Deck 10: Income, Deductions and Credits

Question 1

Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool, Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

Answer 1

True

Question 2

Chad pays the medical expenses of his son, James.James would qualify as Chad's dependent except that he earns $7,500 during the year.Chad may claim James' medical expenses even if he is not a dependent.

Answer 2

True

Question 3

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.

Answer 3

False

Question 4

A taxpayer may not deduct the cost of new curbing (relative to a personal residence), even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.

Question 5

Phyllis, a calendar year cash basis taxpayer who itemized deductions totaling $20,000, overpaid her 2016 state income tax and is entitled to a refund of $400 in 2017.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2017.She is required to recognize that amount as income in 2017.

Question 6

Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.

Question 7

In 2018, Rhonda received an insurance reimbursement for medical expenses incurred in 2017.She is not required to include the reimbursement in gross income in 2018 if she claimed the standard deduction in 2017.

Question 8

Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic.Her son stayed at the clinic for the duration of his treatment.She paid airfare of $300 and $50 per night for lodging.The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.

Question 9

Mason, a physically handicapped individual, pays $10,000 this year for the installation of wheelchair ramps, support bars, and railings in his personal residence.These improvements increase the value of his personal residence by $2,000.Only $8,000 of the expenditure qualifies as a medical expense for tax purposes.

Question 10

Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2017.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2018.In determining his medical expense deduction for 2017, Matt must reduce his 2017 medical expenses by the amount of the reimbursement he expects in 2018.

Question 11

Bill paid $2,500 of medical expenses for his daughter, Marie.Marie is married to John and they file a joint return.Bill can include the $2,500 of expenses when calculating his medical expense deduction.

Question 12

Shirley pays FICA (employer's share) on the wages she pays her housekeeper to clean and maintain Shirley's personal residence.The FICA payment is not deductible as an itemized deduction.

Question 13

A physician recommends a private school for Ellen's dependent child.Because of the physician's recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).

Question 14

Georgia contributed $2,000 to a qualifying Health Savings Account in the current year.The entire amount qualifies as an expense deductible for AGI.

Question 15

In 2017, Dena traveled 600 miles for specialized medical treatment that was not available in her hometown.She paid $90 for meals during the trip, $145 for a hotel room for one night, and $15 in parking fees.She did not keep records of other out-of-pocket costs for transportation.Dena can include $167 in computing her medical expenses.

Question 16

Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance, Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.

Question 17

In 2017, Brandon, age 72, paid $3,000 for long-term care insurance premiums.He may include the $3,000 in computing his medical expense deduction for the year.

Question 18

Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.

Question 19

Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence.The appraisal fee qualifies as a deductible medical expense.

Question 20

Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence.The new curbing was installed throughout Sergio's neighborhood as part of a street upgrade project.Sergio may not deduct $2,000 as a tax, but he may add the $2,000 to the basis of his property.

Question 21

In 2017, 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 volunteer work.

Question 22

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.

Question 23

Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase.Jack can deduct the points as interest.

Question 24

In January 2018, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2017.The payment is deductible in 2017.

Question 25

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.

Question 26

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2017.The $2,200 contribution is deductible on Sadie's 2017 tax return.

Question 27

On December 31, 2017, 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 2018.If Lynette itemizes, she can deduct the $500 in 2017.

Question 28

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

Question 29

For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.

Question 30

During the year, Eve (a resident of Billings, Montana) spends three consecutive weeks in Louisville, Kentucky.One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relatives.One third of Eve's travel expenses will qualify as a charitable deduction.

Question 31

Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2017.He prepaid all $3,600 of the interest on the loan on December 1, 2017.Joe can deduct only $300 of the prepaid interest in 2017.

Question 32

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.

Question 33

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.

Question 34

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.

Question 35

Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2017.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Question 36

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).

Question 37

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.

Question 38

During the year, Victor spent $300 on bingo games sponsored by his church.If all profits went to the church, Victor has a charitable contribution deduction of $300.

Question 39

Trent sells his personal residence to Chester on July 1, 2017.He had paid $7,000 in real property taxes on March 1, 2017, the due date for property taxes for 2017.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Question 40

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.

Question 41

Ted earned $150,000 during the current year.He paid Alice, his former wife, $75,000 in alimony.Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.

Question 42

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

Question 43

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

Question 44

Ashley received a scholarship to be used as follows: tuition $6,000; room and board $9,000; and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.

Question 45

John told his nephew, Steve, "if you maintain my house when I cannot, I will leave the house to you when I die." Steve maintained the house and when John died Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

Question 46

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.

Question 47

A phaseout of certain itemized deductions applies for all taxpayers who choose to itemize their deductions.

Question 48

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement, Emily paid Jacob cash for his interest in the personal residence.This cash payment results in a taxable gain to Jacob if he receives more cash than his share of the cost of the residence.

Question 49

Brooke works part-time as a waitress in a restaurant.For groups of 7 or more customers, the customer is charged 15% of the bill for Brooke's services.For parties of less than 7, the tips are voluntary.Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate, her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000) in gross income.

Question 50

Paula transfers stock to her former spouse, Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000.Fred later sells the stock for $100,000.Fred's recognized gain from the sale of the stock is $5,000.

Question 51

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

Question 52

In order to dissuade his pastor from resigning and taking a position with a larger church, Michael, an ardent leader of the congregation, gives the pastor a new car.The cost of the car is deductible by Michael as a charitable contribution.

Question 53

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

Question 54

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).

Question 55

Gambling losses may be deducted to the extent of the taxpayer's gambling winnings.Such losses are subject to the 2%-of-AGI floor for miscellaneous itemized deductions.

Question 56

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).

Question 57

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.

Question 58

After the divorce, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year, Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Question 59

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

Question 60

George and Erin are divorced, and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is required to include the alimony payments in gross income although George earned the income.

Question 61

In 2017, Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2018, Theresa collected from his insurance company.She received $15,000 for loss of income, $10,000 for pain and suffering, $50,000 for punitive damages, and $6,000 for medical expenses which she had deducted on her 2017 tax return (the amount in excess of 10% of adjusted gross income).As a result of the above, Theresa's 2018 gross income is increased by $56,000.

Question 62

Only married taxpayers with children are qualified to receive the earned income credit.

Question 63

An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

Question 64

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 17.

Question 65

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19) of the taxpayer.

Question 66

Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit (or credits) exceeds the taxpayer's tax liability.

Question 67

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Question 68

Betty received a graduate teaching assistantship that was awarded on the basis of academic achievement.The payments must be included in her gross income.

Question 69

The maximum child tax credit under current law is $1,500 per qualifying child.

Question 70

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

Question 71

The tax benefits resulting from tax credits and tax deductions are affected by the tax rate bracket of the taxpayer.

Question 72

Child and dependent care expenses include amounts paid for general household services.

Question 73

The credit for child and dependent care expenses is an example of a refundable credit.

Question 74

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

Question 75

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

Question 76

The earned income credit, a form of a negative income tax, is a refundable credit.

Question 77

In December 2017, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the Spring semester of 2018.However, she did not use the funds to pay the tuition until January 2018.Emily can exclude the $2,500 from her gross income in 2017.

Question 78

For purposes of computing the credit for child and dependent care expenses, the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.

Question 79

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

Question 80

The tax benefit received from a tax credit is never affected by the tax rate of the taxpayer.