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Question 1: Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom's dependent. Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994 Form 1040. The Moores received a $500 security deposit on their rental property in 1994. They are required to return the amount to the tenant. A. $0 B. $500 C. $900 D. $1,000 E. $1,250 F. $1,300 G. $1,500 H. $2,000 I. $2,500 J. $3,000 K. $10,000 L. $25,000 M. $50,000 N. $55,000 O. $75,000 Correct Answer: A Explanation "A" is correct. $0. The security deposit is not taxable income because the Moores are required to return it when the tenant leaves. If the deposit is applied to damages in a later tax year, the portion the Moores retain would be income to them in the year they retain the deposit, and the money they spend to repair the damage would be a deduction to them.
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