Question 1

Ron and Tom are equal owners in Robin Corporation.On July 1,2010,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 30,2011,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 2010?

Accepted Answer

According to the cash method of accounting, Ron and Tom would recognize the interest income when they receive the payments in 2011. However, since Robin Corporation uses the accrual method of accounting, it would recognize the interest expense in 2010 when the loan was incurred. Therefore, Robin Corporation can deduct $0 of interest in 2010 because the loan and interest were not repaid until 2011.

Question 2

Betty owned stock in General Corporation that she donated to a church (a qualified charitable organization)on July 28,2010.What is the amount of Betty's charitable contribution deduction assuming that she had purchased the stock for $13,400 on October 17,2009,and the stock had a value of $18,800 when she made the donation?

Accepted Answer

The answer of Betty owned stock in General Corporation that...

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,2010.The tax is payable on June 1,2010.On April 30,2010,Julio sells his house to Anita for $230,000.On June 1,2010,Anita pays the entire real estate tax of $7,300 for the year ending December 31,2010.How much of the property taxes may Julio deduct?

Accepted Answer

Julio is liable for the real property tax from January 1, 2010, to April 30, 2010, the date he sold the house to Anita. The amount of property taxes that Julio may deduct is $7,300 x 120/365 = $2,400.

Question 4

In 2010,Barry pays a $3,000 premium for high-deductible medical insurance for himself and his family.In addition,he contributes $2,600 to a Health Savings Account.Which of the following statements is true?

Accepted Answer

If Barry is self-employed, he may deduct $5,600 as a deduction for AGI because both the premium and the HSA contribution are deductible for self-employed individuals.

Question 5

Joseph and Sandra,married taxpayers,took out a mortgage on their home for $350,000 in 1989.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) passed in 2017, taxpayers can only deduct home equity interest on debt that is used to "buy, build, or substantially improve the taxpayer's home that secures the loan." The home equity loan used to purchase the airplane does not meet this criteria as it was not used to improve the home. Therefore, the maximum amount of debt on which they can deduct home equity interest is $100,000, which is the limit for "qualified residence loans" (i.e. mortgages and home equity loans used for home improvements).

Question 6

Phil is advised by his family physician that his dependent son,Tony,needs surgery for a benign tumor in his leg.Phil and his son travel to Rochester,Minnesota,for in-patient treatment at the Mayo Clinic,which specializes in this type of surgery.Phil incurred the following costs:  Compute Phil's medical expenses for the trip (before the 7.5% floor).

Accepted Answer

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

Question 7

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 8

Terry pays $8,000 this year to become a charter member of Mammoth University's Athletic Council.The membership ensures that Terry will receive choice seating at all of Mammoth's home basketball games.In addition,Terry 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 portion of Terry's payment that qualifies as a charitable contribution is the amount that exceeds the fair market value of the benefits he received ($2,200 for season tickets). So, the charitable contribution is $8,000 - $2,200 = $5,800. Therefore, the total amount that qualifies as a charitable contribution is $5,800 + $600 (half of the season tickets price for Terry's spouse) = $6,400.

Question 9

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 10

Nick made the following contributions this year to the University of the West:  Nick acquired the stock in Palm Corporation as an investment two years ago at a cost of $56,000.Nick's current AGI is $252,000.What is Nick's current charitable contribution deduction?

Accepted Answer

The answer of Nick made the following contributions this year...

Question 11

Pat died this year.Before she died,Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation)to her church (a qualified charitable organization).The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000.In the year of her death,Pat had AGI of $300,000.In completing her final income tax return,how much of the charitable contribution should Pat's executor deduct?

Accepted Answer

The answer of Pat died this year.Before she died,Pat gave...

Question 12

Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2010,he files his state return for 2009,paying an additional $600 in state income taxes.During 2010,his withholdings for state income tax purposes amount to $3,550.On April 13,2011,he files his state return for 2010 claiming a refund of $800.Brad receives the refund on August 3,2011.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 2010 (filed in April 2011)?

Accepted Answer

Brad can deduct the total state income taxes paid in 2010, which includes the $600 paid on April 14, 2010, and the $3,550 withheld during 2010, totaling $4,150. The refund received in 2011 does not affect the 2010 deduction.

