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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 1

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

A) True
B) False

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Question 2

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Points paid by the owner of a personal residence to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage.

A) True
B) False

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Question 3

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Jim's employer pays half of the premiums on a group medical insurance plan covering all employees, and employees pay the other half. Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.

Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.

In 2019, Rhonda received an insurance reimbursement for medical expenses incurred in 2018. She is not required to include the reimbursement in gross income in 2019 if she claimed the standard deduction in 2018.

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.

Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.

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.

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

Noah gave $750 to a good friend whose house was destroyed by an earthquake. In addition, Noah contributed his time, valued at $250, in the cleanup effort. Noah may claim a charitable deduction of $1,000 on his tax return for the current year.

In April 2018, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2017. Even though it relates to 2017, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2018.

Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase. Jack can deduct the points as interest.

Contributions to public charities in excess of 50% of AGI may be carried back 3 years or forward for up to 5 years.

Capital assets donated to a public charity that would result in long-term capital gain if sold, are subject to the 30%-of- AGI ceiling limitation on charitable contributions for individuals.

Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense before application of the 10%-of-AGI floor) ?

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2018. The $2,200 contribution is deductible on Sadie's 2018 tax return if she itemizes her deductions.

Interest paid or accrued during 2018 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.

Mason, a physically handicapped individual, pays $10,000 this year for the installation of wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical expense for tax purposes.

This year Dena traveled 600 miles for specialized medical treatment that was not available in her hometown. She paid $90 for meals during the trip, $145 for a hotel room for one night, and $15 in parking fees. She did not keep records of other out-of-pocket costs for transportation. Dena can include $167 in computing her medical expenses.

Pat gave 5,000 shares of stock in Coyote Corporation a publicly traded corporation) to her church a qualified charitable organization) in the current year. The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $120,000. She reported AGI of $300,000 for the year. In completing her current income tax return, how much is her current-year charitable contribution deduction?