Question 1

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn. Judy may claim an $80 charitable contribution deduction.

Accepted Answer

According to the IRS, charitable contributions cannot be made in exchange for goods or services received. Since Judy received Girl Scout cookies and Boy Scout popcorn in exchange for her payments, she cannot claim the full $80 as a charitable contribution deduction. She may only deduct the amount that exceeds the fair market value of the goods she received.

Question 2

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 $25,000. If this painting is immediately sold by the museum and the proceeds are placed in the general fund, Al's charitable contribution deduction is $25,000 (subject to percentage limitations).

Accepted Answer

When a donated property is sold immediately by the charitable organization, the donor's charitable contribution deduction is equal to their cost basis in the property, up to a maximum of 30% of their adjusted gross income (AGI) for the year of the donation. In this case, Al's basis was $25,000, which means his charitable contribution deduction would also be $25,000 (assuming he did not have any other charitable contributions that year that would exceed the 30% AGI limitation).

Question 3

Interest paid or accrued during the tax year 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.

Accepted Answer

The answer of Interest paid or accrued during the tax...

Question 4

For all of the current year, Randy (a calendar year taxpayer) allowed the Salvation Army to use a building he owns rent-free. The building normally rents for $24,000 a year. Randy will be allowed a charitable contribution deduction this year of $24,000.

Accepted Answer

The answer of For all of the current year, Randy...

Question 5

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2016. The $2,200 contribution is deductible on Sadie's 2016 tax return.

Accepted Answer

Charitable contributions made by December 31st of a tax year are deductible on that year's tax return.

Question 6

Dan contributed stock worth $16,000 to his college alma mater, a qualified charity. He acquired the stock 11 months ago for $4,000. He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).

Accepted Answer

The answer of Dan contributed stock worth $16,000 to his...

Question 7

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

Accepted Answer

Employee business expenses for travel are deductible as itemized deductions subject to the 2%-of-AGI floor if they are not reimbursed by the employer.

Question 8

Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.

Accepted Answer

Excess charitable contributions that exceed the 30%-of-AGI ceiling in the current year can be carried forward for up to five years, but they are always subject to the 30%-of-AGI ceiling in the carryover year.

Question 9

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.

Accepted Answer

The answer of Leona borrows $100,000 from First National Bank...

Question 10

Charitable contributions that exceed the percentage limitations for the current year can be carried over for up to three years.

Accepted Answer

Charitable contributions that exceed the percentage limitations can actually be carried over for up to five years, not three.

Question 11

In 2016, Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah. In addition, she spent $250 for meals while away from home. In total, Allison may take a charitable contribution deduction of $112 (800 miles × $.14) relating to her transportation.

Accepted Answer

The answer of In 2016, Allison drove 800 miles to...

Question 12

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.

Accepted Answer

A qualified residence for the purpose of computing the deduction for qualified residence interest includes the taxpayer's principal residence and only one other residence of the taxpayer or spouse, not two.

Question 13

On December 31, 2016, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2017. If Lynette itemizes, she can deduct the $500 in 2016.

Accepted Answer

Lynette made the contribution in 2016, therefore she can deduct it on her 2016 tax return if she itemizes. The fact that she will pay her credit card balance in January 2017 is irrelevant for the purposes of deducting the contribution.

Question 14

Ronaldo contributed stock worth $12,000 to the Children's Protective Agency, a qualified charity. He acquired the stock 20 months ago for $7,000. He may deduct $7,000 as a charitable contribution deduction (subject to percentage limitations).

Accepted Answer

Ronaldo can deduct the fair market value of the stock at the time of the contribution, which is $12,000, not the cost basis of $7,000, assuming the stock was a long-term capital asset (held for more than one year).

Question 15

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

Accepted Answer

Contributions to public charities in excess of 50% of AGI may only be carried forward for up to 5 years, not carried back.

Question 16

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.

Accepted Answer

According to the IRS, points paid by a homeowner to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage. This means the homeowner cannot write off the full amount in the year they paid it, but can deduct a portion of the points each year during the term of the new mortgage.

Question 17

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.

Accepted Answer

The answer of A taxpayer pays points to obtain financing...

Question 18

Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2016. He prepaid all $3,600 of the interest on the loan on December 1, 2016. Joe can deduct only $300 of the prepaid interest in 2016.

Accepted Answer

According to the IRS, prepaid interest paid on a loan that covers multiple years must be allocated over the life of the loan. In this case, since the loan was for 12 months, Joe can only deduct $300 (1/12th of the prepaid interest) on his 2016 tax return.

Question 19

Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early. The $1,600 is deductible as interest expense.

Accepted Answer

According to the IRS, prepayment penalties on a mortgage can be treated as deductible home mortgage interest if they are not for a specific service performed in connection with the mortgage loan. Therefore, Letha can deduct the $1,600 prepayment penalty as interest expense.

Question 20

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.

Accepted Answer

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.

Quiz 10: Income, Deductions, and Credits