Deck 5: Itemized Deductions and Other Incentives

Question 1

The cost of aspirin and decongestants is a deductible medical expense even though they are non- prescription drugs.

Answer 1

False

Question 2

A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.

Answer 2

False

Question 3

Premiums paid for life insurance policies are deductible as medical expenses.

Answer 3

False

Question 4

Casualty and theft losses must be reduced by amounts recovered from insurance coverage.

Question 5

Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.

Question 6

The amount of a special assessment charged to residents for the installation of sidewalks on their street is not deductible on Schedule A as property taxes.

Question 7

Mortgage interest on a taxpayer's personal residence is not deductible on Schedule A.

Question 8

For 2013,the investment interest expense deduction is limited to the taxpayer's net investment income.

Question 9

To deduct interest paid with respect to indebtedness,the taxpayer must be legally liable for the debt.

Question 10

To calculate the amount of state and local income taxes which may be deducted as an itemized deduction,state income taxes paid during the year must be reduced by state income tax refunds received during the year.

Question 11

The cost of a fishing license is considered a personal property tax and is deductible as an itemized deduction.

Question 12

If personal property is completely destroyed,the casualty loss deduction is still reduced by a floor amount.

Question 13

If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties,he may not be allowed a deduction for the charitable contribution.

Question 14

In 2013,state income taxes may be deducted as an itemized deduction on Schedule A.

Question 15

The interest paid on a loan used to acquire municipal bonds is not deductible.

Question 16

The cost of a chiropractor's services qualifies as a medical deduction.

Question 17

The adjusted gross income AGI)limitation on medical expenses is 15 percent.

Question 18

If real property is sold during the year,the property taxes must be allocated between the buyer and seller based on the number of days the property was held by each party.

Question 19

If business property is fully destroyed as a result of a casualty,the loss is equal to the decrease in the fair market value of the property.

Question 20

Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.

Question 21

If an employee receives a reimbursement for employee business expenses,the amount of the reimbursement is always excluded from gross income and the expenses are deductible as deductions for adjusted gross income.

Question 22

The cost of uniforms is deductible only by self-employed taxpayers.

Question 23

Itemized deductions are subject to a phase-out based on AGI for certain high-income taxpayers.

Question 24

Educational expenses are deductible as a miscellaneous itemized deduction even if the education is required to meet the minimum requirements for the taxpayer's current job.

Question 25

Unreimbursed employee business expenses are miscellaneous itemized deductions,subject to the 2 percent of adjusted gross income limitation.

Question 26

All personal casualty losses incurred during the year are added together and only one $100 floor amount is used to reduce the casualty deduction.

Question 27

In 2013,David,age 65,had adjusted gross income of $30,000.During the year he paid the following medical expenses: $\begin{array}{lr}\text { Frescription medicines } & \$ 200 \\\text { Doctors } & \$ 2,100 \\\text { Medical care insurance } & \$ 400 \\\text { Crutches for a broken leg } & \$ 100\end{array}$ What amount can David deduct as medical expenses after the adjusted gross income limitation)in calculating his itemized deductions for 2013?

A)$2,800
B)$2,250
C)$550
D)$450
E)None of the above

Question 28

If the taxpayer fails to locate a job,job hunting expenses are not deductible.

Question 29

If a ballet dancer seeks work as a ditch digger,the expenses of job hunting may be deductible.

Question 30

A theft loss is deductible in the year the theft is discovered,even if the theft occurred in a prior year.

Question 31

Expenses of education to improve or maintain existing skills are deductible as a miscellaneous itemized deduction even if the education incidentally leads to qualification in a new job or business.

Question 32

Randy is advised by his physician to install an elevator in his residence,since he is afflicted with heart disease.The cost of installing the elevator is $8,000 and it has an estimated useful life of 10 years.He installs the elevator in January of 2013,and it increases the value of his residence by $5,000.Disregarding the limitation based on adjusted gross income,how much of the cost of the elevator may Randy take into account in determining his medical expense deduction for 2013?

A)$300
B)$800
C)$3,000
D)$8,000
E)None of the above

Question 33

The cost of an appraisal of a painting may be deducted if the purpose of the appraisal is related to the preparation of an income tax return.

Question 34

Roberto,age 50,has AGI of $110,000 for 2013.He has medical expenses of $12,000.How much of the medical expenses can Roberto deduct on his Schedule A for 2013?