Question 13

Mel made the following donations to charity during the year:  The used clothing was donated to the Salvation Army;the other items of property were donated to a Methodist Church seminary.Disregarding percentage limitations,Mel's charitable contribution deduction for the year is:

Accepted Answer

The answer of Mel made the following donations to charity...

Question 14

During 2010,Sam,a self-employed individual,paid the following amounts:  What amount can Sam claim as taxes in itemizing deductions from AGI?

Accepted Answer

Sam can claim the sum of state and local income taxes, real estate taxes, and personal property taxes which is $2,900 + $3,000 + $1,050 = $6,950.

Question 15

In 2010,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 2010 is:

Accepted Answer

The answer of In 2010,Roseann makes the following donations to...

Question 16

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

The maximum amount of debt on which David can deduct home equity interest is $100,000 ($225,000 + $100,000 = $325,000, which is less than the fair market value of his home of $550,000). This is because the limit on home equity debt interest deductions is $100,000, or the fair market value of the home minus the amount of mortgage debt. Since David's mortgage debt is $225,000 and the fair market value of his home is $550,000, the maximum amount of home equity debt on which he can deduct interest is $100,000. So the correct answer is B.

Question 17

Sarah,John's daughter who would otherwise qualify as his dependent,filed a joint return with her husband Larry.John,who had AGI of $100,000,paid the following medical expenses:  John has a medical expense deduction of:

Accepted Answer

The answer of Sarah,John's daughter who would otherwise qualify as...

Question 18

Nancy paid the following taxes during the year:  Nancy sold her personal residence on June 30,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

The total amount of taxes paid by Nancy is $11,900. However, since the real estate taxes were not prorated between the buyer and the seller, Nancy can only deduct the taxes paid for the period of time during which she owned the property. Assuming a 365-day year, Nancy owned the property for 181 days (January 1 to June 30). Therefore, the amount of real estate taxes that qualify as a deduction from AGI is calculated as follows:

$11,900 × (181 ÷ 365) = $5,920

In addition to the real estate taxes, Nancy can also deduct the $1,462 in state income taxes she paid during the year, for a total deduction from AGI of $7,382 ($5,920 + $1,462). Therefore, the correct answer is C) $7,382.

Question 19

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

Accepted Answer

To calculate the allowable charitable contribution deduction, we first need to determine the deduction limit. For donations of long-term capital gain property (property held for more than one year), the deduction limit is 30% of AGI. So, in this case, the deduction limit is 30% of $450,000 or $135,000.
Now, we need to compare the deduction limit to the total value of Karen's donations. The total value of the donations is $250,000 (cash donation of $40,000 + land donation of $210,000). Since the total value of the donations is less than the deduction limit, Karen can take the full value of the donations as a charitable contribution deduction.
Therefore, the allowable charitable contribution deduction is $250,000 if the reduced deduction election is not made.

Question 20

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2010 of some medical expenses he paid in 2009.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 2009, then he did not receive a tax benefit for the medical expenses that he paid that year. Therefore, the reimbursement is not taxable income in 2010. If Scotty had itemized deductions in 2009, he would have received a tax benefit for the medical expenses and the reimbursement would be taxable income in 2010. Scotty's itemized deductions in 2010 are not relevant to the taxability of the reimbursement.

Quiz 10: Deductions and Losses: Certain Itemized Deductions

In 2010,Barry pays a $3,000 premium for high-deductible medical insurance for himself and his family.In addition,he contributes $2,600 to a Health Savings Account.Which of the following statements is true?

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?

Nick made the following contributions this year to the University of the West: Nick acquired the stock in Palm Corporation as an investment two years ago at a cost of $56,000.Nick's current AGI is $252,000.What is Nick's current charitable contribution deduction?

Mel made the following donations to charity during the year: The used clothing was donated to the Salvation Army;the other items of property were donated to a Methodist Church seminary.Disregarding percentage limitations,Mel's charitable contribution deduction for the year is:

During 2010,Sam,a self-employed individual,paid the following amounts: What amount can Sam claim as taxes in itemizing deductions from AGI?

Sarah,John's daughter who would otherwise qualify as his dependent,filed a joint return with her husband Larry.John,who had AGI of $100,000,paid the following medical expenses: John has a medical expense deduction of:

Nancy paid the following taxes during the year: Nancy sold her personal residence on June 30,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?

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2010 of some medical expenses he paid in 2009.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?