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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 51

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In 2014, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the $3,000 in computing his medical expense deduction for the year.

A) True
B) False

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Question 52

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Ross, who is single, purchased a personal residence eight years ago for $170,000 and took out a mortgage of $100,000 on the property. In May of the current year, when the residence had a fair market value of $220,000 and Ross owed $70,000 on the mortgage, he took out a home equity loan for $110,000. He used the funds to purchase a BMW for himself and a Lexus SUV for his wife. For both vehicles, 100% of the use is for personal activities. What is the maximum amount on which Ross can deduct home equity interest?

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Interest is deductible only on the porti...

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Question 53

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During 2014, Nancy paid the following taxes: $\begin{array}{llr} \text { Tax on residence (for the period from March 1 through August 31, 2014) } &\$5,250\\ \text { State motor vehicle tax (based on the value of the personal use automobile) } &430\\ \text { State sales tax} &3,500\\ \text { State income tax} &3,050\\\end{array}$ Nancy sold her personal residence on June 30, 2014, 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 2014 for Nancy?

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

During the year, Victor spent $300 on bingo games sponsored by his church. If all profits went to the church, Victor has a charitable contribution deduction of $300.

In the current year, 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 this year, 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?

Brian, a self-employed individual, pays state income tax payments of: $900 on January 15, 2014 (4th estimated tax payment for 2013) $1,000 on April 15, 2014 (1st estimated tax payment in 2014) $1,000 on June 16, 2014 (2nd estimated tax payment in 2014) $1,000 on September 15, 2014 (3rd estimated tax payment in 2014) $800 on January 15, 2015 (4th estimated tax payment of 2014) Brian had a tax overpayment of $500 on his 2013 state income tax return and applied this to his 2014 state income taxes. What is the amount of Brian's state income tax itemized deduction for his 2014 Federal income tax return?

Your friend Scotty informs you that he received a "tax­free" reimbursement in 2014 of some medical expenses he paid in 2013. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

In the year of her death, Maria made significant charitable contributions of capital gain property. In fact, the amount of the contributions exceeds 30% of her AGI. Maria's executor can elect to deduct charitable contributions of up to 50% of Maria's AGI on Maria's final income tax return.

Rick and Carol Ryan, married taxpayers, took out a mortgage of $160,000 when purchasing their home ten years ago. In October of the current year, when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage, the Ryans took out a home equity loan for $110,000. They used the funds to purchase a sailboat to be used for recreational purposes. The sailboat does not qualify as a residence. What is the maximum amount of debt on which the Ryans can deduct home equity interest?

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?

Helen pays nursing home expenses of $3,000 per month for her mother. The monthly charge covers the following items: $1,400 for medical care, $900 for lodging, and $700 for food. Under what circumstances can Helen include the $3,000 per month payment when computing her medical expense deduction for the year? If Helen is not allowed to include the entire payment, how much can she include?

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2014: $\begin{array}{lr}\text { Cataract operation for Brad } & \$ 5,400 \\\text { Brad's prescribed contact lenses } & 1,800 \\\text { Faye's doctor and dentist bills } & 12,600 \\\text { Prescribed drugs for Faye } & 2,550 \\\text { Total } & \$ 22,350\end{array}$ Assuming Faye is age 45, she has a medical expense deduction of:

Ronaldo contributed stock worth $12,000 to the Children's Protective Agency, a qualified charity. He acquired the stock twenty months ago for $6,000. He may deduct $6,000 as a charitable contribution deduction (subject to percentage limitations).

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.

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

Joe, who is in the 33% tax bracket this year, expects to retire next year and be in the 25% tax bracket. He plans to donate $50,000 to his church. Because he will not have the cash available until next year, Joe donates land (long- term capital gain property) with a basis of $10,000 and fair market value of $50,000 to the church in December of the current year. He reacquires the land for $50,000 in February of next year. Discuss Joe's tax objectives and all tax issues related to his actions.

Employee business expenses for travel qualify as itemized deductions subject to the 2% floor if they are not reimbursed.

Al contributed a painting to the Metropolitan Art Museum of St. Louis, Missouri. The painting, purchased six years ago, was worth $40,000 when donated, and Al's basis was $20,000. If this painting is immediately sold by the museum and the proceeds are placed in the general fund, Al's charitable contribution deduction is $20,000 (subject to percentage limitations).

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.