Deck 8: Deductions: Itemized Deductions

Question 1

A taxpayer may elect to capitalize certain annual taxes, mortgage interest, and deductible carrying charges on unimproved and unproductive real property.

Answer 1

True

Question 2

Medical expenses may be claimed only for persons who qualify as a spouse or dependent on your return.

Answer 2

False
Individuals failing the dependency test because of too much income still qualify for the medical expense deduction.

Question 3

Payments received under an accident insurance policy and designated for hospitalization or medical care will reduce the amount deductible as medical expenses.

Answer 3

True

Question 4

Charges, sometimes known as "points," paid by a borrower to a lender are generally deductible as interest over the life of the loan if they are compensation solely for the use or forbearance of money.

Question 5

Vitamin pills taken daily for general health are a qualified medical expense.

Question 6

Ad valorem personal property taxes are allowed as an itemized deduction.

Question 7

An individual has an insurance policy that will pay $500 a week no matter what the hospital expenses are, for 100 weeks in the event of hospitalization. fte premium on this policy qualifies as a deductible medical expense subject to the applicable limitations.

Question 8

Fees paid to chiropractors may be a deductible medical expense.

Question 9

Itemized deductions only reduce taxable income if the taxpayer's itemized deductions exceed the standard deduction amount.

Question 10

Points paid on the loan for the purchase of a new home are not deductible on an individual's tax return.

Question 11

Estate taxes, gift taxes, and state inheritance taxes are deductible for federal income tax purposes.

Question 12

An individual is allowed a medical deduction set at a standard rate of 50 cents per mile for the use of a car for medical purposes in lieu of a deduction based on the actual operating expenses for gas, oil, etc.

Question 13

Individual taxpayers are allowed to deduct unreimbursed medical and dental expenses paid during the year for themselves, their spouse, and dependents.

Question 14

Premiums paid for insurance policies providing reimbursement for the accidental loss of life, limb or sight are deductible as medical expenses.

Question 15

To alleviate an obesity problem, a doctor puts a patient on a special diet. fte total cost of the patient's food for the special diet is a deductible medical expense.

Question 16

Federal income taxes paid are deductible as an itemized deduction on an individual's federal income tax return.

Question 17

An ad valorem tax is a tax in proportion to the value of personal property.

Question 18

A taxpayer may deduct the sales tax paid on the purchase of a boat in 2012. Taxpayer's state has no income tax.

Question 19

All state and local taxes are deductible for federal income tax purposes.

Question 20

Medical expenses recovered after being claimed as a deduction in the previous year must be included in income in the year of recovery to the extent that the deduction decreased taxable income in the year they were deducted.

Question 21

If tickets are purchased for an entertainment event sponsored by a church and the taxpayer does not attend the event, the full amount of the ticket price may be deducted as a charitable contribution.

Question 22

If any employee makes an adequate accounting to their employer and the employer reimbursement equals employee expenses, both the reimbursement and the expenses should be shown on the employee's tax return.

Question 23

Individual taxpayers cannot deduct as itemized deductions losses arising from fire, storm, shipwreck, or other casualty, or from theft of nonbusiness property.

Question 24

A contribution made directly to a homeless person is not a deductible charitable contribution.

Question 25

Casualty losses are deductible in the year the damaged property is repaired or replaced.

Question 26

An interest deduction is allowable on mortgage payments made by the taxpayer for a sick friend.

Question 27

An appraisal fee to establish the amount of a casualty loss is deductible as a miscellaneous itemized deduction.

Question 28

In general, deductible contributions to public charities cannot exceed 50 percent of the taxpayer's adjusted gross income for the year.

Question 29

Embezzlement losses are deductible in the year of discovery.

Question 30

All theft losses must be deducted in the year in which the theft actually occurred.

Question 31

Mark Miller paid the following medical expenses during the year (all in excess of reimbursement): Assuming the Millers' adjusted gross income was $60,000, how much of a medical expense deduction may the Millers claim on their joint return?

A) $4,170
B) $6,200
C) $4,330
D) $8,830
E) None of the above

Question 32

A cash basis taxpayer must reduce a casualty loss deduction by the amount of any recovery or reimbursement which can reasonably be expected to be received in a future year.

Question 33

fte basis of property must be reduced by the amount of any casualty loss.

