Question 1

Richard pays his license plate fee for his car in July of the current year.Of the $400 he paid $10 represented a registration fee,$140 represented a charge based on the weight of the car,and a $200 charge based on the value of the car.How much of the $400 can Richard deduct on his current-year tax return?

Accepted Answer

The only fee that can be deducted on the current-year tax return is the charge based on the value of the car, which is $200. The registration fee of $10 cannot be deducted, and neither can the weight-based charge of $140. Therefore, the answer is D) $200.

Question 2

Ricardo pays the following taxes during the year:
$\begin{array}{lr}
\text { Real estate taxes on his personal residence } & \$ 2,500 \
\text { Real estate taxes on rental property } & 2,000 \
\text { State sales taxes } & 600 \
\text { State income taxes } & 4,000 \
\text { City income taxes } & 1,000 \
\text { Federal income taxes } & 5,400
\end{array}$
What is the amount Ricardo can deduct for taxes as an itemized deduction for the year?

Accepted Answer

Real estate taxes on personal residence and rental property are deductible as itemized deductions. State and local income taxes are also deductible, but federal income taxes are not. Therefore, Ricardo can deduct $2,500 + $2,000 + $600 + $4,000 + $1,000 = $10,100 in taxes. However, the maximum deduction for state and local taxes is $10,000, so Ricardo's total deduction is limited to $10,000.

Question 3

Linc,age 25,is single and makes an annual contribution to his church of $2,000.Linc always uses the standard deduction when filing his income tax return.Determine the amount of Linc's deduction for charitable contributions.

Accepted Answer

The answer of Linc,age 25,is single and makes an annual...

Question 4

Carlyle purchases a new personal residence for $230,000.He makes a down payment of $30,000 and finances the balance at a very favorable interest rate.To obtain the favorable rate,points equal to 3% of the loan balance are paid at the closing.What amount of the points can Carlyle deduct in the current year?

Accepted Answer

The answer of Carlyle purchases a new personal residence for...

Question 5

Bender borrows $200,000 from his uncle's bank and invests the proceeds in various common stocks.He pays $9,000 in interest on the loan during the current year.The stocks produce $7,200 of dividend income,all taxed at the rate of 15%.Bender reports adjusted gross income of $100,000 in the current year.If the dividend income is his only investment income,how much of the interest expense is deductible by Bender?

Accepted Answer

The answer of Bender borrows $200,000 from his uncle's bank...

Question 6

Hank,whose adjusted gross income is $100,000,purchases a new principal residence in the current year for $250,000.He borrows $220,000 from a local mortgage company and pays loan origination fees of $1,600 and mortgage insurance premiums of $1,500.During the year,Hank pays $7,000 of interest on the loan.What is Hank's allowable interest deduction for the year?

Accepted Answer

Hank's allowable interest deduction includes the interest he paid on the loan, which is $7,000, plus any mortgage points he paid during the year. In this case, the loan origination fees of $1,600 can be considered mortgage points and added to the interest, giving a total of $8,600. However, mortgage insurance premiums are not deductible for taxpayers with adjusted gross incomes over a certain limit (in Hank's case, $100,000), so the $1,500 in mortgage insurance premiums cannot be included in the deduction. Therefore, the allowable interest deduction is $8,600 - $1,500 = $8,500, which is answer choice C.

Question 7

Anita receives a state income tax refund of $550 in May 2013.When she filed her 2012 federal income tax return,she used the standard deduction amount.Although the all-inclusive income concept would require Anita to report the $550 in her federal gross income for 2013,she may exclude it.What tax concept explains why the exclusion is permitted in this case?

Accepted Answer

The tax benefit rule allows taxpayers to exclude from gross income any refunds of taxes that provided no tax benefit in the prior year. Since Anita used the standard deduction amount on her federal income tax return, she did not receive any tax benefit from her state income tax payment in 2012. Therefore, she may exclude the refund from her gross income in 2013.

Question 8

Baylen,whose adjusted gross income is $60,000,purchases a new home during the year,borrowing $300,000 from Century National Bank to finance the purchase.He also pays $3,000 in points $4,500 in loan origination fees and $1,800 mortgage insurance premiums.During the year he pays interest of $14,000 on the loan.What is Baylen's allowable interest deduction?

Accepted Answer

The answer of Baylen,whose adjusted gross income is $60,000,purchases a...

Question 9

During the current year,Robbie and Anne pay the following taxes:
$\begin{array}{lr}
\text { State income tax (bal ance due for last year) } & \$ 1,000 \
\text { Estimated state income tax } & 2,400 \
\text { Estimated federal income tax } & 3,250 \
\text { Sales tax (Federal Sales tax table) } & 600 \
\text { State gift tax } & 700 \
\text { Froperty tax on personal residence } & 2,450 \
\text { Real estate tax on condominium in Breckinridge, CO. } & 1,100
\end{array}$
What amount can Robbie and Anne claim as an itemized deduction for taxes on their federal income tax return for the year?

Accepted Answer

The answer of During the current year,Robbie and Anne pay...

Question 10

Certain interest expense can be carried forward if not deductible in the current year.Which of the following types of interest can be carried forward and deducted in a future year?

Accepted Answer

Interest on a loan to buy common stock can be carried forward if it is investment interest expense and not fully deductible in the current year due to the investment interest expense limitation.

Question 11

Debra and Ken refinance their personal residence on July 1,2013.They borrow $96,000 over a 20-year period and paid points of $1,920.For 2013,what amount of the points is deductible?

Accepted Answer

The answer of Debra and Ken refinance their personal residence...

