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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 1

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Georgia contributed $2,000 to a qualifying Health Savings Account in 2014. The entire amount qualifies as an expense deductible for AGI.

A) True
B) False

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Question 2

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Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

A) True
B) False

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Question 3

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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?

In January 2015, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2014. The payment is deductible in 2014.

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.

During the year, Eve (a resident of Billings, Montana) spends three consecutive weeks in Louisville, Kentucky. One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relatives. One third of Eve's travel expenses will qualify as a charitable deduction.

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 2014: $\begin{array}{llr} \text { Round-trip airfare ( \$ 350 each) } &\$700\\ \text { Jean's hotel in Rochester for four nights (\$95 per night) } &380\\ \text { Jean's meals while in Rochester } &105\\ \text { Tom's medical treatment } &3,500\\ \text {Tom's prescription medicine } &600\\\end{array}$ Compute Tom's medical expenses for the trip (subject to the 10% floor) .

In 2015, Rhonda received an insurance reimbursement for medical expenses incurred in 2014. She is not required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in 2014.

Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the 2%- of-AGI floor?

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.

Samuel, a 36 year old individual who has been physically handicapped for a year, paid $15,000 for the installation of wheelchair ramps, support bars, railings, and widening doorways in his personal residence. These improvements increased the value of his personal residence by $4,000. How much of Samuel's expenditures qualify as a medical expense deduction (subject to the 10% floor)? Explain.

Georgia had AGI of $100,000 in 2014. She donated Heron Corporation stock with a basis of $8,500 to a qualified charitable organization on July 5, 2014. a. What is the amount of Georgia's deduction, assuming that she purchased the stock on December 4, 2013, and the stock had a fair market value of $15,000 when she made the donation? b. Assume the same facts as in a., except that Georgia purchased the stock on July 1, 2006. c. Assume the same facts as in a., except that the stock had a fair market value of $6,000 (rather than $15,000) when Georgia donated it to the charity.

Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2014. Tom is single. He may deduct the $3,500 interest as an itemized deduction.

Marilyn, age 38, is employed as an architect. For calendar year 2014, she had AGI of $204,000 and paid the following medical expenses: Medical insurance premiums $ 7,800 Doctor bills for Peter and Esther (Marilyn's parents) 7,300 Doctor and dentist bills for Marilyn 11,100 Prescription medicines for Marilyn 750 Nonprescription insulin for Marilyn 950 Peter and Esther would qualify as Marilyn's dependents except that they file a joint return. Marilyn's medical insurance policy does not cover them. Marilyn filed a claim for reimbursement of $6,000 of her own expenses with her insurance company in December 2014 and received the reimbursement in January 2015. What is Marilyn's maximum allowable medical expense deduction for 2014?

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

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2014. They have four dependents and file a joint return. They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs. In October 2014, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2015. Determine the maximum itemized deduction allowable for medical expenses in 2014.

Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.

Paul, a calendar year married taxpayer, files a joint return for 2014. Information for 2014 includes the following: $\begin{array}{lr}\text { AGI } & \$ 175,000 \\\text { State income taxes } & 13,500 \\\text { State sales tax } & 3,000 \\\text { Real estate taxes } & 18,900 \\\text { Gambling losses (gambling gains were } \$ 12,000 \text { ) } & 6,800\end{array}$ $\text { Paul's allowable itemized deductions for } 2014 \text { are: }$ A) $\$ 13,500$ . B) $\$ 32,400$ . C) $\$ 39,200$ . D) $\$ 42,200$ . E) None of the ahove

Chad pays the medical expenses of his son, James. James would qualify as Chad's dependent except that he earns $7,500 during the year. Chad may claim James' medical expenses even if he is not a dependent.

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