Question 1

Which of the following is a True statement?

Accepted Answer

All of the choices are true statements regarding the deductibility of medical expenses on a taxpayer's tax return.

Question 2

Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income. Brice paid the following expenses this year. Which of the expenses are deductible for AGI?
1) The cost of health insurance (not purchased through an exchange)
2) The employer portion of self-employment tax paid
3) Penalty on early withdrawal of funds from a certificate of deposit

Accepted Answer

All of these expenditures are deductible for AGI.

Question 3

This year Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal residence and 9,500 of state income taxes. Which of the following is a True?

Accepted Answer

The itemized deduction for taxes is limited to $10,000 for single taxpayers.

Question 4

Ned is a head of household with a dependent son, Todd, who is a full-time student. This year Ned made the following expenditures related to Todd's support: 
What amount can Ned include in his itemized deductions?

Accepted Answer

The premiums paid for health and medical insurance for dependents is included in the taxpayer's medical expenses when determining itemized deductions.

Question 5

Madeoff donated stock (capital gain property) to a public charity. He purchased the stock 3 years ago for $100,000, and on the date of the gift, it had a fair market value of $200,000. What is his maximum charitable contribution deduction for the year related to this stock if his AGI is $500,000 (before considering the itemized deduction phase-out)?

Accepted Answer

The stock is appreciated capital gain property limited to 30% of AGI.

Question 6

Simone donated a landscape painting (tangible capital gain property) to a library, a public charity. She purchased the painting five years ago for $50,000, and on the date of the gift, it had a fair market value of $200,000. What is her maximum charitable contribution deduction for the year if her AGI is $300,000 (before considering the itemized deduction phase-out)?

Accepted Answer

The painting is appreciated capital gain property given to a public charity. However, because it is also tangible personal property the donation is FMV only if it is related to the charitable use or purpose. If so, the deduction is limited to 30% of AGI. If not, the deduction is basis limited to 50% of AGI.

Question 7

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is deductible after considering the excess business loss rules?

Accepted Answer

The nondeductible excess business loss is $20,000 (the taxpayer's aggregate business deductions ($270,000) over the sum of his business gross income $0 and $250,000).

Question 8

This fall Millie finally repaid her student loan. She originally borrowed the money to pay tuition several years ago when she attended at State University (a qualified educational institution). This year Millie paid a total of $2,400 of interest on the loan. If Millie files single and reports $70,000 of income and no other items of income or expense how much of the interest can she deduct?

Accepted Answer

Millie may deduct the amount of interest paid ($2,400) reduced by the phase-out amount ($2,400 × [($70,000 − 65,000) ÷ $15,000] = $800). Thus, Millie may deduct $1,600 ($2,400 − $800 = $1,600).

Question 9

Han is a self-employed carpenter and his wife, Christine, works full-time as a grade school teacher. Han paid $525 for carpentry tools and supplies, and Christine paid $3,600 as her share of health insurance premiums (not with pre-tax dollars) for Han and herself in a qualified plan provided by the school district (not through an exchange). Which of the following is a True statement?

Accepted Answer

Business expenses for self-employed individuals are Schedule C deductions but health insurance premiums are itemized deductions if the taxpayers are eligible to participate in an employer-provided health plan.

Question 10

Opal fell on the ice and injured her hip this winter. As a result she paid $3,000 for a visit to the hospital emergency room and $750 for follow-up visits with her doctor. While she recuperated, Opal paid $500 for prescription medicine and $600 to a therapist for rehabilitation. Insurance reimbursed Opal $1,200 for these expenses. What is the amount of Opal's qualifying medical expense?

Accepted Answer

The qualifying expenses are calculated as follows:
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Question 11

Which of the following costs are deductible as an itemized medical expense?

Accepted Answer

Medical expenses include any payments for the care, prevention, diagnosis, or cure of injury, disease, or bodily function that are not reimbursed by health insurance.

Question 12

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is not deductible after considering the excess business loss rules?

Accepted Answer

The nondeductible excess business loss is $20,000 (the taxpayer's aggregate business deductions ($270,000) over the sum of his business gross income $0 and $250,000).

Question 13

Which of the following taxes will not qualify as an itemized deduction?

Accepted Answer

Gasoline taxes on personal travel are not deductible.

Question 14

Which of the following costs are NOT deductible as an itemized medical expense?

Accepted Answer

All of the options listed (eyeglasses, hospital payments, transportation for medical purposes, and insurance for long-term care services) are deductible as itemized medical expenses.

Question 15

Lewis is an unmarried law student at State University, a qualified educational institution. Last year Lewis borrowed $30,000 and used the proceeds to pay his university tuition. This year Lewis paid $1,500 of interest on the loan. Which of the following is a True statement if Lewis reports $40,000 of salary and no other items of income or expense?

Accepted Answer

Up to $2,500 of interest on student loans is deductible for AGI. The interest deduction is phased-out for single taxpayers with AGI exceeding $65,000.

Question 16

Carly donated inventory (ordinary income property) to a church. She purchased the inventory last month for $100,000, and on the date of the gift, it had a fair market value of $92,000. What is her maximum charitable contribution deduction for the year related to this inventory if her AGI is $200,000?

Accepted Answer

The charitable deduction for ordinary income property is the lesser of FMV or basis limited to 50% of AGI.

Question 17

Hector is a married self-employed taxpayer, and this year he paid $3,000 for his health insurance premiums (not through an exchange). Under which of the following alternative conditions can Hector deduct the cost of the premiums for AGI?

Accepted Answer

Health insurance premiums for the self-employed are deductible for AGI if the taxpayer is not eligible to participate in an employer-provided plan.

Question 18

This year Amanda paid $749 in Federal gift taxes on a gratuitous transfer to her nephew. Amanda lives in Texas and does not pay any state or local income taxes. Which of the following is a True statement?

Accepted Answer

Federal gift and estate taxes are not deductible.

Question 19

This year Riley files single and reports modified AGI of $71,000. Riley paid $1,200 of interest on a qualified education loan. What amounts can Riley deduct for qualifying education interest?

Accepted Answer

Riley may deduct the amount paid ($1,200) up to $2,500, reduced by the phase-out amount. The phase-out amount is the amount paid up to $2,500 ($1,200 for Riley) multiplied by 40% [71,000 − 65,000] ÷ 15,000 = 40%]. Hence, Riley may deduct $720 [$1,200 − [$1,200 × 40%] = $720.

Question 20

Bruce is employed as an executive and his wife, Marie, is a self-employed realtor. Besides Bruce's salary, Bruce and Marie own a warehouse that they rent to a local business for storage. This year they paid $1,250 for electric service in the warehouse. Marie also paid self-employment tax of $6,200 and Bruce had $7,000 of Social Security taxes withheld from his pay. Marie paid $45 fee to rent a safe deposit box to store records associated with her realty operation. Which of the following is a True statement?

Accepted Answer

The safe deposit fee is a business expense and the electric bill is a rental expenses. The employer portion of the self-employment taxes is deductible for AGI.

Quiz 6: Individual Deductions