Deck 7: Itemized Deductions

Question 1

In order for a taxpayer to deduct a medical expense, the amount must be paid to a certified medical doctor (M.D.).

Answer 1

False

Question 2

Expenditures for a weight reduction program are deductible if recommended by a physician to treat a specific medical condition such as hypertension caused by excess weight.

Answer 2

True

Question 3

A personal property tax based on the weight of the property is deductible.

Answer 3

False

Question 4

The definition of medical care includes preventative measures such as routine physical examinations.

Question 5

If the principal reason for a taxpayer's presence in an institution is the need and availability of medical care, the entire cost of lodging and meals is considered qualified medical expenditures.

Question 6

If a prepayment is a requirement for the receipt of the medical care, the payment is deductible in the year paid rather than the year in which the care is rendered.

Question 7

Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.

Question 8

Assessments made against real estate for the purpose of funding local improvements are not deductible in the year paid but rather should be added to the cost basis of the property.

Question 9

Medical expenses paid on behalf of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.

Question 10

If a medical expense reimbursement is received in a year after a deduction has been taken on a previous year's return, the previous year's return must be amended to eliminate the reimbursed expense.

Question 11

Expenditures for long-term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.

Question 12

A medical expense is generally deductible only in the year in which the expense is actually paid.

Question 13

Jeffrey, a T.V. news anchor, is concerned about the wrinkles around his eyes. Because it is job-related, the cost of a face lift to eliminate these wrinkles is a deductible medical expense.

Question 14

Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.

Question 15

Expenditures incurred in removing structural barriers in the home of a physically handicapped individual are deductible only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.

Question 16

For individuals, all deductible expenses must be classified as deductions for AGI or deductions from AGI.

Question 17

In 2014, medical expenses are deductible as a from AGI deduction to the extent that they exceed 7.5 percent of the taxpayer's AGI.

Question 18

Capital expenditures for medical care which permanently improve or better the taxpayer's property are deductible to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.

Question 19

Assessments or fees imposed for specific privileges or services are not deductible as taxes.

Question 20

Due to stress on the job, taxpayer Charlie began to experience chest pains. In order to relax and relieve the pains, he and his spouse went on an ocean cruise. The cost of the cruise to alleviate this medical condition is tax deductible.

Question 21

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

Question 22

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

Question 23

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).

Question 24

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

Question 25

An accrual-basis corporation can only deduct contributions made by year-end.

Question 26

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

Question 27

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

Question 28

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.

Question 29

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

Question 30

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.

Question 31

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

Question 32

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

Question 33

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

Question 34

Christopher, a cash basis taxpayer, borrows $1,000 from ABC Bank by issuing a 3-month note on December 1, 2014. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2014 is $20.

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

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.

Question 41

In 2014 Sela traveled from her home in Flagstaff to San Francisco to seek medical care. Because she was unable to travel alone, her mother accompanied her. Total expenses included: The total medical expenses deductible before the 10% limitation are

A)$1,600.
B)$2,135.
C)$2,500.
D)$2,460.

Question 42

All of the following payments for medical items are deductible with the exception of the payment for

A)insulin.
B)general appointment for teeth cleaning.
C)acupuncture for specific medical purposes.
D)nonprescription medicine for treatment of a specific medical condition.

Question 43

Van pays the following medical expenses this year: • $1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse.
• $300 for Van's eyeglasses.
• $900 for Van's dental work.
• $3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes.
How much can Van include on his return as qualified medical expenses before limitation?

A)$1,200
B)$2,400
C)$2,700
D)$6,500

Question 44

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?

A)$0
B)$700
C)$800
D)$1,500

Question 45

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?

A)$7,900
B)$8,900
C)$10,900
D)$15,400

Question 46

Matt paid the following taxes in 2014: What amount can Matt deduct as an itemized deduction on his tax return?

