1. Look at the Form 1040 you prepared for Maria. What is the amount on Form 1040, Line 40?

a. $ 11,217.
b. $ 11,043.
c. $ 11,456. 
d. None of the above.

2. Look at the Form 1040 you prepared for Maria. What is the amount on Form 1040, Line 74a?

a. $ 629.
b. $ 554.
c. $ 584.
d. None of the above.

3. Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income.

True False

4. You can deduct fines and penalties paid to a government for violations of law.               

True False

5. If you use the proceeds of a loan for more than one purpose (for example, personal and business), you

a. must allocate the interest on the loan to each use.
b. do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used.
c. allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated.
d. All of the above.

6. Property held for investment includes property that produces

a. interest not derived in the ordinary course of a trade or business.
b. dividends not derived in the ordinary course of a trade of business.
c. annuities or royalties not derived in the ordinary course of a trade or business.
d. All of the above.

7. If you do not meet the tests to fully deduct points in the year paid, or the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if

a. you use the cash method of accounting and your loan is secured by a home.
b. your loan period is not more than 30 years, and if your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period.
c. either your loan amount is $250,000 or less, or the number of points is not more than 4, if your loan period is 15 year or less, or 6 points if your loan period is more than 15 years.
d. All of the above.

8. Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. This is true,

a. unless the new mortgage is secured by your main home.
b. even if the new mortgage is secured by your main home.
c. unless the new mortgage is secured by your second home.
d. even if the new mortgage is secured by a second home.

9. Guillermo and Laura sold their home on May 7. Through April 30, they made home mortgage interest payments of $1,300. The settlement sheet for the sale of the home showed $80 interest for the 6-day period in May up to, but not including the date of sale. Their mortgage interest deduction is

a. $ 80.
b. $ 1,300.
c. $ 1,380.
d. None of the above.

10. If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply),

a. paid up to and including the date of sale.
b. paid up to, but not including the date of sale.
c. paid up to six months after the date of sale.
d. None of the above.

11. You can deduct all of the interest on mortgages you took out on or before October 13, 1987 (Called grandfathered debt).                   

True False

12. If your adjusted gross income is more than $156,400 ($78,200 if you are married filing separately), the overall amount of your itemized deductions may be limited.                   

True False

13. As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Points not included on Form 1098

a. also may be deductible.
b. are never deductible.
c. should not show any interest that was paid for you by a government agency.
d. None of the above.

14. You can treat amounts you paid during 2007 for qualified mortgage insurance as home mortgage interest. Qualified mortgage insurance is mortgage insurance provided by the

a. Department of Veteran Affairs.
b. Federal Housing Administration or the Rural Housing Service.
c. Private mortgage insurance as defined in section 2 of the Homeowner Protection Act of 1998 as in effect on December 20, 2006.
d. Any of the above.

15. You can treat amounts you paid during the 2007 year for qualified mortgage insurance as home mortgage interest. To do so,

a. the insurance must be in connection with home acquisition debt.
b. the insurance contract must have been issued after 2006.
c. you must have paid the premiums before 2008 for coverage in effect during 2007.
d. All of the above.

16.  You can fully deduct points in the year paid if you meet certain tests. If you meet these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the the life of the loan. Which of the following would disqualify points from being fully deductible in the year paid?

a. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 
b. The funds can be borrowed funds from the lender or mortgage broker.
c. You loan is secured by your main home (Your main home is the one you ordinarily live in most of the time).
d. You use the cash method of accounting.

17. What is a type of deductible interest?

a. Home mortgage interest.
b. Certain points and mortgage insurance premiums.
c. Investment interest.
d. All of the above.

18. Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. You can deduct home mortgage interest only if you meet the following except

a. You must be legally liable for the loan.
b. The Mortgage must be a secured debt on the qualified home.
c. You must file Form 1040 and itemized deductions on Schedule A (Form 1040).
d. The home mortgage debt must be a grandfathered debt.

19. The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. You generally cannot deduct the full amount of points in the year paid because they are prepaid interest, unless

a. Your home is secured by your main home (Your main home is the home you live in  most of the time).
b. Paying points is not an established business practice in the area where the loan was made.
c. The points paid were more than the points generally charged in that area.
d. All of the above.

20. The term "points" includes

a. Loan origination fees and Maximum loan charges.
b. Loan discount or discount points.
c. Loan placement fees that the seller pays to the lender to arrange financing for the buyer.
d. All of the above.

