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6) Under what circumstances must Form 982, Reduction of Tax Attributes Due to Dis-charge of Indebtedness (and Section 1082 Basis Adjustment) be filed with a taxpay-er’s return?
a) When a taxpayer applies an exclusion from taxation for cancelled debt.
b) When a taxpayer claims an exception from taxation of a cancelled debt because the payment would have been a deductible expense.
c) When a taxpayer claims an exception from taxation of a cancelled debt related to cancellation of a qualified student loan.
d) When a taxpayer claims an exception from taxation of a cancelled debt related to a price that was reduced after purchase.
7) What is the maximum amount of debt that can be excluded under the Mortgage Forgiveness Debt Relief Act of 2007?
a) $1,000,000 ($500,000 MFS).
b) $2,000,000 ($1,000,000 MFS).
c) $3,000,000 ($1,500,000 MFS).
d) $4,000,000 ($2,000,000 MFS).
8) Which party is responsible for completing an abandonment of property?
a) The seller.
b) The financial institution holding the debt.
c) The buyer of a foreclosed property.
d) Abandonment is an action taken by the borrower.
9) Form 1099-A, Cancellation of Debt, may be required if a lender cancels at least the following amount of debt.
a) $400 b) $600 c) $1,800 d) $10,000
10) When a taxpayer is insolvent, the extent of the insolvency is the amount by which the taxpayer’s liabilities exceed:
a) The FMV of the foreclosed property.
b) The basis of foreclosed property.
c) The taxpayer’s assets.
d) The potential amount of income from cancellation of debt.
11) For purposes of determining the insolvency exclusion, liabilities include:
a) Recourse debts.
b) Nonrecourse debts.
c) Nonrecourse debt in excess of FMV of the property that secures the debt to the extent the debt is forgiven.
d) All of the above.
D O N O T M A IL
Go to www.thetaxbook.com and click on “Login to Education Center” to take the Final Exam.12) Whether a mortgage debt is recourse or nonrecourse is determined by:
a) Whether the loan is for real or personal property.
b) The loan documents.
c) Agreement between the lender and the borrower.
d) State law.
13) If a fraudulent debt due to identity theft is cancelled, how is that cancellation of debt reported on the taxpayer’s income tax return?
a) The amount of fraudulent debt cancelled is reported on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis
Adjustment), and is eligible for an exclusion from income.
b) The taxpayer must obtain an Identity Theft PTIN from the IRS and include the fraudulent debt discharged as an adjustment to income on Form 1040.
c) A fraudulent debt due to identity theft is not considered the taxpayer’s liability, and any related forgiveness of debt should not be reported on Form 1099-C.
d) The amount of the debt is claimed as a Miscellaneous Itemized Deduction on Schedule A of Form 1040.
14) Eric and Mary are jointly and severally liable for a debt that was cancelled. The lender issues Form 1099-C, Cancellation of Debt, to both Eric and Mary. How should the debt be allocated between the two?
a) The lender can use any reasonable method to allocate the debt between co-owners.
b) Both Eric and Mary will each receive a Form 1099-C showing the entire amount of the debt.
c) The debt will be allocated based on each individual’s percentage of ownership.
d) The 1099-C showing the full amount of the debt will be issued only to the individual whose name is listed first on the loan documents.
15) Todd operates his business as a sole proprietorship. In connection with his business he incurred a debt that he was unable to repay. The lender cancelled the debt. In what manner does Todd report income from cancellation of debt.
a) Other income, line 21, Form 1040.
b) Schedule C, Profit or Loss from Business.
c) Schedule D, Capital Gains and Losses.
d) Form 4797, Sales of Business Property.
16) Qualified principal reductions under the Home Affordable Modification Program (HAMP) are treated in the following manner for tax purposes.
a) The amount of principal reduction taxable income from cancellation of debt.
b) The amount of principal reduction reduces the taxpayer’s basis in the home.
c) The amount in excess of $1,000 per year is treated as taxable cancellation of debt income.
d) Qualified principal reductions under HAMP are not treated as income by the taxpayer.
D O N O T M A IL
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17) Debt cancelled in a Title 11 bankruptcy case is not included in the debtor’s gross income in the following situation.
a) The cancellation of debt is granted by the court.
b) The taxpayer’s liabilities exceed the value of the taxpayer’s assets.
c) The debt cancelled was qualified farm indebtedness.
d) The debt cancelled was qualified real property indebtedness.
18) Anti-deficiency laws are designed to protect a debtor from the following.
a) A deficiency judgment against the borrower for the amount of a second mortgage.
b) A deficiency judgment against the borrower for the amount of a home equity loan.
c) A deficiency judgment against the borrower after the lender has foreclosed on a principal residence.
d) A deficiency judgment against the borrower for defaulting on a mortgage on a second home.
19) A short sale of real estate is defined as follows.
a) A short sale of real estate occurs when a lender allows a borrower to sell his or her property for less than the outstanding mortgage.
b) A short sale is an expedited process where the title to property is
transferred in a shorter period of time than with a normal sales transaction.
c) A short sale allows a borrower under foreclosure to sell property when the sales price is more than the amount of the outstanding mortgage.
d) A short sale occurs as part of the foreclosure process when a new buyer enters into a contract to purchase an abandoned home.
20) Bessie sold her home on a contract for deed. Gain on the sale was eligible for the exclusion of gain on the sale of a principal residence. The buyers stopped making payments and Bessie was forced to repossess the home. How soon must Bessie resell the home in order for the gain on the resale to be treated as part of the original sale for purposes of the exclusion of gain from the sale of a principal residence.
a) 60 days from the date of the original sale.
b) Six months from the date of the original sale.
c) One year from the date of the original sale.
d) Two years from the date of the original sale.