Question 1

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.

Accepted Answer

The answer of Judy paid $40 for Girl Scout cookies...

Question 2

If certain conditions are met,a buyer may deduct seller-paid points in the tax year in which they are paid.

Accepted Answer

If certain conditions are met, such as the points being a percentage of the loan amount and being used to purchase or improve the main home, a buyer may deduct seller-paid points in the tax year in which they are paid.

Question 3

For purposes of computing the deduction for qualified residence interest,a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.

Accepted Answer

A qualified residence for the purpose of computing the deduction for qualified residence interest includes the taxpayer's principal residence and only one other residence of the taxpayer or spouse, not two.

Question 4

Tony,a cash basis taxpayer,took out a 12-month business loan on December 1,2010.He prepaid all $4,200 of the interest on the loan on December 1,2010.Tony can deduct all $4,200 of the prepaid interest in 2010.

Accepted Answer

Under cash basis accounting, prepaid interest must be amortized over the period of the loan, so Tony cannot deduct the entire $4,200 in 2010.

Question 5

Phyllis,a calendar year cash basis taxpayer who itemized deductions,overpaid her 2010 state income tax and is entitled to a refund of $400.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2011.She is not required to recognize that amount as income in 2011.

Accepted Answer

The answer of Phyllis,a calendar year cash basis taxpayer who...

Question 6

Bob sold a personal residence to Fred and paid points of $2,000 on the loan to help Fred finance the purchase.Bob can deduct the points as interest.

Accepted Answer

Points paid by the seller, such as Bob, are not deductible as interest by the seller. They are considered part of the selling expenses and can only be deducted by the buyer, Fred, as part of the cost of acquiring the home.

Question 7

Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns)is deductible as qualified residence interest.

Accepted Answer

The answer of Interest paid or accrued during the tax...

Question 8

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

Accepted Answer

A qualified residence includes both the taxpayer's principal residence and one other residence selected by the taxpayer that is used for personal purposes for a certain minimum amount of time during the taxable year.

Question 9

For all of the current year,Randy (a calendar year taxpayer)allowed the Salvation Army to use a building he owns rent-free.The building normally rents for $24,000 a year.Randy will be allowed a charitable contribution deduction this year of $24,000.

Accepted Answer

The answer of For all of the current year,Randy (a...

Question 10

On December 23,2010,Megan used her credit card to make a $750 contribution to the United Way,a qualified charitable organization.She will pay her credit card balance in January 2011.If Megan itemizes,she cannot deduct the $750 in 2010.

Accepted Answer

Megan can deduct the $750 contribution in 2010 because the IRS allows deductions for charitable contributions made by credit card in the year the charge is made, regardless of when the credit card bill is paid.

Question 11

José sells his personal residence to Manuel on July 1,2010.He had paid $4,000 in real property taxes on March 1,2010,the due date for property taxes for 2010.José may deduct the portion of the taxes he paid for the period the property was owned by Manuel.

Accepted Answer

José cannot deduct the portion of the property taxes that corresponds to the period after he sold the property to Manuel, as he no longer owns the property during that time.

Question 12

In 2010,Michelle,single,paid $2,500 interest on a qualified student loan.Her MAGI was $65,000.She may deduct the $2,500 interest as a deduction for AGI.

Accepted Answer

In 2010, the student loan interest deduction was phased out for single filers with a MAGI between $60,000 and $75,000. Michelle's MAGI of $65,000 would reduce her deduction below the full $2,500.

Question 13

Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds.The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.

Accepted Answer

The answer of Leona borrows $100,000 from First National Bank...

Question 14

Carolyn mailed a check for $1,000 to a qualified charitable organization on December 31,2010.The $1,000 contribution is not deductible on Carolyn's 2010 tax return because the charity does not receive the check until 2011.

Accepted Answer

The $1,000 contribution is deductible on Carolyn's 2010 tax return, even if the charity receives the check in 2011 as long as it was mailed by December 31, 2010.

Question 15

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Accepted Answer

Real property taxes on the store building are deductible as a business expense, but state income taxes related to net income from the furniture store are not deductible as they are considered personal expenses.

Question 16

Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship.Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.

Accepted Answer

State income tax paid on business net income is deductible as an itemized deduction on Schedule A and not as a business expense.

Question 17

Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early.The $1,600 is deductible as interest expense.

Accepted Answer

Prepayment penalties on mortgages are considered interest expense and are therefore deductible.

Question 18

Jennifer,who is single and whose MAGI is $100,000,paid $2,500 interest on a qualified student loan in 2010.She may deduct the interest as a deduction for AGI.

Accepted Answer

In 2010, the student loan interest deduction was phased out for single filers with a MAGI over $75,000, so Jennifer would not be eligible to deduct the interest.

Question 19

In April 2010,Hiram,a calendar year cash basis taxpayer,paid the state of Nebraska additional income tax for 2009.Since it relates to 2009,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2009.

Accepted Answer

For a cash basis taxpayer, expenses are deductible in the year they are paid, not the year they relate to. Therefore, the payment made in 2010 is deductible in the 2010 tax year, not 2009.

Question 20

A taxpayer pays points to obtain financing to purchase a rental house.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.

Accepted Answer

Points paid to obtain financing for a rental property must be capitalized and amortized over the life of the loan, not deducted in the year paid.

Quiz 10: Deductions and Losses: Certain Itemized Deductions