stock in LMN Company (acquired three years ago)

$500

Determine Tamaras net capital gain or loss as a result of these transactions.


Ans. She has overall short-term capital loss of $3100.
Q33

a.

Taxpayers son has gross income of $7,000.


QC - If the son lives with the taxpayer more than half of the year and provides less
than 50 percent of his own support with age under 19 (and 24 for student), then he
is a QC- Qualifying child.

b.

Taxpayers niece has gross income of $3,000.


B - She can be a qualifying child if lives with the taxpayer more than half of the
year and provides less than 50 percent of his own support with age under 19 (and
24 for student). She passes the gross income test. She can be a qualifying relative
as well.

c.

Taxpayers uncle lives with him.


QR- He qualifies as relative for exemption if passes the gross income test and is
supported by the taxpayer (the taxpayer pays more than 50 percent of his support)

d.

Taxpayers daughter is age 25 and disabled.


B- The age test does not apply to a child who is disabled. Children who do not
satisfy the qualifying child definition may meet the qualifying relative criteria.

Assignment #2

e.

Taxpayers daughter is age 18, has gross income of $8,000, and does not live with
him.
N - The taxpayers daughter doesnt pass the Abode Test for QC. Furthermore, she
doesnt pass the Gross Income Test for QR.

f.

Taxpayers cousin does not live with her.


N- Qualifying relative doesnt include cousins.

g.

Taxpayers brother does not live with her.


QR- Passes relationship test. Doesnt need to live with the taxpayer to be
considered qualifying relative, as long as he satisfying all other tests.

h.

Taxpayers sister has dropped out of school, is age 17, and lives with him.
B- Can be QC (she passes relationship, age, abode test, assumption is the taxpayer
pays half of her support) or QR( as far she doesnt provide more than 50 percent of
her own support and pass gross income test, she can a qualifying relative.

i.

Taxpayers older nephew is age 23 and a full-time student.


QR- Cannot be qualifying child because he is older than the taxpayer.

j.

Taxpayers grandson lives with her and has gross income of $7,000.
QC- Can be qualifying child provided he passes other tests. He doesnt pass gross
income test, so cannot be qualifying relative.

Q39

Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for
years 2015 and 2016 received their support from the following sources.
Percentage of Support
Social Security

16

Assignment #2
Percentage of Support
Son

20

Niece

29

Cousin

12

Brother

11

Family Friend (not related)

12

A. Which persons are eligible to claim the dependency exemptions under a multiple support
agreement?
Ans: Son, brother, and niece can claim exemption. The cousin and the not related family friend
do not meet the relationship test.
Explanation: Since no one in a group of individual provides over 50% of the support of another
person, a multiple support agreement can be helpful in determining who will claim the
exemption. A multiple support agreement permits one of a group of taxpayers who furnish
support for a qualifying relative to claim a dependency exemption for that individual even if no
one person provides more than 50 percent of the support. The group together must provide more
than 50 percent of the support.
The person must meet all other requirements for claiming qualifying relative status. The cousin
and the family friend does not meet the relationship test, and hence are excluded from claiming
Wesley and Myrtle as qualifying relatives. Any person who contributed more than 10 percent of
the support is entitled to claim the exemption if each person in the group who contributed more
than 10 percent files a written consent. This implies son, niece and brother, who also meet all the
requirement including the relationship test can claim the exemption.

B. Must Wesley and Myrtle be claimed as dependents by the same person(s) for both tax years?
Explain.
Ans: The same person doesnt need to claim them as dependents for both the years. The eligible
persons can rotate the exemptions if they agree.
Explanation: It is between the Son, niece and brother to decide who will take which individual
and when will they take it. The same person doesnt have to claim both Wesley and Myrtle for
both years as long as the son, niece an brother (who are entitled to take them) agree. They should
enter into multiple support agreement, and put the details of their agreement in writing.

C. Who, if anyone, can claim their medical expenses?

Assignment #2

Ans: The same persons who claim Wesley and Myrtle as dependents may claim any
medical expenses that they expensed for the dependents because deductibility rest
on dependency status. For example, if the dependency exemption is claimed by
multiple parties under a multiple support agreement, they can also claim medical
expenses that they paid for Wesley and Myrtle.

Q48

Nadia died in 2014 and is survived by her husband, Jerold (age 44); her married son,
Travis (age 22); and her daughter-in-law, Macy (age 18). Jerold is the executor of his
wifes estate. He maintains the household where he, Travis, and Macy live, and Jerold
furnished all of their support. During 2014 and 2015, Travis is a full-time student, while
Macy earns $7,000 each year from a part-ime job. Travis and Macy do not file jointly
during either year.
What is Jerolds Federal income tax filing status for 2014 and 2015 if all parties
reside in:
a.

Idaho (a community property state)?

b.

Kansas (a common law state)?

Ans: a) For Idaho - Community Property State - Marital status is determined as of the
date of death when the spouse dies during the year. Jerold status in 2014 is married
and he can file a joint return. Also Jerold is the executor of Nadias estate, he can
issue authorization on her behalf. The joint return rates also apply for two years
following the death of one spouse if the surviving spouse maintains a household
for a dependent child. Travis aged 22 and enrolled full-time, meet requirement as
a Qualifying child, and meet the relationship, abode, age, and support tests. In
2015, Jerold is eligible as a surviving spouse. His son Travis, is a qualifying child
since he is a full-time student. In addition to the category of a qualifying child,
there is a second category of dependency exemption designated as the qualifying
relative. Macy, as daughter-in-law, qualifies as QR since her gross income is 50%
* $7,000 = $3,500, which meets the Gross Income Test (A dependents gross
income must be less than the exemption amount$4,000 in 2015 and $3,950 in
2014). Jerold has one personal and two dependencies.

Assignment #2

b) For Kansas - a Common Law state- Jerold filing status doesnt change. For
2014, his status while filing is Joint return, and in 2015, as surviving spouse. For
Common law state, all the earning of Macy is assigned to her. Macy will not be a
dependent under qualifying relative category because of the gross income test.
However, Travis remains same as qualifying child. Jerold has 2 exemptions- 1
personal and 1 dependent.

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