A)$12,000
B)$0
C)$1,000
D)$8,250
E)None of the above is correct

Question 35

An employee may deduct the cost of welder's safety goggles used at work as a miscellaneous itemized deduction.

Question 36

Jon,age 45,had adjusted gross income of $25,000 in 2013.During the year,he incurred and paid the following medical expenses: Drugs and medicines prescribed by doctors $\quad \$ 300$
Health insurance premiums $\quad \$ 750$
Doctors' fees $\quad \$ 2,250$
Eyeglasses $\$ \quad 75$ Jon received $900 in 2013 as a reimbursement for a portion of the doctors' fees.If Jon were to itemize his deductions,what would be his allowable medical expense deduction after the adjusted gross income limitation is taken into account?

A)$0
B)$425
C)$600
D)$1,000
E)None of the above

Question 37

Which of the following is not considered a deductible medical expense?

A)A face lift
B)Eye exams
C)Prescription drugs
D)Medical insurance

Question 38

The expense of a review course for a state real estate agent's exam is deductible as a miscellaneous itemized deduction by a taxpayer attempting to become an agent.

Question 39

Which of the following is not deductible as a medical expense on Schedule A?

A)Payments to a nurse
B)Payments for marriage counseling
C)Payments for dentures
D)Payments for psychiatric care
E)All of the above are deductible as medical expenses

Question 40

During 2013,Mary paid the following expenses: Prescription drugs $\quad \$ 470$
Aspirin and over the counter cold capsules $\quad \$ 130$
Hospital and doctors $\quad \$ 700$
Health in surance $\quad \$ 250$ What is the total amount of medical expenses before considering the limitation based on adjusted gross income)that would enter into the calculation of itemized deductions on Mary's 2013 income tax return?

A)$1,170
B)$1,300
C)$1,420
D)$1,550
E)None of the above

Question 41

Matthew purchases a new principal residence in 2013 and pays points of $2,000 to obtain a mortgage loan.What is the proper tax treatment for the points paid?

A)The points are a nondeductible personal expense.
B)The points must be amortized over the life of the loan.
C)The points are fully deductible in 2013.
D)The points must be capitalized into the cost of the residence.
E)The points must be amortized over 5 years.

Question 42

Harvey itemized deductions on his 2012 income tax return.Harvey plans to itemize deductions again in 2013 and the following information is available regarding state and local income taxes: Taxes withheld in $2013 \quad \quad \quad \quad \$ 2,500$
Refund received in 2013 of 2012 tax $\quad \$ 500$
Assessment paid in 2013 of 2011 tax $\quad \$ 300$ Assuming he elects to deduct state and local income taxes,the above information should be reported by Harvey in his 2013 tax return as:

A)Itemized deduction for state and local income taxes of $2,500,and income from state and local tax refund of $200
B)Itemized deduction for state and local income taxes of $2,300
C)Itemized deduction for state and local income taxes of $2,800
D)Itemized deduction for state and local income taxes of $2,800 and income from state and local tax refund of $500
E)None of the above

Question 43

Amy paid the following interest expense during 2013: Qualified home mortgage interest $\quad \$ 11,000$
Credit card interest $\quad\$ 1,000$
Personal bank loan interest $\quad\$ 3,000$ What is the amount of Amy's interest deduction for 2013?

A)$3,000
B)$11,000
C)$12,300
D)$15,000
E)None of the above

Question 44

During 2013,Mr.and Mrs.West paid the following taxes: $\begin{array}{ll}\text { Property taxes on residence }&\$1,800\\\text { Special assessment for in stallation of a sewer system intheir neighborhood }&\$1,000\text { State }\\\text { per sonal property tax on their automobile (ba sed on value) }&\$60\\\text { Property taxes on land held for long-term appreciation }&\$300\end{array}$
What amount can the Wests deduct as property taxes in calculating itemized deductions for 2013?

A)$2,100
B)$2,700
C)$3,100
D)$3,700
E)None of the above

Question 45

During 2013,George,a salaried taxpayer,paid the following taxes which were not incurred in connection with a trade or business: $\begin{array}{ll}\text { Federal in come tax (withheld by employer) } & \$ 1,500 \\\text { State income tax (withheld by employe) } & \$ 1,000\\\text { FICA tax (withheld by employer) }&\$700\\\text { Real property taxes }&\$900\\\text { Federal auto gasoline taxes }&\$200\\\text { Federal excise tax on telephone bills }&\$50\end{array}$ What amount can George claim for 2013 as an itemized deduction for the taxes paid,assuming he elects to deduct state and local income taxes?

