Deck 10: Deduction and Losses Certain Itemized Deductions

Question 1

In 2017,Rhonda received an insurance reimbursement for medical expenses incurred in 2016.She is not required to include the reimbursement in gross income in 2017 if she claimed the standard deduction in 2016.

Answer 1

True

Question 2

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).

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

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 5

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 6

In 2016,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 $179 in computing her medical expenses.

Question 7

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.

Question 8

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 9

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

Question 10

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

Question 11

Matt,a calendar year taxpayer,pays $11,000 in medical expenses in 2016.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2017.In determining his medical expense deduction for 2016,Matt must reduce his 2016 medical expenses by the amount of the reimbursement he expects in 2017.

Question 12

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 13

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 14

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.

Question 15

In 2016,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 16

Jim's employer pays half of the premiums on a group medical insurance plan covering all employees,and employees pay the other half.Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.

Question 17

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 18

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 19

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 20

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 21

In January 2017,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2016.The payment is deductible in 2016.

Question 22

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Question 23

Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship.Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.

Question 24

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

Question 25

In April 2016,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2015.Even though it relates to 2015,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2016.

Question 26

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.

Question 27

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 28

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.

Question 29

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 30

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 31

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 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

Trent sells his personal residence to Chester on July 1,2016.He had paid $7,000 in real property taxes on March 1,2016,the due date for property taxes for 2016.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Question 34

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.

Question 35

Phyllis,a calendar year cash basis taxpayer who itemized deductions totaling $20,000,overpaid her 2015 state income tax and is entitled to a refund of $400 in 2016.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2016.She is required to recognize that amount as income in 2016.

Question 36

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 37

Tom,whose MAGI is $40,000,paid $3,500 of interest on a qualified student loan in 2016.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Question 38

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 39

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

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

Edna had an accident while competing in a rodeo.She sustained facial injuries that required cosmetic surgery.While having the surgery done to restore her appearance,she had additional surgery done to reshape her chin,which was not injured in the accident.The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000.How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 10%-of-AGI floor)?

A)$0
B)$6,000
C)$9,000
D)$15,000
E)None of the above

Question 42

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

Question 43

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 44

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 45

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 46

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 47

Fred and Lucy are married,ages 33 and 32,and together have AGI of $120,000 in 2016.They have four dependents and file a joint return.They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account.During the year,they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses,and $3,000 for prescribed medicine and drugs.In October 2016,they received an insurance reimbursement of $4,400 for the hospitalization.They expect to receive an additional reimbursement of $1,000 in January 2017.Determine the maximum itemized deduction allowable for medical expenses in 2016.

A)$800
B)$3,400
C)$9,200
D)$12,800
E)None of the above

Question 48

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 49

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 50

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 51

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 52

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 53

Sandra is single and does a lot of business entertaining at home.Because Arthur,Sandra's 80-year old dependent grandfather who lived with Sandra,needs medical and nursing care,he moved to Twilight Nursing Home.During the year,Sandra made the following payments on behalf of Arthur:
Room at Twilight
$4,500
Meals for Arthur at Twilight
850
Doctor and nurse fees
700
Cable TV service for Arthur's room
107
Total
$6,157
​
Twilight has medical staff in residence.Disregarding the AGI floor,how much,if any,of these expenses qualify for a medical deduction by Sandra?

A)$6,157
B)$6,050
C)$5,200
D)$1,550
E)None of the above

Question 54

Richard,age 50,is employed as an actuary.For calendar year 2016,he had AGI of $130,000 and paid the following medical expenses:
Medical insurance premiums
$5,300
Doctor and dentist bills for Derrick and Jane (Richard's parents)
7,900
Doctor and dentist bills for Richard
5,100
Prescribed medicines for Richard
830
Nonprescribed insulin for Richard
960
Derrick and Jane would qualify as Richard's dependents except that they file a joint return.Richard's medical insurance policy does not cover them.Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2016 and received the reimbursement in January 2017.What is Richard's maximum allowable medical expense deduction for 2016?

A)$0
B)$7,090
C)$13,000
D)$20,090
E)None of the above

Question 55

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

Question 56

Noah gave $750 to a good friend whose house was destroyed by an earthquake.In addition,Noah contributed his time,valued at $250,in the cleanup effort.Noah may claim a charitable deduction of $1,000 on his tax return for the current year.

Question 57

Maria made significant charitable contributions of capital gain property in the current year.In fact,the amount of the contributions exceeds 30% of her AGI.The excess charitable contribution that is not deductible this year can be carried over for five years.

Question 58

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

Question 59

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

Question 60

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.