Question 34

fte taxpayer may deduct the fair market value of the time spent in rendering services to a qualified charitable organization.

Question 35

An individual who pledged $500 to the church to be paid next year is allowed a charitable contribution deduction in the year pledged.

Question 36

Interest on a loan, the proceeds of which are borrowed to purchase tax- exempt securities, is not deductible.

Question 37

Education expenses which qualify an individual for a new trade or business are allowed as an itemized deduction.

Question 38

Investment interest may be deducted only to the extent of net investment income; interest that cannot be deducted because of this limitation is carried over to the next tax year and treated as having been paid in that year.

Question 39

Job-seeking expenses are not deductible if an individual is looking for work in a new trade or business.

Question 40

Gifts to charitable organizations that qualify for the 50 percent limitation are considered first (before the 30% and 20% contributions) when computing the deduction for charitable contributions.

Question 41

What is the amount of interest deduction allowed for the current year, assuming Marge Meyer incurred the following: Interest on loan used to purchase land for investment (assume no net investment income) $18,000 Interest on loan used to purchase personal residence $6,000
Interest on loan used to purchase boat $500
Interest on loan to purchase 100 shares of General Auto (no dividends received during the year) $3,000

A) $27,000
B) $6,000
C) $27,500
D) $21,000
E) None of the above

Question 42

If an individual taxpayer contributes ordinary income property to a qualified public charity, the deduction would be subject to which of the following limits?

A) 20 percent of the taxpayer's AGI.
B) 30 percent of the taxpayer's AGI.
C) 40 percent of the taxpayer's AGI.
D) 50 percent of the taxpayer's AGI.

Question 43

Stock in the ABC Corporation was contributed to a public charitable organization. fte basis in the stock was $1,000, but its fair market value was $1,500 at the time of the donation. Indicate the correct income tax treatment as a result of the donation. fte stock was held long term.

A) Contribution of $1,000 (no gain recognized)
B) Contribution of $1,500 (no gain recognized)
C) Contribution of $1,500 (capital gain recognized $300)
D) Contribution of $1,000 (capital gain recognized $500)
E) None of the above

Question 44

John Jay is married and supports his mother, age 67. During the year, he paid $1,300 for prescription medicines for his mother (who is his dependent), $1,000 for prescription medicines for his wife, and $3,400 for doctor and hospital bills for himself. His gross income is $55,000 and his adjusted gross income is $50,000. In itemizing his deductions, Jay may claim a medical expense deduction, after application of proper limitations, of:

A) $1,950
B) $5,700
C) $1,575
D) $650
E) None of the above

Question 45

If an individual taxpayer contributes capital gain property to a qualified public charity and wants to deduct fair market value, the deduction would be subject to which of the following limits?

A) 20 percent of the taxpayer's AGI.
B) 30 percent of the taxpayer's AGI.
C) 40 percent of the taxpayer's AGI.
D) 50 percent of the taxpayer's AGI.

Question 46

Determine the amount of charitable contribution allowed for the current year assuming Guy Gallworthy has adjusted gross income of $30,000 and gave inventory costing $2,000 but worth $2,500 to a public charity.

A) $2,500
B) $2,300
C) $2,000
D) $0
E) None of the above

Question 47

During the year, the following items were charged to the interest expense account of Doe Corporation: Interest on additional income taxes assessed two years ago $400
Interest on bank loan to finance installation of new machinery. Bank loan was refinanced when installation was completed
Interest deducted by bank from proceeds of Doe Corporation's 60- day note signed December 1, payable in full 60 days later
$700
$500
Fte maximum amount of interest expense that Doe Corporation, an accrual basis taxpayer, can deduct for the current year is:

A) $1,600
B) $1,100
C) $1,350
D) $700
E) None of the above

Question 48

All interest payments in the following category are not deductible for tax purposes:

A) Qualified residence interest
B) Personal credit card interest
C) Investment interest
D) Trade or business interest

Question 49

John Baker, a cash basis calendar year taxpayer, paid the following during the year: What itemized deduction may John claim for taxes on his return?