A)$4,350
B)$2,850
C)$1,900
D)$1,000
E)None of the above

Question 46

Frank is a resident of a state that imposes a tax on income.The following information pertaining to Frank's state income taxes is available: State income taxes withheld in $2013 \quad\quad \$ 3,500$
Refund of $2012 \operatorname { tax }$ received in $2013 \quad \quad \$ 400$
Deficiency assessed and paid in 2013 for 2011 :
$\operatorname { Tax } \quad \quad \$ 600$
Interest $\quad \$ 100$ What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2013 Federal tax return,assuming he elects to deduct state and local income taxes?

A)$3,500
B)$3,700
C)$4,100
D)$4,200
E)None of the above

Question 47

Shellie,a single individual,received her Bachelor's degree in 2012,and took a job with a salary of $45,000 per year.In 2013,she began paying interest on qualified education loans.She was able to pay
$1,500 in 2013.Which of the following statements is not correct?

A)The full $1,500 is deductible in arriving at adjusted gross income AGI).
B)If her payment had been $3,000,only $2,500 would have been deductible in arriving at AGI and the $500 excess would have been treated as nondeductible consumer interest.
C)If her income had been $80,000,the deductible amount would have been phased out.
D)Taxpayers are not allowed a deduction for education loan interest in 2013.

Question 48

Jerry and Ann paid the following amounts during 2013: Interest on automobile
loan
$\$ 1,500$
Interest on bank loan (proceeds were used to purchase
municipal
bonds)
$\$ 5,000$ Qualified home mortgage
interest
$\$ 3,000$ What is the maximum amount they can use as interest expense in calculating itemized deductions for 2013?

A)$3,000
B)$3,150
C)$4,500
D)$8,000
E)None of the above

Question 49

Which of the following interest expense amounts is not deductible in the current year?

A)Education loan interest of $2,000,assuming the taxpayer is single and has income of $150,000.
B)Home equity loan interest of $9,000 on a loan of $100,000,the proceeds of which were used to purchase a motor home.
C)Investment interest expense of $10,000,assuming the taxpayer has $15,000 of investment income.
D)Points of $2,000 paid on a mortgage loan for the purchase of a new principal residence.

Question 50

Which of the following is not deductible as an itemized deduction?

A)State income taxes
B)Personal property taxes
C)Charitable contributions
D)Local income taxes
E)All of the above may be deductible as itemized deductions

Question 51

During the current year,Cary and Bill incurred acquisition debt on their residence of $1,300,000 and a home equity loan of $200,000.On a joint tax return,what is the amount of their qualified acquisition debt and qualified home equity debt,respectively?

A)$900,000 and $100,000
B)$1,000,000 and $0
C)$1,000,000 and $100,000
D)$1,300,000 and $200,000
E)None of the above

Question 52

Which of the following taxes is not deductible as an itemized deduction?

A)Property tax on second residence
B)Sales tax in a state with no income tax
C)Federal income tax
D)State income tax

Question 53

Margo has $2,100 withheld from her wages for state income taxes during 2013.In March of 2013,she paid $300 in additional taxes for her 2012 state tax return.Her state income tax liability for 2013 is $2,500 and she pays the additional $400 when she files her 2013 state tax return in April of 2014.What amount should Margo deduct as an itemized deduction for state income taxes on her 2013 federal income tax return,assuming she elects to deduct state and local income taxes?

A)$2,100
B)$2,400
C)$2,500
D)$2,800
E)None of the above

Question 54

During 2013,Seth,a self-employed individual,paid the following taxes: $\begin{array}{ll}\text { Federal income tax } & \$ 5,000 \\\text { State income tax } & \$ 2,000\\\text { Real estate taxes on land in South America (held asan investment) }&\$900\\\text { Personal property taxes based upon value }&\$500\\\text { Federal self-employment tax }&\$800\end{array}$ What amount can Seth claim as an itemized deduction for taxes paid during 2013,assuming he elects to deduct state and local income taxes?

A)$8,400
B)$4,200
C)$3,400
D)$2,500
E)None of the above

Question 55

What is the maximum amount of home equity debt not acquisition debt)on which interest is fully deductible?

A)$0
B)$50,000
C)$100,000
D)$200,000
E)None of the above

Question 56

Bill has a mortgage loan on his personal residence.He decides to pay 24 months of interest in advance on July 1,2013.The total advanced interest payment is $72,000.How much of the advance interest payment can he deduct in 2013?

