Question 1

An employee's unreimbursed business expenses are treated as miscellaneous itemized deductions subject to a 2 percent of adjusted gross income floor.

Accepted Answer

According to the IRS, unreimbursed business expenses are considered miscellaneous itemized deductions and are subject to a 2 percent of adjusted gross income floor.

Question 2

Charitable contributions of capital gain property subject to the 30 percent limitation can be converted to the 50 percent category if the taxpayer elects to reduce his or her claimed deduction by the property's unrealized appreciation.

Accepted Answer

This is true according to the tax code. By making the election to reduce the claimed deduction by the property's unrealized appreciation, the contribution can be moved from the 30 percent limitation category to the 50 percent category.

Question 3

Any contributions in excess of the 50 percent limitation can be carried back three years and carried over five years.

Accepted Answer

The statement is incorrect because contributions in excess of the 50 percent limitation cannot be carried back; they can only be carried over to the next five years.

Question 4

No deduction is allowed for interest paid on loans to purchase personal items such as clothes and household furniture.

Accepted Answer

Interest paid on loans to purchase personal items is not considered a deductible expense.

Question 5

K purchased her residence several years ago for $80,000.The current balance of her mortgage loan is $60,000.During the year, she borrowed $125,000 from a savings and loan, and secured the loan with a second mortgage on her home, now worth $240,000.She may deduct the interest on the entire amount of debt related to her home if she uses the proceeds of the new loan to make permanent home improvements.

Accepted Answer

According to the given scenario, K can deduct the interest on the entire amount of debt related to her home if she uses the proceeds of the new loan to make permanent home improvements.

Question 6

T purchased his home for $100,000 five years ago.Although he has made no improvements to the home, it has appreciated considerably and is currently worth $175,000.Assuming T obtains a $30,000 second mortgage on his home and uses the proceeds to purchase a personal auto, the interest on such debt is deductible as long as he itemizes his deductions.

Accepted Answer

The interest on a mortgage taken out on a taxpayer's primary residence is generally deductible if the loan amount does not exceed the fair market value of the home. In this scenario, T's mortgage amount of $30,000 does not exceed the current value of his home ($175,000), so the interest on the second mortgage is deductible as long as T itemizes his deductions on his tax return.

Question 7

A special assessment for paving a street is a deductible tax.

Accepted Answer

Special assessments for paving a street are not deductible taxes, as they are considered a benefit received by the property owner and therefore not considered an expense for federal tax purposes.

Question 8

A taxpayer who makes direct gifts to the children of a needy family will not be allowed a charitable contribution deduction.

Accepted Answer

Direct gifts to individuals, even if they are in need, are not tax-deductible charitable contributions.

Question 9

Like capital losses, an individual taxpayer's excess charitable contributions may be carried forward indefinitely.

Accepted Answer

Excess charitable contributions can be carried forward for up to 5 years, not indefinitely.

Question 10

A deduction for charitable contributions is available only if a taxpayer itemizes his or her deductions.

Accepted Answer

This is true. Charitable contributions are included in the itemized deductions on Schedule A of the tax return. If the taxpayer chooses the standard deduction instead of itemizing, they cannot claim a deduction for charitable contributions.

Question 11

Norm is employed as an auditor by a large public accounting firm.He uses his car entirely for business.Interest on the loan used to purchase his car is entirely deductible.

Accepted Answer

Interest on a car loan for a vehicle used for business by an employee is not deductible by the employee on their personal tax return. This type of deduction is typically available only to self-employed individuals or businesses for vehicles used exclusively in their business operations.

Question 12

Ed Entry owns and operates his own public accounting firm as a sole proprietor.He uses his car entirely for business.Interest on the loan used to purchase his car is entirely deductible.

Accepted Answer

As Ed Entry uses his car entirely for business, he can deduct the interest on the loan used to purchase it as a business expense.

Question 13

Interest expense attributable to a loan on a life insurance policy may be deducted as long as the proceeds are used to purchase a new residence.

Accepted Answer

Interest expense attributable to a loan on a life insurance policy is generally not deductible, regardless of how the proceeds are used.

Question 14

Personal property taxes are deductible as an itemized deduction only if they are based on the value of the property.

Accepted Answer

Personal property taxes must be based on the value of the property to be deductible as an itemized deduction. Taxes based on income, sales, or other factors are not deductible.

Question 15

A taxpayer must always include his or her state income tax refund in income.

Accepted Answer

A taxpayer must include their state income tax refund in income only if they itemized deductions in the prior year and received a tax benefit from deducting state income taxes. If the standard deduction was taken, or no tax benefit was received, the refund is not taxable.

Question 16

The taxpayer's charitable deduction for any gift of capital gain property to a public charity is limited to the property's adjusted basis.

Accepted Answer

The taxpayer's charitable deduction for a gift of capital gain property to a public charity is generally allowed at the fair market value of the property, not just the adjusted basis. This means the donor can deduct the current market value of the property, not just what they paid for it, subject to certain limitations.

Question 17

On the condition that the city rezone the area to allow its commercial development, T donated a piece of property to the city to be used for the site of a new public school.T will be allowed a charitable contribution deduction for this gift.

Accepted Answer

A charitable contribution deduction is not allowed if the donation is conditional and the condition has not been met. In this case, the rezoning is a condition that must be fulfilled for the donation to be effective.

Question 18

Interest expense attributable to a student loan is completely deductible assuming the proceeds are used to pay tuition and other related fees.

Accepted Answer

The deduction for student loan interest has income phase-out limits, meaning if your income exceeds certain levels, the amount you can deduct is reduced or eliminated. Additionally, there are limits to the amount of interest that can be deducted annually.

Question 19

All interest incurred on a mortgage loan secured by the taxpayer's principal residence is deductible.

Accepted Answer

Not all interest incurred on a mortgage loan secured by the taxpayer's principal residence is deductible. The deductibility of mortgage interest is subject to limitations, such as the loan being used to buy, build, or substantially improve the taxpayer's home and the loan amount being within certain limits.

Question 20

Unlike excess contributions subject to the 50 percent limitation, excess contributions subject to either the 20 or 30 percent limitations cannot be carried forward.

Accepted Answer

Excess contributions subject to the 20 or 30 percent limitations can be carried forward for up to five years, allowing taxpayers to potentially deduct them in future tax years if they exceed their adjusted gross income (AGI) limitation in the current year.

Quiz 11: Itemized Deductions