Question 12

Randolph borrows $100,000 from his uncle's bank and invests the proceeds in various corporate bonds.He pays $9,000 in interest on the loan during the current year.The bonds produce $7,200 of interest income.Randolph reports adjusted gross income of $100,000 in the current year.If the interest income is his only investment income,how much of the interest expense is deductible by Randolph?

Accepted Answer

The answer of Randolph borrows $100,000 from his uncle's bank...

Question 13

Gerald purchases a new home on June 30,2013.During January 2014,he receives his real estate tax statement for calendar year 2013 showing $1,800 payable.Gerald pays the $1,800 on March 1,2014.The seller of the residence had credited Gerald with $900 of the 2013 taxes on the closing statement.What is the amount of real estate taxes that Gerald may claim as an itemized deduction in 2014?

Accepted Answer

Gerald can only claim the portion of the real estate taxes that he actually paid during the year, which is $900 ($1,800 - $900). The $900 credit from the seller is considered a reduction of the purchase price of the home, and not a payment of taxes by Gerald.

Question 14

Lynnette is a single individual who receives a salary of $36,000.During 2013,she has $6,800 withheld for payment of her federal income taxes and $2,900 for her 2013 state income taxes.In 2014,she receives a $450 refund after filing her 2013 federal tax return and a $750 refund after filing her 2013 state tax return.
I
If Lynnette has total itemized deductions of $6,000 on her 2013 federal tax return,she must include the entire $750 refund in her 2014 gross income.
II)If Lynnette uses the standard deduction in filing her 2013 federal income tax return,the $750 refund is not taxable in 2014.

Accepted Answer

Statement I is incorrect because Lynnette's state tax refund is only taxable to the extent that she received a tax benefit from deducting the state income taxes on her previous year's federal tax return. Since Lynnette did not itemize deductions in 2013, she did not receive a tax benefit from the state income taxes paid, and therefore, the state tax refund is not taxable in 2014. 
Statement II is correct because if Lynnette uses the standard deduction on her 2013 federal tax return, she did not receive a tax benefit from the state income taxes paid. Thus, the state tax refund is not taxable in 2014.

Question 15

Wayne purchases a new home during the year,borrowing $725,000 from Century National Bank to finance the purchase.He also pays $7,250 in points and $4,500 in loan origination fees.During the year he pays interest of $71,000 on the loan.What is Wayne's allowable interest deduction?

Accepted Answer

The allowable interest deduction includes the interest paid on the loan plus any points paid to obtain the loan. In this case, Wayne paid $71,000 in interest and $7,250 in points, for a total of $78,250. Loan origination fees are not deductible, so they do not factor into the allowable interest deduction. Therefore, the correct answer is (D) $78,250.

Question 16

Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer?
I.State income tax.
II.Property tax on property owned in Alberta,Canada.

Accepted Answer

The answer of Which of the following taxes is deductible...

Question 17

Ronald pays the following taxes during the year:
$\begin{array}{lr}
\text { Real estate taxes on his personal residence } & \$ 2,500 \
\text { Real estate taxes on rental property } & 2,000 \
\text { State sales taxes (from Federal Sales tax table) } & 1,400 \
\text { State income taxes } & 1,000 \
\text { Federal income taxes } & 5,400
\end{array}$
What is the amount Ronald can deduct for taxes as an itemized deduction for the year?

Accepted Answer

The answer of Ronald pays the following taxes during the...

Question 18

Brock incurs $950 interest on his GMAC auto loan,$150 interest on a loan with Computer Express to buy a multi-media equipped computer (personal use),$500 interest on his credit cards,and $1,000 investment interest.Brock's net investment income is $650.Brock's deductible interest amount is

Accepted Answer

Investment interest expense is deductible to the extent of net investment income. Brock's net investment income is $650, which means he can deduct $650 of his $1,000 investment interest. The interest on the auto loan, computer loan, and credit cards is considered personal interest and is not deductible.

Question 19

Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer?
I.State income tax.
II.State excise tax on gasoline.

Accepted Answer

Only statement I is correct. State income tax is deductible from adjusted gross income when paid by an individual taxpayer, whereas state excise tax on gasoline is not deductible.

Question 20

Morris is a single individual who has total itemized deductions in 2013 of $6,150.His itemized deductions include $2,000 for state income taxes.After filing his 2013 state income tax return he receives a refund of $275.

Accepted Answer

The answer of Morris is a single individual who has...

Quiz 8: Taxation of Individuals

Linc,age 25,is single and makes an annual contribution to his church of $2,000.Linc always uses the standard deduction when filing his income tax return.Determine the amount of Linc's deduction for charitable contributions.

Certain interest expense can be carried forward if not deductible in the current year.Which of the following types of interest can be carried forward and deducted in a future year?

Debra and Ken refinance their personal residence on July 1,2013.They borrow $96,000 over a 20-year period and paid points of $1,920.For 2013,what amount of the points is deductible?

Wayne purchases a new home during the year,borrowing $725,000 from Century National Bank to finance the purchase.He also pays $7,250 in points and $4,500 in loan origination fees.During the year he pays interest of $71,000 on the loan.What is Wayne's allowable interest deduction?

Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer? I.State income tax. II.Property tax on property owned in Alberta,Canada.

Brock incurs $950 interest on his GMAC auto loan,$150 interest on a loan with Computer Express to buy a multi-media equipped computer (personal use) ,$500 interest on his credit cards,and $1,000 investment interest.Brock's net investment income is $650.Brock's deductible interest amount is

Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer? I.State income tax. II.State excise tax on gasoline.

Morris is a single individual who has total itemized deductions in 2013 of $6,150.His itemized deductions include $2,000 for state income taxes.After filing his 2013 state income tax return he receives a refund of $275.