A)$7,500
B)$11,500
C)$15,500
D)$19,500

Question 47

The following taxes are deductible as itemized deductions with the exception of

A)state income taxes.
B)federal income taxes.
C)foreign real property taxes.
D)local personal property taxes.

Question 48

Mr. and Mrs. Thibodeaux, who are filing a joint return, have adjusted gross income of $75,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Thibodeaux's mother, Mrs. Watson (age 63). Mrs. Watson provided over one-half of her own support. Mr. and Mrs. Thibodeaux received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?

A)$1,900
B)$2,000
C)$4,100
D)$9,400

Question 49

All of the following are deductible as medical expenses except

A)vitamins and health foods that improve a taxpayer's general health.
B)payments for a vision exam and contact lenses.
C)payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem.
D)cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.

Question 50

Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)?

A)$0
B)$4,000
C)$9,000
D)$13,000

Question 51

Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures: A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI)will be

A)$6,000.
B)$10,100.
C)$7,000.
D)$7,700.

Question 52

Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)?

A)$0
B)$2,000
C)$4,600
D)$6,600

Question 53

Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The Gere's could claim Mrs. Williams as their dependent, but she has too much gross income. Mr. and Mrs. Gere received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?

A)$5,200
B)$8,300
C)$4,300
D)$13,300

Question 54

Legal fees for drafting a will are generally deductible.

Question 55

Mitzi's medical expenses include the following: Mitzi's AGI for the year is $33,000. She is single and age 49. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expense deduction is

A)$12,900.
B)$13,850.
C)$14,675.
D)$16,325.

Question 56

Caleb's medical expenses before reimbursement for the year include the following: Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will be

A)$10,350.
B)$9,100.
C)$14,500.
D)$15,100.

Question 57

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?

A)$0
B)$1,069
C)$1,074
D)$1,600

Question 58

In 2014, Carlos filed his 2013 state income tax return and paid taxes of $800. Also in 2014, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2015, Carlos filed his 2014 state income tax return and paid an additional $600 of state income tax due for 2014. How much state income tax can Carlos deduct on his 2014 federal income tax return for state income tax?

A)$1,350
B)$1,400
C)$1,550
D)$2,150

Question 59

A taxpayer can deduct a reasonable amount for small out-of-pocket (i.e. cash)donations.

Question 60

A review of the 2014 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2014 tax status: In 2015, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory must

A)include $200 in gross income for 2015.
B)include $1,200 in gross income for 2015.
C)reduce 2015's medical expenses by $1,200.
D)amend the 2014 return.

Question 61

Leslie, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,800. What is the amount and classification of her student loan interest education deduction if her modified AGI is $40,000?

A)$2,500 for AGI
B)$2,500 from AGI
C)$3,800 for AGI
D)$3,800 from AGI

Question 62

Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is

A)$850.
B)$1,100.
C)$2,950.
D)$3,200.

Question 63

When both borrowed and owned funds are mingled in the same account, for purposes of categorizing interest expense, a repayment of the debt is allocated first to

A)personal expenditures.
B)trade or business expenditures.
C)investment expenditures.
D)passive activity expenditures in real estate.

Question 64

In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year?

A)$0
B)$3,000 deductible this year; $11,000 carried forward to next year
C)$9,000 deductible this year; $5,000 carried forward to next year
D)$14,000 deductible this year; nothing to be carried forward to next year

Question 65

Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home?

A)$4,400
B)$4,580
C)$7,200
D)$11,600

Question 66

Which of the following is deductible as interest expense?

A)personal credit card interest
B)interest to purchase tax-exempt bonds
C)bank service charges on personal account
D)interest on a home equity loan to purchase a car

Question 67

Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $68,000?

A)$500 for AGI
B)$2,000 for AGI
C)$2,500 for AGI
D)$3,000 for AGI

Question 68

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

A)Peter must deduct the assessment as a tax.
B)Peter must reduce the property basis by $630.
C)Peter must increase the property basis by $630.
D)Peter can elect to deduct the $630 currently or increase the basis in the property.