Question 61

Pedro's child attends a school operated by the church the family attends.Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200.In addition,Pedro paid the regular tuition of $6,000 to the school.Based on this information,what is Pedro's charitable contribution?

A)$0
B)$800
C)$1,000
D)$6,800
E)$7,000

Question 62

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization)on June 8 this year.What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7,and the stock had a fair market value of $13,800 when he made the donation?

A)$3,300
B)$10,500
C)$12,150
D)$13,800
E)None of the above

Question 63

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2016 of some medical expenses he paid in 2015.Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

A)Scotty itemized deductions in 2015.
B)Scotty did not itemize deductions in 2015.
C)Scotty itemized deductions in 2016.
D)Scotty did not itemize deductions in 2016.
E)Scotty itemized deductions in 2016 but not in 2015.

Question 64

In the current year,Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council.The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games.Also this year,Jerry pays $2,200 (the regular retail price)for season tickets for himself and his wife.For these items,how much qualifies as a charitable contribution?

A)$6,200
B)$6,400
C)$8,000
D)$10,200
E)None of the above

Question 65

Karen,a calendar year taxpayer,made the following donations to qualified charitable organizations during the year:
Basis
Fair Market Value
Cash donation to State University
$30,000
$ 30,000
Unimproved land to the City of Terre Haute,Indiana
70,000
210,000
​
The land had been held as an investment and was acquired 4 years ago.Shortly after receipt,the City of Terre Haute sold the land for $210,000.Karen's AGI is $450,000.The allowable charitable contribution deduction this year is:

A)$100,000.
B)$165,000.
C)$225,000.
D)$240,000.
E)None of the above.

Question 66

Brad,who would otherwise qualify as Faye's dependent,had gross income of $9,000 during the year.Faye,who had AGI of $120,000,paid the following medical expenses in 2016:
Cataract operation for Brad
$ 5,400
Brad's prescribed contact lenses
1,800
Faye's doctor and dentist bills
12,600
Prescribed drugs for Faye
2,550
Total
$22,350
​
Assuming Faye is age 45,she has a medical expense deduction of:

A)$3,150
B)$4,950
C)$10,350
D)$13,350
E)None of the above

Question 67

During 2016,Nancy paid the following taxes:
Tax on residence (for the period from March 1 through August 31,2016)
$5,250
State motor vehicle tax (based on the value of the personal use automobile)
430
State sales tax
3,500
State income tax
3,050
​
Nancy sold her personal residence on June 30,2016,under an agreement in which the real estate taxes were not prorated between the buyer and the seller.What amount qualifies as a deduction from AGI for 2016 for Nancy?

A)$9,180
B)$9,130
C)$7,382
D)$5,382
E)None of the above

Question 68

Tom,age 48,is advised by his family physician that he needs back surgery to correct a problem from his last back surgery.Since Tom is in a wheel chair,he needs his wife,Jean,to accompany him on his trip to Rochester,Minnesota,for in-patient treatment at the Mayo Clinic,which specializes in this type of surgery.Tom incurred the following costs in 2016:
Round-trip airfare ($350 each)
$ 700
Jean's hotel in Rochester for four nights ($95 per night)
380
Jean's meals while in Rochester
105
Tom's medical treatment
3,500
Tom's prescription medicine
600
​
Compute Tom's medical expenses for the trip (subject to the 10%-of-AGI floor).

A)$4,000
B)$5,000
C)$5,180
D)$5,285
E)None of the above

Question 69

In Lawrence County,the real property tax year is the calendar year.The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume this year is not a leap year).The tax is payable on June 1.On May 1,Reggie sells his house to Dana for $350,000.On June 1,Dana pays the entire real estate tax of $7,950 for the year ending December 31.How much of the property taxes may Reggie deduct?

A)$0
B)$2,614
C)$2,625
D)$7,950
E)None of the above

Question 70

Hannah makes the following charitable donations in the current year:
Basis
Fair Market Value
Inventory held for resale in Hannah's business (a sole proprietorship)
$8,000
$ 7,200
Stock in HBM,Inc. ,held as an investment (acquired four years ago)
16,000
40,000
Baseball card collection held as an investment (acquired six years ago)
4,000
20,000
​
The HBM stock and the inventory were given to Hannah's church,and the baseball card collection was given to the United Way.Both donees promptly sold the property for the stated fair market value.Disregarding percentage limitations,Hannah's current charitable contribution deduction is:

A)$28,000.
B)$51,200.
C)$52,000.
D)$67,200.
E)None of the above.