A) $7,700
B) $8,000
C) $11,190
D) $6,600
E) None of the above

Question 50

Non-home-mortgage interest prepaid in cash can only be deducted:

A) When paid
B) When the loan is liquidated
C) In the year of loan origination
D) Over the period of the loan

Question 51

Max Murphey, a cash basis taxpayer, borrowed $10,000 from a bank for a business loan on August 1, to be repaid one year later. fte interest for one year at 6 percent was deducted from the loan proceeds in advance. His interest deduction for the current year is:

A) $250
B) $300
C) $400
D) $600
E) None of the above

Question 52

fte following taxes were paid by the Browns--real estate taxes on their home, $2,000; state income taxes, $4,500; city sales tax, $2,800; state sales taxes of $210 paid while on vacation to states other than the state in which they resided; state gasoline tax (personal use of automobile), $400; dog licenses, $20; and real estate taxes on the home of Mrs. George Brown, mother of Barney Brown, $450. In itemizing their deductions, the Browns should claim a deduction of taxes of:

A) $9,960
B) $6,500
C) $9,510
D) $10,380
E) None of the above

Question 53

Malcolm Moore, single, had medical expenses of $5,000 last year and took a $3,000 deduction. He was reimbursed $4,500 this year by his insurance company. His total itemized deductions last year were $12,000. What amount must he include in this year's tax return as gross income?

A) $5,000
B) $4,500
C) $3,000
D) $2,700
E) None of the above

Question 54

Albert Allgood has adjusted gross income in the current year of $30,000. He gave $5,000 cash and a capital gain asset (held long term) costing $10,000, worth $12,000, to a public charity, and an $8,000 cash contribution to a 20 percent charity. What is the amount of his maximum allowable current charitable contribution deduction, assuming no elections are made? (Assume any carryovers will be used in the future.)

A) $25,000
B) $20,000
C) $15,000
D) $14,000
E) $23,000

Question 55

Which one of the following is not deductible when itemizing?

A) State income tax
B) Real property tax
C) Cigarette tax
D) None of the above

Question 56

Cathy buys a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,500,000 at 5% interest. If her interest expense for the year is $75,000, how much will her deduction for interest expenses be?

A) $75,000
B) $55,000
C) $50,000
D) $0
E) None of the above

Question 57

Darrin owns a house with a FMV of $400,000 and acquisition indebtedness (first mortgage) of $250,000. He took out a home equity loan of $120,000 on the house, and used the proceeds to buy a yacht. If his interest on the home equity loan this year is $9,000, how much of the interest from the home equity loan will be deductible?

A) $9,000
B) $7,500
C) $5,625
D) $0
E) None of the above

Question 58

A business machine valued at $800 was contributed to a charitable organization during the year. fte machine cost $1,000 but was depreciated down to $600 before the donation was made. Indicate the correct income tax treatment with respect to the donation.

A) Contribution of $600 (no income recognized)
B) Contribution of $1,000 (income of $200 recognized)
C) Contribution of $800 (income of $200 recognized)
D) Contribution of $800 (no income recognized)
E) None of the above

Question 59

Unnecessary cosmetic surgery costs directed solely at improving the patient's physical appearance:

A) Qualify as a medical expense deduction
B) Are listed as itemized deductions
C) Will not qualify for a medical expense deduction
D) Are limited to a maximum deduction of $10,000

Question 60

Karen Baker, a cash basis calendar year taxpayer, paid the following during the year: What itemized deduction may Karen claim for taxes on her return?

A) $5,520
B) $9,820
C) $15,420
D) $16,190
E) None of the above

Question 61

During the year, George Gable, age 66, and his wife, age 61, incurred and paid the following medical expenses for which they received no reimbursement:
George also paid $1,000 for prescription drugs for his dependent brother, age 78. Assuming the Gables' adjusted gross income for the year was $70,000, what is the amount that they may claim as a medical deduction on a joint return?

Question 62

John Jones incurred the following interest items for the current year:
He earned $3,000 in investment income from the investments. What is his itemized interest deduction?

Question 63

Which of the following would Diana Collier deduct as an itemized deduction in 2012?

Question 64

Frank Fox won $10,000 in a state lottery. He also lost $3,000 at the horse races. On his income tax return he should report:

A) $10,000 gross income
B) $7,000 gross income
C) $10,000 gross income and $3,000 deduction for adjusted gross income
D) $10,000 gross income and $3,000 itemized deduction
E) None of the above

Question 65

Kenneth Kruise purchased a personal residence for $66,000. It had a fair market value of $80,000 in the current year when it was damaged by a fire. fte fair market value after the fire was $40,000 and insurance proceeds totaled $15,000. What is the net amount of casualty loss he can claim if his adjusted gross income is $20,000?