Question 69

Faye earns $100,000 of AGI, including $90,000 of salary and $10,000 of interest income. Faye does itemize her deductions. The miscellaneous category of her itemized deductions consists of $1,500 of unreimbursed employee business expenses and a $900 fee paid for investment advice. Faye has paid $11,000 of interest expense on a loan used to purchase stocks. How much of the $11,000 interest expense can be deducted this year?

A)$11,000
B)$10,000
C)$9,100
D)$9,600

Question 70

On September 1, of the current year, Samuel, a cash-basis taxpayer, sells his farm to Edward, also a cash-basis taxpayer for $100,000. Samuel's basis in the farm 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:

A)
B)
C)
D)

Question 71

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?

A)All three of the taxes are deductible as itemized deductions.
B)One-half of the self-employment tax is deductible for AGI, and the .09% and 3.8% taxes are itemized deductions.
C)None of the taxes are allowed as a deduction.
D)One-half of the self-employment tax is deductible for AGI, but the .09% and 3.8% taxes are not allowed as deductions.

Question 72

Riva borrows $10,000 that she intends to use for purchasing supplies for her business. She temporarily deposits the funds in her personal checking account. Prior to the deposit, the checking account held $40,000 of personal funds. Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account. Later in the month, the business supplies bill arrives and Riva writes a check for $10,000 from the personal account. With respect to the interest expense on the $10,000 loan,

A)it will all be treated trade or business expense.
B)60 percent will be treated as personal interest expense and 40 percent as trade or business expense.
C)it will all be treated as personal expense.
D)20 percent will be treated trade or business expense.

Question 73

All of the following statements are true except

A)investment interest expense is deductible to the extent of a taxpayer's net investment income.
B)short-term capital gains meet the definition of net investment income.
C)investment interest expense includes interest expense to purchase or carry tax-exempt securities.
D)net investment income is the taxpayer's investment income in excess of investment expenses.

Question 74

On September 1, of the current year, James, a cash-basis taxpayer, sells his farm to Bill, also a cash-basis taxpayer, for $100,000. James' basis in the farm 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:

A)
B)
C)
D)

Question 75

On July 31 of the current year, Marjorie borrows $120,000 to purchase a new fishing boat. The loan is secured by her personal residence. On the date of the loan, the outstanding balance on the original debt incurred to purchase the residence is $300,000 and the FMV of the home is $450,000. What is the total amount of debt on which Marjorie can deduct interest in the current year?

A)$300,000
B)$400,000
C)$420,000
D)$450,000

Question 76

Teri pays the following interest expenses during the year: What is the amount of interest expense that can be deducted as an itemized deduction?

A)$10,500
B)$10,900
C)$14,300
D)$14,700

Question 77

Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible?

A)$5,400
B)$9,900
C)$13,100
D)$13,000

Question 78

Don's records contain the following information: 1. Donated stock having a fair market value of $3,600 to a qualified charitable organization. He acquired the stock five months previously at a cost of $2,400.
2) Paid $700 to a church school as a requirement for the enrollment of his daughter.
3) Paid $200 for annual homeowner's association dues.
4) Drove 400 miles in his personal auto at 14 cents per mile. The travel was directly related to volunteer services he performed for his church (actual costs were not available).
What is Don's charitable contribution deduction?

A)$2,456
B)$3,156
C)$3,356
D)$3,656

Question 79

Claudia refinances her home mortgage on June 1 of the current year. She obtains a 30 year mortgage at 5%. As part of the refinancing, she pays points of $3,600 (a customary practice in her location). What amount, if any, of the points are deductible?

A)$0
B)$70
C)$120
D)$3,600

Question 80

Takesha paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense, assuming Takesha does not make any elections?

A)$5,400
B)$6,400
C)$13,100
D)$13,000