Question 71

Zeke made the following donations to qualified charitable organizations during the year:
Basis
Fair Market Value
Used clothing (all acquired more than a year ago)of taxpayer and his family
$ 1,350
$ 375
Stock in ABC,Inc. ,held as an investment for fifteen months
12,000
10,875
Stock in MNO,Inc. ,held as an investment for eleven months
15,000
18,000
Real estate held as an investment for two years
15,000
30,000
​
The used clothing was donated to the Salvation Army;the other items of property were donated to Eastern State University.Both are qualified charitable organizations.Disregarding percentage limitations,Zeke's charitable contribution deduction for the year is:

A)$43,350.
B)$56,250.
C)$59,250.
D)$60,375.
E)None of the above.

Question 72

During 2016,Hugh,a self-employed individual,paid the following amounts:
Real estate tax on Iowa residence
$3,800
State income tax
1,700
Real estate taxes on land in Puerto Rico (held as an investment)
1,100
Gift tax paid on gift to daughter
1,200
State sales taxes
1,750
State occupational license fee
300
Property tax on value of his automobile (used 100% for business)
475
​
What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?

A)$6,600
B)$6,650
C)$7,850
D)$8,625
E)None of the above

Question 73

Emily,who lives in Indiana,volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization).She was in Louisiana for three weeks.She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution.In addition,she incurred the following costs in connection with the trip: $600 for transportation,$1,200 for lodging,and $400 for meals.What is Emily's deduction associated with this charitable activity?

A)$600
B)$1,200
C)$1,800
D)$2,200
E)$3,700

Question 74

In 2016,Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family.In addition,he contributes $3,400 to a Health Savings Account.Which of the following statements is true?

A)If Boris is self-employed,he may deduct $7,200 as a deduction for AGI.
B)If Boris is self-employed,he may deduct $3,400 as a deduction for AGI and may include the $3,800 premium when calculating his itemized medical expense deduction.
C)If Boris is an employee,he may deduct $7,200 as a deduction for AGI.
D)If Boris is an employee,he may include $7,200 when calculating his itemized medical expense deduction.
E)None of the above.

Question 75

Joseph and Sandra,married taxpayers,took out a mortgage on their home for $350,000 15 years ago.In May of this year,when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage,they took out a home equity loan for $220,000.They used the funds to purchase a single engine airplane to be used for recreational travel purposes.What is the maximum amount of debt on which they can deduct home equity interest?

A)$50,000
B)$100,000
C)$220,000
D)$230,000
E)None of the above

Question 76

Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2016,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2017,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2016?

A)$0
B)$500
C)$1,000
D)$2,000
E)None of the above

Question 77

Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2016,he files his state return for 2015,paying an additional $600 in state income taxes.During 2016,his withholdings for state income tax purposes amount to $3,550.On April 13,2017,he files his state return for 2016 claiming a refund of $800.Brad receives the refund on June 3,2017.If he itemizes deductions,how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2016 (filed in April 2017)?

A)$3,350
B)$3,550
C)$4,150
D)$5,150
E)None of the above

Question 78

Quinn,who is single and lives alone,is physically handicapped as a result of a diving accident.In order to live independently,he modifies his personal residence at a cost of $30,000.The modifications included widening halls and doorways for a wheelchair,installing support bars in the bathroom and kitchen,installing a stairway lift,and rewiring so he could reach electrical outlets and appliances.Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after.As a result of the operation of the stairway lift,Quinn experienced an increase of $680 in his utility bills for the current year.Disregarding the 10%-of-AGI floor,how much of the above expenditures qualify as medical expense deductions?

A)$11,680
B)$30,680
C)$30,880
D)$34,880
E)None of the above

Question 79

Phillip,age 66,developed hip problems and was unable to climb the stairs to reach his second-floor bedroom.His physician advised him to add a first-floor bedroom to his home.The cost of constructing the room was $32,000.The increase in the value of the residence as a result of the room addition was determined to be $17,000.In addition,Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair.Phillip's AGI for 2016 was $100,000.How much of these expenditures can Phillip deduct as a medical expense in 2016?

A)$14,000
B)$15,000
C)$21,500
D)$29,000
E)None of the above

Question 80

Rick and Carol Ryan,married taxpayers,took out a mortgage of $160,000 when purchasing their home ten years ago.In October of the current year,when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage,the Ryans took out a home equity loan for $110,000.They used the funds to purchase a sailboat to be used for recreational purposes.The sailboat does not qualify as a residence.What is the maximum amount of debt on which the Ryans can deduct home equity interest?

A)$75,000
B)$90,000
C)$110,000
D)$125,000
E)None of the above