Question 1

Peter is assessed $630 for street improvements in front of his house.Which of the following statements is correct?

Accepted Answer

When there is an assessment for local improvements, the property owner can add the amount of the assessment to the property's cost basis. This will reduce the amount of gain that will be subject to tax when the property is sold. Therefore, Peter must increase the property basis by $630.

Question 2

Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.

Accepted Answer

Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.

Question 3

During the current year,Deborah Baronne,a single individual,paid the following amounts:  How much can Deborah deduct in taxes as itemized deductions?

Accepted Answer

The answer of During the current year,Deborah Baronne,a single individual,paid...

Question 4

In general,the deductibility of interest depends on the purpose for which the indebtedness is incurred.

Accepted Answer

The purpose of the indebtedness is a key factor in determining whether the interest on the debt is tax deductible. Some types of interest, such as interest on loans used for business expenses or investment purposes, may be deductible while other types of interest, such as interest on personal loans, may not be deductible.

Question 5

Finance charges on personal credit cards are deductible interest expense.

Accepted Answer

The answer of Finance charges on personal credit cards are...

Question 6

Doug pays a county personal property tax on his automobile of $1,500.The $1,500 includes $800 based on the weight of the car and $700 based on the value of the car.How much of the tax can Doug deduct on his tax return?

Accepted Answer

The answer of Doug pays a county personal property tax...

Question 7

Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.

Accepted Answer

According to IRS publication 936, acquisition indebtedness for a personal residence includes debt incurred to buy, build, or substantially improve the residence. This means that if you borrow money to make significant improvements to your home, such as adding a new room or renovating a kitchen, that debt can be considered acquisition indebtedness and may be eligible for the mortgage interest deduction.

Question 8

Discuss what circumstances must be met for personal property taxes to be deductible.

Accepted Answer

The answer of Discuss what circumstances must be met for...

Question 9

Taxpayers may not deduct interest expense on most personal debt,including credit card debt,car loans,and other consumer debt.

Accepted Answer

This is true according to the IRS guidelines. Certain types of interest, such as home mortgage interest and investment interest, may be deductible but personal debt interest is not.

Question 10

In February of the current year (assume a non-leap year),Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600,which they paid to the taxing authority on March 1 of the current year.They had purchased their home on May 1 last year.What amount of property tax on this statement may they claim as an itemized deduction this year?

Accepted Answer

Ken and Kelsey can only claim the portion of the property tax that they paid for the time they owned the home, which is from May 1st to December 31st. This is 8 months out of 12 months in a year, so they can claim 8/12 or 2/3 of the property tax.

2/3 x $1,600 = $1,066.67, which rounds up to $1,074. Therefore, the correct answer is C.

Question 11

While points paid to purchase a residence are deductible as interest in the period paid,points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.

Accepted Answer

This statement is true according to the IRS. Points paid on a home purchase can be fully deducted in the year they were paid, while points paid for a refinance must be amortized over the life of the loan and deducted over time.

Question 12

Hui pays self-employment tax on her sole proprietorship income,supplemental Medicare surtaxes on excess wages and self-employment income (the .09% tax)and supplemental Medicare taxes on investment income (the 3.8% tax).Which of the following statements is correct regarding the deductibility of these taxes?

Accepted Answer

One-half of the self-employment tax is deductible for AGI, but the .09% and 3.8% taxes are not allowed as deductions. The self-employment tax is considered an above-the-line deduction and can be deducted from gross income to calculate AGI. However, the supplemental Medicare surtaxes are not deductible, as they are not considered ordinary and necessary expenses related to the production of income. The same is true for the supplemental Medicare taxes on investment income, which are not deductible as they are not related to a trade or business.

Question 13

Taxpayers may elect to include net capital gain as part of investment income.

Accepted Answer

Taxpayers have the option to include net capital gain as part of their investment income, which can affect their overall tax liability. However, this is not mandatory and taxpayers can choose to report their capital gains separately.