A)$72,000.
B)$36,000.
C)$18,000.
D)Mortgage interest is not deductible.
E)If a taxpayer makes an advance payment,he may not deduct any interest.

Question 57

Which one of the following is not tax deductible?

A)Real estate taxes
B)Property taxes
C)Local income taxes
D)State income taxes
E)All of the above are tax deductible

Question 58

Weber resides in a state that imposes a tax on income.The following information relating to Weber's state income taxes is available: State income taxes withheld in $2013 \quad \$ 3,000$
Refund received in 2013 of 2012 tax $\quad \$ 300$
Assessment paid in 2013 of 2011 tax $\quad \$ 800$ Assuming he elects to deduct state and local income taxes,what amount should Weber use as state and local income taxes in calculating itemized deductions for his 2013 Federal income tax return?

A)$2,700
B)$3,000
C)$3,500
D)$3,800
E)None of the above

Question 59

For the year ended December 31,2013,David,a married taxpayer filing a joint return,reported the following: In vestment income from interest $\quad \$ 24,000$
In vestment expenses other than interest $\quad\$ 4,000$
Interest expense on funds borrowed in 2005 to purchaseinvestment property $\quad\$ 70,000$ What is the maximum amount that David can deduct in 2013 as investment interest expense?

A)$7,000
B)$20,000
C)$21,000
D)$24,000
E)None of the above

Question 60

Which of the following is not an itemized deduction?

A)Medical expenses
B)IRA contribution deduction
C)Personal property taxes
D)Union dues
E)All of the above are itemized deductions

Question 61

Which of the following is deductible as a miscellaneous itemized deduction?

A)Union dues
B)Professional dues and subscriptions
C)Job hunting expenses
D)Investment expenses
E)All of the above are miscellaneous deductions

Question 62

Carla is a high school teacher who is required by her school district to take continuing education courses which are offered at the local college.She is also in the process of taking classes at a different university where she is pursuing her Ph.D.to become a research specialist.She pays the tuition for both schools.Which of the following is true?

A)She may deduct all of the tuition from each school because they are education expenses related to job skill improvement.
B)She may not deduct tuition from either school.
C)She may not deduct the continuing education tuition because it is required by her job.
D)She may deduct the continuing education tuition from the local college because it meets her employer's requirement to maintain her current job skills.
E)None of the above is correct.

Question 63

Stewart had adjusted gross income of $22,000 in 2013.During the year,he made the following contributions to qualified charities: $5,000 cash
1,000 shares of Able Corporation common stock,acquired in 1979 cost and fair market value of $7,000)
Considering the charitable contribution deduction limitation,what amount can Stewart claim as a deduction for charitable contributions in 2013?

A)$6,600
B)$11,000
C)$11,600
D)$12,000
E)None of the above

Question 64

Jean's employer has an accountable plan for reimbursing employee expenses.Jean is reimbursed for $1,500 of business travel and $500 for various business subscriptions and professional dues.The $2,000 reimbursement should be treated as follows:

A)$2,000 of income to Jean should be reported
B)Income to Jean and a corresponding miscellaneous deduction for Jean,subject to the 2 percent of AGI floor
C)No taxable income should be reported to Jean
D)$500 of income should be reported to Jean

Question 65

Which of the following miscellaneous deductions are not subject to the 2 percent of adjusted gross income limitation?

A)Unreimbursed employee business expenses
B)Investment expenses
C)Union dues
D)Gambling losses to the extent of gambling winnings
E)None of the above

Question 66

What income tax form does an employee use to report business expenses that are not reimbursed by an employer under an accountable plan?

A)Form 2106,Employee Business Expenses
B)No form,the expenses are not deductible by the employee
C)Schedule D
D)Schedule R
E)Schedule C

Question 67

Harris had adjusted gross income in 2013 of $130,000.During the year his personal summer home was almost completely destroyed by a cyclone.Pertinent data with respect to the home follows: $\begin{array}{ll}\text { Cost basis } & \$ 139,000 \\\text { Value before casualty } & \$ 145,000 \\\text { Value after casualty } & \$ 13,000\end{array}$ Harris was partially insured for his loss and in 2013 he received a $115,000 insurance settlement.What is Harris' allowable casualty loss deduction for 2013?

A)$3,900
B)$4,000
C)$16,900
D)$17,000
E)None of the above

Question 68

Which one of the following is not considered a casualty or theft loss for tax purposes?

