Question 1

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 2

In 2012, 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 premiums paid for high-deductible health insurance and contributions made to a Health Savings Account are both deductible above-the-line for self-employed individuals.

Question 3

In Shelby 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, 2012. The tax is payable on June 1, 2012. On April 30, 2012, Julio sells his house to Anita for $230,000. On June 1, 2012, Anita pays the entire real estate tax of $7,300 for the year ending December 31, 2012. How much of the property taxes may Julio deduct?

Accepted Answer

Julio owned the property on January 1 and became liable for the property tax for the year 2012. Even though Anita paid the entire tax bill, Julio is entitled to deduct the property taxes for the period he owned the property in 2012, which is from January 1 to April 30 (the date of sale). This is a total of 4 months out of the 12-month tax year, or 4/12 of the total tax bill. Therefore, Julio may deduct $2,380 (4/12 x $7,300) in property taxes on his tax return.

Question 4

Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 in 1990.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

Under the Tax Cuts and Jobs Act (TCJA), taxpayers can only deduct interest on up to $100,000 of home equity debt if the loan is used for purposes other than buying, building, or improving a home. Since Joseph and Sandra used the home equity loan to purchase an airplane for recreational purposes, they can only deduct interest on up to $100,000 of the debt. Therefore, choice B is the correct answer.

Question 5

Marilyn, Ed's daughter who would otherwise qualify as his dependent, filed a joint return with her husband Henry. Ed, who had AGI of $150,000, incurred the following expenses:  Ed has a medical expense deduction of:

Accepted Answer

Ed can only claim medical expenses that exceed 7.5% of his AGI, which would be $11,250. However, Marilyn filing a joint return with her husband means she is not considered Ed's dependent for tax purposes, and therefore her income is not included in Ed's AGI. This means Ed's actual AGI is $150,000 - $24,800 (standard deduction for single filers) = $125,200. 7.5% of this amount is $9,390, so Ed can only deduct medical expenses that exceed this amount. As his total medical expenses are $10,640, Ed can deduct $1,250 ($10,640 - $9,390) as a medical expense deduction.

Question 6

David, a single taxpayer, took out a mortgage on his home for $300,000 nine years ago. In August of this year, when the home had a fair market value of $550,000 and he owed $225,000 on the mortgage, he took out a home equity loan for $350,000. David used the funds to purchase a yacht to be used for recreational purposes. What is the maximum amount of debt on which he can deduct home equity interest?

Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, the maximum amount of debt on which a taxpayer can deduct home equity interest is $100,000. This limit applies to the combined total of any mortgage and home equity debt used to purchase, build, or improve the taxpayer's home. In this case, David has $225,000 in mortgage debt and $350,000 in home equity debt, for a total of $575,000. However, since the home equity debt was used to purchase a yacht for recreational purposes, it does not qualify for the home mortgage interest deduction. Therefore, the maximum amount of debt on which David can deduct home equity interest is the remaining $100,000 limit.

Question 7

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations in 2012:  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 is:

Accepted Answer

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

Question 8

In 2012, Roseann makes the following donations to qualified charitable organizations:  The ABC stock and the inventory were given to Roseann's church, and the comic book collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Roseann's charitable contribution deduction for 2012 is:

Accepted Answer

The answer of In 2012, Roseann makes the following donations...

Question 9

Diego, 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 $20,000. 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. Diego pays $200 for an appraisal that places the value of the residence at $124,000 before the improvements and $129,000 after. As a result of the operation of the stairway lift, Diego experienced an increase of $475 in his utility bills for the current year. Disregarding percentage limitations, how much of the above expenditures qualify as medical expense deductions?

Accepted Answer

To calculate the amount of medical expense deduction, we need to follow the criteria laid out by the IRS. According to the IRS, "Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body."

The expenses incurred by Diego for modifying his personal residence to accommodate his disability are eligible for medical expense deductions. This includes the cost of 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. Therefore, the total amount of medical expense deduction would be as follows:

$20,000 (cost of modifications) + $200 (appraisal fee) + $475 (increase in utility bills) = $20,675

Since Diego's residence increased in value because of the modifications, we need to subtract the increase in value from the total amount of expenses incurred. Therefore,

$20,675 - ($129,000 - $124,000) = $20,475

So the correct answer is B, $20,475.

