Question 1

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation?

Accepted Answer

The answer of Byron owned stock in Blossom Corporation that...

Question 2

Rick and Carol Ryan, married taxpayers, took out a mortgage of $160,000 when purchasing their home ten years ago. In October of the current year, when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage, the Ryans took out a home equity loan for $110,000. They used the funds to purchase a sailboat to be used for recreational purposes. The sailboat does not qualify as a residence. What is the maximum amount of debt on which the Ryans can deduct home equity interest?

Accepted Answer

The maximum amount of debt on which the Ryans can deduct home equity interest is limited to the lesser of $100,000 ($50,000 for married filing separately) or the fair market value of the home reduced by the acquisition debt (mortgage) on the home. In this case, the fair market value of the home is $200,000 and the acquisition debt is $125,000, leaving $75,000 as the maximum amount of debt on which the Ryans can deduct home equity interest. The fact that they used the funds to purchase a sailboat that does not qualify as a residence does not affect the calculation of the limit.

Question 3

Phillip, age 66, developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for 2017 was $75,000. How much of these expenditures can Phillip deduct as a medical expense in 2017?

Accepted Answer

Phillip can deduct the cost of the entrance ramp ($5,500) and the cost to widen the hallways ($8,500) as medical expenses. For the room addition, only the amount that exceeds the increase in home value can be deducted, which is $32,000 - $17,000 = $15,000. Therefore, the total deductible amount is $5,500 + $8,500 + $15,000 = $29,000. However, medical expenses are only deductible to the extent they exceed 10% of AGI, which is $7,500 for Phillip. Thus, the deductible amount is $29,000 - $7,500 = $21,500.

Question 4

Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 15 years ago. In May of this year, when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage, they took out a home equity loan for $220,000. They used the funds to purchase a single engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which they can deduct home equity interest?

Accepted Answer

According to the tax law changes in 2018, taxpayers can only deduct interest on up to $100,000 of home equity debt. Since Joseph and Sandra took out a home equity loan for $220,000, only the interest on the first $100,000 is deductible. Therefore, the maximum amount of debt on which they can deduct home equity interest is $100,000.

Question 5

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: ​
 The land had been held as an investment and was acquired 4 years ago. Shortly after receipt, the City of Terre Haute sold the land for $210,000. Karen's AGI is $450,000. The allowable charitable contribution deduction this year is:

Accepted Answer

The answer of Karen, a calendar year taxpayer, made the...

Question 6

Nancy paid the following taxes during the year: ​
 Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?

Accepted Answer

According to the information given, Nancy paid $4,500 in state income taxes and $2,500 in real estate taxes. The real estate taxes are only deductible if they were prorated between the buyer and the seller at the time of sale, which was not the case. Therefore, her total itemized deduction for taxes is $4,500 for state income taxes. This amount qualifies as a deduction from AGI. Hence, the correct answer is C.

Question 7

Hannah makes the following charitable donations in the current year: ​
 The HBM stock and the inventory were given to Hannah's church, and the baseball card collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Hannah's current charitable contribution deduction is:

Accepted Answer

The answer of Hannah makes the following charitable donations in...

Question 8

In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games. Also this year, Jerry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution?

Accepted Answer

The answer of In the current year, Jerry pays $8,000...

Question 9

Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2017, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2018, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2017?

Accepted Answer

The answer of Barry and Larry, who are brothers, are...

Question 10

Tom, age 48, is advised by his family physician that he needs back surgery to correct a problem from his last back surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to Rochester, Minnesota, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery. Tom incurred the following costs in 2017: ​
 Compute Tom's medical expenses for the trip (subject to the 10%-of-AGI floor).

Accepted Answer

The answer of Tom, age 48, is advised by his...

Question 11

In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. How much of the property taxes may Reggie deduct?

Accepted Answer

The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year. Reggie sold the house on May 1, so he is liable for 4/12 of the annual property taxes, or $2,614.