A) $11,000
B) $24,900
C) $8,500
D) $22,900
E) None of the above

Question 66

Gwen had the following occur in the current year: • Car wreck - repairs were $2,000, insurance paid $1,000.
• fteft of boat from lake house in December - fair market value = $10,000, cost = $15,000. She didn't discover the theft until the next taxable year.
• Storm damage to lake house - FMV before = $200,000, after = $150,000, insurance paid $20,000.
If Gwen's AGI is $60,000, what is her net casualty loss deduction in the current year?

A) $0
B) $24,800
C) $36,700
D) $41,000
E) None of the above

Question 67

In the current year, John Barraclough has $50,000 of adjusted gross income, a $10,000 casualty loss and a $2,000 casualty gain. How much is John's net deductible casualty loss after making all appropriate reductions?

A) $0
B) $2,900
C) $3,000
D) $7,900
E) $8,000

Question 68

In the current year, Philip Carlton's personal-use sailboat is destroyed by high winds during a storm. fte fair market value of the vessel immediately before the loss is $16,000. Philip's adjusted gross income for the year is
$86,000. Compute Philip's casualty loss for the year.

Question 69

In the current year, Larry Jones was involved in a collision which totally destroyed his car. fte automobile, which cost $24,000 and had a fair market value of $10,200 right before the accident, was used solely for personal use. fte car had no value after the accident. Assuming that Larry had adjusted gross income of $70,000 and carried no collision insurance, what amount can he deduct as a net casualty loss for the year?

Question 70

Which of the following interest expenses are deductible on a federal income tax return?

Question 71

In the current year, Rene Rogers has adjusted gross income of $40,000. She has medical expenses of $5,000 and $3,000 of miscellaneous itemized deductions subject to the two-percent-of-AGI limit. In addition, she has a casualty loss of $6,000 and state income taxes of $1,500. Compute the deductible amounts of these items for regular tax purposes.

Question 72

A contribution made to the following donee is not deductible:

A) Boy Scouts of America
B) Oxford University, England
C) Society for the Prevention of Cruelty to Animals
D) Michigan State University
E) California State Fair (an activity of the State of California)

Question 73

Lisa incurred the following employee business expenses: Meals $2,000 Lodging $4,000
Her employer reimburses her a total of $4,500 for all of these expenses under an accountable plan. Ignoring any floor based on percent of AGI, what is her deduction for these expenses?

A) $1,250
B) $1,500
C) $5,000
D) $6,000
E) None of the above

Question 74

Unreimbursed expenses of employees are considered to be deductions:

A) For AGI
B) From AGI
C) For or from AGI depending on the type of expense
D) None of the above

Question 75

fte following taxes were paid by the Allens in the current year-real estate taxes on their home, $1,800; state income taxes, $750; city sales tax, $350; and state gasoline tax (personal use of automobile), $30. In itemizing their deductions, what is the maximum amount that the Allens may claim as a deduction for taxes?

Question 76

Jim Jeeves is a self-employed individual. During the current year, his car which he used 70 percent of the time for business and 30 percent for pleasure was totally destroyed in an accident. fte car had a fair market value of
$26,000 before the accident, which was less than the car's adjusted basis. Jim received only $2,000 as a recovery from his insurance company. His adjusted gross income is $48,000. What is the amount of the personal casualty loss deduction that Jim can report as an itemized deduction for the year?

Question 77

Private foundations are organizations which do not normally receive donations:

A) Of cash
B) From the general public
C) From corporations
D) From stock investors

Question 78

Carl Craft's adjusted gross income is $80,000. He gave $8,000 cash to his church. He also donated land with a fair market value of $60,000 to Cleveland State University. fte land had cost Carl $30,000 in 1988. Finally, he contributed $6,000 to a private scholarship foundation to which the 20 percent limitation applies. Carl does not elect the optional reduction of the land contribution. What is Carl's charitable contribution deduction for the year?

Question 79

Miscellaneous itemized deductions are deductible only:

A) to the extent that in aggregate they exceed two percent of AGI.
B) if the taxpayer takes the standard deduction.
C) if they fall below the limit on standard itemized deductions.
D) None of the above.