Question 1

Christopher,a cash basis taxpayer,borrows $1,000 from ABC Bank by issuing a 3-month note on December 1,2013.Christopher receives $940 but must repay $1,000 on the due date.The amount of interest expense deductible in 2013 is $20.

Accepted Answer

Christopher has not paid any interest in 2013, therefore he cannot deduct any interest expense in that year. The $20 interest expense will be deductible in 2014 when it is actually paid.

Question 2

A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization.

Accepted Answer

A charitable contribution deduction is allowed for the FMV of cash or property donated to a qualified charitable organization. The value of services rendered is not deductible.

Question 3

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

Accepted Answer

According to the IRS, acquisition indebtedness for a personal residence includes not only the original mortgage but also any debt incurred to substantially improve the residence.

Question 4

For charitable contribution purposes,capital gain property includes property which,if sold,would produce a long-term capital gain.

Accepted Answer

This is true. Capital gain property refers to assets that, if sold, would result in a long-term capital gain. When donated to a qualified charitable organization, the donor can receive a tax deduction for the fair market value of the property without having to pay capital gains taxes on the appreciation.

Question 5

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 6

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

Accepted Answer

Qualified residence interest includes both acquisition indebtedness (mortgage used to buy or improve the residence) and home equity interest (interest on loans secured by the residence not used to buy, build, or improve the residence).

Question 7

Legal fees for drafting a will are generally deductible.

Accepted Answer

To be deductible,such fees must deal with tax-related items.

Question 8

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

Accepted Answer

The answer of Investment interest includes interest expense incurred to...

Question 9

Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.

Accepted Answer

This is true according to the tax code in the United States. Corporations can only deduct charitable donations of up to 10% of their taxable income in a given year.

Question 10

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

Accepted Answer

Under the Tax Cuts and Jobs Act (TCJA) of 2017, taxpayers are no longer allowed to deduct interest on personal debt, including credit card debt, car loans, and other types of consumer debt. The only exception is if the debt is used for qualified business expenses or investment purposes.

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. Points paid for the purchase of a residence are deductible as interest in the year they are paid, whereas points paid for a refinanced loan must be amortized and deducted over the life of the loan.

Question 12

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

Accepted Answer

Taxpayers can choose to include net capital gain as part of their investment income, which can affect their overall tax liability.

Question 13

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

Investment interest expense that exceeds a taxpayer's net investment income can be carried forward to future years and treated as incurred in those years. This allows the taxpayer to potentially deduct the disallowed interest expense in a future year when they have more investment income to offset it.

Question 14

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 correct according to IRS guidelines. The deduction for home equity indebtedness interest is limited to $100,000 or the home equity, whichever is less, as of the tax year ending on or before December 15, 2017. However, it is important to keep in mind that the Tax Cuts and Jobs Act of 2017 has made changes to this deduction for tax years 2018-2025.

Question 15

Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.

Accepted Answer

Charitable contributions made to individuals are generally not deductible, regardless of financial need. Deductions for charitable contributions are usually only allowed for donations made to qualified charitable organizations.

Question 16

A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.

Accepted Answer

According to the IRS, if a taxpayer's charitable contributions for the year exceed the deduction limit, the excess can be carried forward for up to five years.

Question 17

Finance charges on personal credit cards are considered interest and are,therefore,deductible.

Accepted Answer

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

Question 18

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

Accepted Answer

The IRS allows for the deduction of interest on certain types of debts, such as those incurred for business purposes or for the acquisition of investment property. However, interest on personal debts, such as credit card debt or personal loans, is generally not deductible. The purpose for which the debt is acquired is a key factor in determining whether the interest is deductible.

Question 19

If a taxpayer makes a charitable contribution to a university and in return receives the right to purchase tickets to athletic events,the taxpayer may deduct only 80% of the payment.

Accepted Answer

This is correct according to the IRS regulations. If the contribution results in the donor receiving goods or services in return, the deduction is limited to the excess amount paid over the fair market value of those goods or services, and in this case, it is limited to 80% of the payment.

Question 20

Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.

Accepted Answer

The answer of Self-employed individuals may deduct the full self-employment...

Quiz 14: Itemized Deductions

Christopher,a cash basis taxpayer,borrows $1,000 from ABC Bank by issuing a 3-month note on December 1,2013.Christopher receives $940 but must repay $1,000 on the due date.The amount of interest expense deductible in 2013 is $20.

A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization.

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

For charitable contribution purposes,capital gain property includes property which,if sold,would produce a long-term capital gain.

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.

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

Legal fees for drafting a will are generally deductible.

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

Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.

Taxpayers may not deduct interest expense on 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 expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years.

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).

Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.

A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.

Finance charges on personal credit cards are considered interest and are,therefore,deductible.

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

If a taxpayer makes a charitable contribution to a university and in return receives the right to purchase tickets to athletic events,the taxpayer may deduct only 80% of the payment.

Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.