Question 14

On September 1,of the current year,James,a cash-basis taxpayer,sells his cottage to Bill,also a cash-basis taxpayer,for $100,000.James' basis in the cottage is $65,000.The real property tax year is the calendar year.Real estate taxes on the property for the year are $3,650 and are payable in November of the current year.The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller.Assume Bill pays all of the real estate taxes in the current year.The effects of this sales structure will be:

Accepted Answer

The answer of On September 1,of the current year,James,a cash-basis...

Question 15

Investment interest includes interest expense incurred to purchase tax-exempt securities.

Accepted Answer

Investment interest does not include interest expense incurred to purchase tax-exempt securities because the interest from these securities is not taxable.

Question 16

On September 1,of the current year,Samuel,a cash-basis taxpayer,sells his cottage to Edward,also a cash-basis taxpayer for $100,000.Samuel's basis in the cottage is $65,000.The real property tax year is the calendar year.Real estate taxes on the property for the year are $3,650 and are payable on April 1 of the following year.The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller.Assume Samuel pays all of the real estate taxes prior to the sale.The effects of this sales structure will be:

Accepted Answer

Samuel, as a cash-basis taxpayer, will recognize the gain on the sale of the cottage when he receives payment for the property. Therefore, he will recognize the gain in the current year. His gain on the sale is calculated as follows:
Sales Price: $100,000
Less: Basis in Property: $65,000
Real Estate Taxes Paid: $3,650
Total Gain: $31,350
Since the sales agreement does not provide for apportionment of real estate taxes, Samuel will not be able to deduct the real estate taxes paid on the property in the year of the sale. The real estate taxes will be included in the basis of the property for Edward, the buyer. Therefore, Edward's basis in the property will be $100,000 + $3,650 = $103,650.

Question 17

A taxpayer is allowed to deduct interest expense incurred on home equity indebtedness limited to the lesser of $100,000 or the home equity (FMV of the residence less the acquisition indebtedness).

Accepted Answer

This is true according to section 163(h)(3) of the Internal Revenue Code.

Question 18

Investment interest expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years.

Accepted Answer

This is true according to IRS regulations. If a taxpayer has investment interest expense that exceeds their net investment income, the excess can be carried forward and treated as incurred in the next tax year. This carryover can continue until the investment interest expense is fully used up.

Question 19

During the year Jason and Kristi,cash basis taxpayers,paid the following taxes:  What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year?

Accepted Answer

The answer of During the year Jason and Kristi,cash basis...

Question 20

Qualified residence interest consists of both acquisition indebtedness and home equity interest.

Accepted Answer

Qualified residence interest includes both acquisition indebtedness and home equity interest. Acquisition indebtedness refers to the debt used to buy, build, or substantially improve a qualified residence, while home equity interest refers to the debt secured by a qualified residence that is not used for acquisition, but for other purposes such as home improvements, education, or medical expenses. Both types of interest may be tax-deductible under certain conditions.

Quiz 14: Itemized Deductions

Peter is assessed $630 for street improvements in front of his house.Which of the following statements is correct?

Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.

During the current year,Deborah Baronne,a single individual,paid the following amounts: How much can Deborah deduct in taxes as itemized deductions?

In general,the deductibility of interest depends on the purpose for which the indebtedness is incurred.

Finance charges on personal credit cards are deductible interest expense.

Doug pays a county personal property tax on his automobile of $1,500.The $1,500 includes $800 based on the weight of the car and $700 based on the value of the car.How much of the tax can Doug deduct on his tax return?

Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.

Discuss what circumstances must be met for personal property taxes to be deductible.

Taxpayers may not deduct interest expense on most personal debt,including credit card debt,car loans,and other consumer debt.

While points paid to purchase a residence are deductible as interest in the period paid,points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.

Taxpayers may elect to include net capital gain as part of investment income.

Investment interest includes interest expense incurred to purchase tax-exempt securities.

A taxpayer is allowed to deduct interest expense incurred on home equity indebtedness limited to the lesser of $100,000 or the home equity (FMV of the residence less the acquisition indebtedness).

Investment interest expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years.

During the year Jason and Kristi,cash basis taxpayers,paid the following taxes: What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year?

Qualified residence interest consists of both acquisition indebtedness and home equity interest.