Question 12

In 2017, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true?

Accepted Answer

If Boris is self-employed, he may deduct $7,200 as a deduction for AGI because the premium for high-deductible medical insurance and contributions to a Health Savings Account are both deductible for self-employed individuals.

Question 13

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2017: ​
 Faye has a medical expense deduction of:

Accepted Answer

The answer of Brad, who would otherwise qualify as Faye's...

Question 14

Quinn, who is single and lives alone, is physically handicapped as a result of a diving accident. In order to live independently, he modifies his personal residence at a cost of $30,000. The modifications included widening halls and doorways for a wheelchair, installing support bars in the bathroom and kitchen, installing a stairway lift, and rewiring so he could reach electrical outlets and appliances. Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after. As a result of the operation of the stairway lift, Quinn experienced an increase of $680 in his utility bills for the current year. Disregarding the 10%-of-AGI floor, how much of the above expenditures qualify as medical expense deductions?

Accepted Answer

The answer of Quinn, who is single and lives alone,...

Question 15

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2017 of some medical expenses he paid in 2016. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

Accepted Answer

If Scotty did not itemize deductions in 2016, he cannot take a deduction for medical expenses paid during that year. Therefore, he does not need to report the reimbursement as income. If he did itemize deductions in 2016, he would have taken a deduction for the medical expenses, and the reimbursement would need to be reported as income in 2017.

Question 16

Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable contribution?

Accepted Answer

Pedro's charitable contribution is $800, which is the amount of the donation ($1,000) minus the normal registration fee ($200) that the donation was intended to cover. The tuition payment is not considered a charitable contribution.

Question 17

Zeke made the following donations to qualified charitable organizations during the year: ​
 The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for the year is:

Accepted Answer

The answer of Zeke made the following donations to qualified...

Question 18

Hugh, a self-employed individual, paid the following amounts during the year: ​
 What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?

Accepted Answer

The answer of Hugh, a self-employed individual, paid the following...

Question 19

Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily's deduction associated with this charitable activity?

Accepted Answer

Emily's total expenses are $2,200 ($600 + $1,200 + $400). However, since she already deducted $1,500 as a charitable contribution, her deduction for this charitable activity is $700 ($2,200 - $1,500).

Question 20

Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2017, he files his state return for 2016, paying an additional $600 in state income taxes. During 2017, his withholdings for state income tax purposes amount to $3,550. On April 13, 2018, he files his state return for 2017 claiming a refund of $800. Brad receives the refund on June 3, 2018. If he itemizes deductions, how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2017 (filed in April 2018)?

Accepted Answer

Brad can claim the following as a deduction on his Federal income tax return for calendar year 2017:

- Additional state income taxes paid with 2016 state return: $600
- Withholdings for state income tax purposes during 2017: $3,550
- Refund received in 2018 for overpayment of state income taxes in 2017: $800 (this reduces the amount that can be claimed as a deduction)
- Total deduction: $3,350 + $3,550 - $800 = $4,100

However, since the question asks for the nearest whole number, the answer is $4,150 (which is the closest to $4,100).

Quiz 10: Deductions and Losses: Certain Itemized Deductions

Nancy paid the following taxes during the year: Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?

In 2017, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true?

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2017: Faye has a medical expense deduction of:

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2017 of some medical expenses he paid in 2016. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

Hugh, a self-employed individual, paid the following amounts during the year: What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?

Quiz 10: Deductions and Losses: Certain Itemized Deductions

Nancy paid the following taxes during the year: ​ Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?

In 2017, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true?

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2017: ​ Faye has a medical expense deduction of:

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2017 of some medical expenses he paid in 2016. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

Hugh, a self-employed individual, paid the following amounts during the year: ​ What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?

Nancy paid the following taxes during the year: Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2017: Faye has a medical expense deduction of:

Hugh, a self-employed individual, paid the following amounts during the year: What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?