EA Practice questions (Answers don't make sense)

[Pacun]

7. Jane bought an old mountain cabin as a second home and began to remodel it. Immediately after she had

removed the old appliances and cleaned the cabin, a fire destroyed it. The cost of the cabin was $100,000

(including $10,000 for the land). The fair market value (FMV) of the property before the fire was

$120,000 ($105,000 for the building and $15,000 for the land). After the fire, the FMV was $15,000 (value

of the land). Jane collected $85,000 from her insurance company. Her casualty loss (before applying the

$500 and 10% limits) is:

a. $-0-

b. $20,000

c. $5,000

d. $15,000

1. Sam uses his personal vehicle to make business deliveries. He submits the number of miles he drives to his

employer and is reimbursed an amount per mile which exceeds the federal rate. Sam’s actual expenses are

more than the federal rate. His employer includes the amount up to the federal rate in box 12 of Form W-2

where it is not taxable to Sam. The excess allowance is included in box 1 of the Form W-2 as wages. How

should Sam report or claim this mileage?

a. file Form 2106 to deduct the excess expenses

b. repay the excess to his employer

c. he cannot claim any of the expenses since his employer reimbursed him for all expenses

d. if he files Form 2106, he need not reduce his mileage expense by his reimbursed amount

Can someone answer these questions?

[Don in Upstate NY]

First answer is 'c'.

[basis of house before fire was 90K (lower of cost or FMV). After fire house has no value, so loss is 90K. Insurance pays 85K, so net loss is 5K].

On the second question, it isn't clear if his actual costs exceeded his reimbursement or not. If he was over-reimbursed he must return the overage under the rules for an accountable plan. If not, he files 2106 to claim the excess expenses. If this were the real test in the olden days, they would eventually give credit for either 'a' or 'b'. With computer scoring, I'd go with 'a' and cross my fingers.

[taxxcpa]

First answer is 'c'.

[basis of house before fire was 90K (lower of cost or FMV). After fire house has no value, so loss is 90K. Insurance pays 85K, so net loss is 5K].

On the second question, it isn't clear if his actual costs exceeded his reimbursement or not. If he was over-reimbursed he must return the overage under the rules for an accountable plan. If not, he files 2106 to claim the excess expenses. If this were the real test in the olden days, they would eventually give credit for either 'a' or 'b'. With computer scoring, I'd go with 'a' and cross my fingers.

If he was over-reimbursed because his employer pays more than the federal rate, that does not mean he has to refund it to the employer unless that is part of his employment arrangement. If he is reimbursed $ 100, the federal rate is $ 90, and his actual cost is more than the federal rate, his cost could be $ 95 or it could be $ 105, so he might or might not have additional unreimbursed expense that should go on Form 2106.