Question 10

Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages).On April 14, 2012, he files his state return for 2011, paying an additional $600 in state income taxes.During 2012, his withholdings for state income tax purposes amount to $3,550.On April 13, 2013, he files his state return for 2012 claiming a refund of $800.Brad receives the refund on June 3, 2013.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 2012 (filed in April 2013)?

Accepted Answer

Brad can deduct the state income taxes paid in 2012, which include the $600 paid in April 2012 for 2011 taxes and the $3,550 withheld in 2012, totaling $4,150. The refund received in 2013 does not affect the 2012 deduction.

Question 11

In 2012, 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 in 2012, 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 2012, Jerry pays $8,000 to become...

Question 12

Rosie owned stock in Acme Corporation that she donated to a university (a qualified charitable organization) on September 6, 2012. What is the amount of Rosie's charitable contribution deduction assuming that she had purchased the stock for $20,100 on October 22, 2011, and the stock had a value of $28,200 when she made the donation?

Accepted Answer

The answer of Rosie owned stock in Acme Corporation that...

Question 13

During 2012, Nancy paid the following taxes:  Nancy sold her personal residence on June 30, 2012, 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 2012 for Nancy?

Accepted Answer

The answer of During 2012, Nancy paid the following taxes:...

Question 14

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 can deduct the actual expenses she incurred while volunteering, which includes $600 for transportation, $1,200 for lodging, and $400 for meals, for a total of $2,200. Deducting $1,500 for the charitable contribution brings her total deduction to $700.

Question 15

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2012 of some medical expenses he paid in 2011.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 2011, then he did not claim the medical expenses he paid in that year as a deduction on his tax return. Therefore, the tax-free reimbursement he received in 2012 for those expenses does not have to be reported as income. If he had itemized deductions in 2011, he would have already received a tax benefit for those medical expenses and therefore the reimbursement would have to be reported as income in 2012. The fact that he itemized deductions in 2012 or not is irrelevant.

Question 16

Zeke made the following donations to qualified charitable organizations during 2012:  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 2012 is:

Accepted Answer

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

Question 17

Ron and Tom are equal owners in Robin Corporation. On July 1, 2012, each loans the corporation $20,000 at annual interest of 10%. Ron and Tom are brothers. Both shareholders are on the cash method of accounting, while Robin Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2013, Robin repays the loans of $40,000 together with the specified interest of $4,000. How much of the interest can Robin Corporation deduct in 2012?

Accepted Answer

Robin Corporation is on the accrual method, so it can deduct the interest expense as it accrues. The interest accrues evenly over the year, so Robin Corporation can deduct $2,000 of interest expense in 2012.

Question 18

Tom 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:  Compute Tom's medical expenses for the trip (subject to the 7.5% floor).

Accepted Answer

The answer of Tom is advised by his family physician...

Question 19

During 2012, Hugh, a self-employed individual, paid the following amounts:  What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?

Accepted Answer

The answer of During 2012, Hugh, a self-employed individual, paid...

Question 20

Phillip 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 the year was $100,000.How much of these expenditures can Phillip deduct as a medical expense?

Accepted Answer

Phillip can deduct the cost of the entrance ramp ($5,500) and the cost of widening the hallways ($8,500) as medical expenses. For the first-floor bedroom, only the amount that exceeds the increase in home value is deductible: $32,000 - $17,000 = $15,000. Total deductible expenses: $5,500 + $8,500 + $15,000 = $29,000. However, medical expenses are only deductible to the extent they exceed 7.5% of AGI. 7.5% of $100,000 is $7,500, so $29,000 - $7,500 = $21,500 is deductible.

Quiz 10: Deductions and Losses: Certain Itemized Deductions

In 2012, 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?

Marilyn, Ed's daughter who would otherwise qualify as his dependent, filed a joint return with her husband Henry. Ed, who had AGI of $150,000, incurred the following expenses: Ed has a medical expense deduction of:

During 2012, Nancy paid the following taxes: Nancy sold her personal residence on June 30, 2012, 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 2012 for Nancy?

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2012 of some medical expenses he paid in 2011.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

During 2012, Hugh, a self-employed individual, paid the following amounts: What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?