A)A taxpayer's car is crushed by a tree during a storm.
B)A taxpayer's residence is burned down during a wild fire.
C)A taxpayer's car is destroyed by rust.
D)A taxpayer's bicycle is vandalized by local teenagers.
E)All of the above are casualty or theft losses.

Question 69

Charles,a corporate executive,incurred business related,unreimbursed expenses in 2013 as follows: $$\begin{array} { l l } \text { Entertainment } & \$ 900 \\\text { Transportation } & \$ 700 \\\text { Education } & \$ 400\end{array}$$ Assuming that Charles itemizes his deductions,how much of these expenses should he deduct on his 2013 Schedule A,before considering the 2 percent of adjusted gross income limitation?

A)$700
B)$1,100
C)$1,550
D)$2,000
E)None of the above

Question 70

Damage resulting from which of the following would probably not give rise to a casualty loss deduction?

A)Automobile accident
B)Earthquake
C)Flood
D)Rust
E)Fire

Question 71

Peter is a plumber employed by a major contracting firm.During 2013,he paid the following miscellaneous expenses: Unreimbursed employee business expenses $\quad\$ 410$
Union dues $\quad\$ 600$
Tax return preparation fee $\quad\$ 100$
Safe deposit box rental fee (used only forpersonal effects) $\quad\$ 20$ If Peter were to itemize his deductions for 2013,what amount could he claim as miscellaneous itemized deductions before applying the 2 percent of adjusted gross income limitation)?

A)$700
B)$1,010
C)$1,110
D)$1,130
E)None of the above

Question 72

Which of the following is a miscellaneous itemized deduction?

A)Casualty losses
B)Job hunting expenses
C)Auto registration fees
D)Property taxes

Question 73

Which of the following is not deductible as interest expense on Schedule A?

A)Loan fee charged for appraisal service
B)Home mortgage interest
C)Mortgage interest on a second residence
D)Home mortgage prepayment penalties
E)All of the above are deductible as interest expense

Question 74

Which of the following miscellaneous deductions are subject to the 2 percent of adjusted gross income limitation?

A)Unreimbursed employee business expenses
B)Gambling losses to the extent of gambling winnings
C)Handicapped impairment related work expenses
D)None of the above
E)All of above

Question 75

For 2013,Eugene and Linda had adjusted gross income of $30,000.Additional information for 2013 is as follows: Cash contribution to church $\quad\$ 1,500$
Tuition paid to a parochial school $\quad\$ 1,200$
Contribution to a qualified charity $\quad\$ 250$
Cash contribution to a needy family $\quad\$ 100$ What is the maximum amount that they can use as a deduction for charitable contributions for 2013?

A)$1,500
B)$1,750
C)$1,850
D)$3,050
E)None of the above

Question 76

Catherine is a CPA employed by a large accounting firm in San Francisco.In 2013,she paid the following amounts: CPA Society dues $\quad\$ 200$
One year tax service $\quad \$ 700$
"Wiley Accountant" magazine $\quad\$ 70$
"Modern Sailing" magazine $\quad\$ 75$ How much may she deduct on Schedule A as a miscellaneous deduction,before considering the 2 percent of adjusted gross income limitation?

A)$270
B)$345
C)$970
D)$1,045
E)None of the above

Question 77

An accountable expense reimbursement plan:

A)Requires the employee only to substantiate expenses with receipts.
B)Does not require the employee to return any excess reimbursement.
C)Requires the employee to report business expenses as itemized deductions.
D)Requires the employee to substantiate expenses with receipts and to return any excess reimbursement.

Question 78

Which of the following types of interest is not deductible in 2013?

A)Qualified mortgage interest on residence
B)Qualified mortgage interest on second residence
C)Credit card interest
D)All of the above
E)None of the above

Question 79

Which of the following charitable contributions is not tax deductible?

A)Cash donated to a qualified church.
B)Clothing donated to a qualified veterans' organization.
C)Time donated to a qualified veterans' organization.
D)Donation of a car to a qualified non-profit organization.
E)All of the above are tax deductible.

Question 80

Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car.Which of the following statements is correct?

A)She can take a tax deduction large enough on an after-tax basis to equal the amount she would have received if she sold the car directly.
B)She can take a deduction greater than the amount for which the charity actually sells the vehicle.
C)She can claim an estimated value for the auto if the charity uses it rather than selling it.
D)The charity is not required to provide her with any information about what they do with the auto.