21. If you and at least one more person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year,

a. You cannot deduct the mortgage interest because the person for whom it was reported has to report the interest.
b. You can take turns and alternate the reporting on interest expense each year.
c. Attach a statement to your return and report only the interest you paid, and give information for person who received the form and on line 11 print "see attached".
d. To avoid complications, you should not report any mortgage interest for the years that both of you are on the loan documents.

22. If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct interest you incurred

 a. From investing in tax-exempt income.
b. From investing in straddles.
c. Income from a passive activity.
d. Up to the amount of your net investment.  

23. You may be able to claim a mortgage interest credit if you were issued a mortgage interest credit certificate (MCC) by a state or local government. If you take this credit, you must

a. Not have Income from investing in properties.  
b. Figure the credit on Form 8102.
c. Reduce your mortgage interest deduction by the amount of the credit.
d. All of the above.

24. If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. All of the interest expense is treated as investment interest.      

True False

25. You borrow money to buy property you hold for investment, the interest you pay is investment income. The interest you pay for the investment property per year is limited to you investment income. Any amounts that is not used because of limitation in one year

a. It is simply a benefit that is wasted. 
b. Can be carried over to the next year and is treated as investment interest paid or accrued in the next year.
c. Is lost because you can only deduct expenses in the year they were incurred.
d. None of the above.

26. Which of the following would disqualify points from being fully deductible in the year paid?

a. The points were computed as a percentage of the principal amount of the mortgage.
b. The loan proceeds were used to purchase a second home.
c. The payment of points in common in your area.
d. The points are clearly stated on the settlement statement as pints charged for the mortgage.

27. How much of the following interest expense in deductible on Schedule A, before limitations?

a. $1,200.
b. $1,900.
c. $4,650.
d. $3,900.

28. When you took out a $150,000 mortgage loan secured by your main home in December 2007,  you were charged two points ($2,000). Of which you paid $1,600 in December and the rest $400 in January 2008. How do you deduct your points paid?

a. You can fully deduct $2,000 in 2007 (in year paid) or over the life of your loan. 
b. You can deduct $400 in 2007; and $2,000 over the life of the mortgage.
c. You can deduct $1,600 in 2007; and $600  over the life of the mortgage.
d. None of the above.

29. Amounts charged by the lender for specific services connected to the loan are not interest. The following are examples of theses charges, except for

a. Appraisal fees and notary fees.
b. Preparation costs for the mortgage note or deed of trust.
c. Points.
d. Mortgage insurance premiums.

30. Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of

a. Schedule E (Form 1040).
b. Schedule A (Form 1040).
c. Schedule B (Form 1040).
d. None of the above.

31. Look at the Form 540 you prepared for Maria. What is the amount on Form 540, Line 18?

a. $ 11,217.
b. $ 11,456.
c. $ 11,043. 
d. None of the above.

32. Look at the Form 540 you prepared for Maria. What is the amount on Form 540, Line 62?

a. $ 90.
b. $ 98.
c. $ 94. 
d. None of the above.

33. Your California deduction for investment interest may be different from your federal deduction. Use __________ to figure the amount to enter on line 41.

a. FTB 3526.
b. FTB 3807.
c. FTB 3506.
d. FTB 2441.

34. Your California interest expense deduction may be different from your federal deduction. A deduction is allowed for interest paid on any loan or financed indebtedness from a utility company to purchase energy efficient equipment and products for California residences.

True False

35. Taxpayers are allowed a tax deduction for interest paid or incurred on a public utility company financed loan that is used to purchase and install energy efficient equipment or products, including zone-heating products for a qualified residence located in California. Federal law has an equivalent deduction.

True False

36. You may claim expenses related to producing income taxed by California law but not taxed under federal law by entering the amount as a positive number on line 41.

True False

37. If you took the deduction for private mortgage insurance (PMI) on Schedule A (Form 1040), line 13, then subtract the amount on line 41.

True False

38. If you reduced your federal mortgage interest deduction by the amount of your mortgage interest credit (from federal Form 8396, Mortgage Interest Credit),

a. Increase your California itemized deductions by the same amount.
b. Decrease your California itemized deductions by the same amount.
c. Don't do anything, because California coincides with federal rules and allows this credit.
d. None of the above.