464 MODULE 33 TAXES: INDIVIDUAL
property is disposed of, regardless of when the property is
disposed of during the year. Answer (b) is incorrect because
allowing one-half month's depreciation for the month that
property is placed in service or disposed of is known as the
"rnidmonth convention."
85. (c) The requirement is to determine the portion of
the $814,000 cost of the machine that can be treated as an
expense for 2009. Sec. 179 permits a taxpayer to elect to
treat up to $250,000 (for 2009) of the cost of qualifying de-
preciable personal property as an .expense rather than as a
capital expenditure. However, the $250,000 maximum is
reduced dollar-for-dollar by the cost of qualifying property
placed in service during the taxable year that exceeds
$800,000. Here, the, maximum amount that can be expensed
is [$250,000 - ($814,000 -, $800,000)] = $236,000.
11. "Above the Line" Deductions
86. (d) The requirement is to determine the amount to
be reported in Mel's gross income for the $400 per month
received for business automobile expenses under a nonac-
countable plan from Easel Co. Reimbursements and ex_o
pense allowances paid to an employee under a nonaccount-
able plan must be included in the employee's gross income
and are reported on the employee's W-2. The employee
must then complete Form 2106 and itemize to deduct
business-related expenses such as the use of an automobile.
87. (c) The requirement is to determine the correct
statement regarding a second residence that is rented for 200
days and used 50 days for personal use. Deductions for
expenses related to a dwelling that is also used as a resi-
dence by the taxpayer may be limited. If the taxpayer's
personal use exceeds the greater of 14 days, or 10% of the
number of days rented, deductions allocable to rental use are
limited to rental income. Here, since Adams used the sec-
ond residence for 50 days and rented the residence for 200
days, no rental loss can be deducted. All expenses related to
the property, including utilities and maintenance, must be
allocated between personal use and rental use. Answer (d) is
incorrect because only the mortgage interest and taxes allo-
cable to rental use would be deducted in determining the
property's net rental income or loss. Answer (a) is incorrect,
since depreciation on the property could be deducted if Ad-
ams' gross rental income exceeds allocable out-of-pocket
rental expenses.
88. (a) The requirement is to determine the amount of
unreimbursed employee expenses that can be deducted by
Gilbert if he does not itemize deductions. Gilbert cannot
deduct any of the expenses listed if he does not itemize de-
ductions. The unreimbursed employee business expenses
are deductible only as itemized deductions, subsequent to
the 2% of AGI floor.
II.E. Moving Expenses
89. (c) The requirement is to determine the amount of
moving expense that James can deduct for 2009. Direct
moving expenses are deductible if closely related to the start
of work at a new location and it distance test (i.e., distance .
from new job to former residence is at least fifty miles fur-
ther than distance from old job to former residence) and a
time test (i.e., employed at least thirty-nine weeks out of
twelve months following move) are met. Since both tests
are met, Jarnes' unreimbursed lodging and travel expenses
($1,000), cost of insuring household goods and personal
effects during move ($200), cost of shipping household pets
($100), and cost of moving household furnishings and per-
sonal effects ($3,000) are deductible. Indirect moving ex-
penses such as premove househunting, temporary living
expenses, and meals while moving are not deductible.
90. (c) The requirement is to determine Martin's de-
ductible moving expenses. Moving expenses are deductible
if closely related to the start of work at a new location and a
distance (i.e., new job must be at least fifty miles from for-
mer residence) and time (i.e., employed at least thirty-nine
weeks out of twelve months following move) tests are met.
Here, both tests are met and Martin's $806 cost of moving
his personal belongings is deductible. However, the $300
penalty for breaking his lease is not deductible.
91. (a) Only the direct costs incurred for transporting a
taxpayer, his or her family, and their household goods and
personal effects from their former residence to their new
residence can qualify as deductible moving expenses. The
indirect moving expense costs incurred for meals while in
transit, house hunting, temporary lodging, to sell or purchase
a home, and to break or acquire a lease are not deductible.
II.F. Contributions to Certain Retirement Plans
92. (d) The requirement is to determine the incorrect
statement concerning a Roth IRA. The maximum annual
contribution to a Roth IRA is subject to reduction if the tax-
payer's adjusted gross income exceeds certain thresholds.
Unlike a traditional IRA, contributions are not deductible
and can be made even after the taxpayer reaches age 70Y2.
The contribution must be made by the due date of the tax-
payer's tax return (not including extensions).
93. (c) 'The requirement is to determine the maximum
amount of adjusted gross income that a taxpayer may have
and still qualify to roll over a traditional IRA into a Roth
IRA. A conversion or rollover of a traditional IRA to a Roth
IRA can occur if the taxpayer's AGI does not exceed
$100,000, the taxpayer is not married filing a separate re-
o1 turn, and the rollover occurs within sixty days of the
IRA
distribution. For purposes of the determining eligibility, the
$100,000 AGI ceiling is determined by including taxable
social security and is determined before the exclusions for
interest on Series EE bonds used for higher education, em-
ployer provided adoption assistance, and foreign earned
income. The IRA conversion or rollover amount is not
taken into account in determining the $100,000 AGI ceiling.
94. (d) The requirement is to determine which statement
concerning an education IRA is not correct. Contributions
to an education IRA are not deductible, but withdrawals of
earnings will be tax-free if used to pay the qualified higher
education expenses of the designated beneficiary. The
maximum amount that can be contributed to an education
IRA for 2009 is limited to $2,000, but the annual contribu-
tion is phased out by adjusted gross income in excess of
certain thresholds. Contributions generally cannot be made
to an education IRA after the date on which the designated
beneficiary reaches age eighteen.
95. (a) The requirement is to determine the Whites'
allowable IRA deduction on their 2009 joint return. For
married taxpayers filing a joint return for 2009, up to $5,000
can be deducted for contributions to the IRA of each spouse