Question 1

For 2017,Miram,a single mother,reported the following amounts relating to her investments: $\begin{array}{lr}
\text {Net investment income from interest }&\$7,000\
\text { Interest expense on a loan to purchase stocks}&2,000\\text {Interest expense on funds borrowed in 2016 to purchase land for investment \ }&6,000\
\end{array}$
 What is the maximum amount that Miriam can deduct in 2017 as investment interest expense?
A)$8,000.
B)$2,000.
C)$6,000.
D)$7,000.

Accepted Answer

The maximum amount of investment interest expense that Miriam can deduct in 2017 is $8,000. This is because the total amount of investment interest expense that she incurred in 2017 is $8,000 ($2,000 + $6,000), and the maximum amount of investment interest expense that she can deduct is equal to the amount of her net investment income, which is $7,000.

Question 2

Which of the following organizations do not qualify for deductible charitable contributions?
A)The Salvation Army.
B)A political party.
C)Religious organizations.
D)All of these.

Accepted Answer

Charitable contributions to political parties are not deductible as they are considered to be contributions to a political campaign, which is not a qualified charitable organization under IRS guidelines.

Question 3

Which of the following may not be deducted either totally or partially as medical expenses? (Disregard any limitations which may apply. )
A)$3,000 to a family physician for medical care.
B)$1,000 long-term care insurance.
C)$600 for eyeglasses.
D)$300 for maternity clothes.

Accepted Answer

Maternity clothes are not considered a medical expense and therefore cannot be deducted as such. The other options are all potential medical expenses that may be deductible.

Question 4

Taxes deductible as an itemized deduction include all of the following except:
A)Personal property taxes based on the value of the property.
B)Taxes that the taxpayer paid on property owned by his/her parents or children.
C)State and local income taxes.
D)Real estate property taxes based on the assessed value of the property.

Accepted Answer

Personal property taxes based on the value of the property (A), state and local income taxes (C), and real estate property taxes based on the assessed value of the property (D) are all deductible as itemized deductions. However, taxes paid on property owned by parents or children (B) are not deductible as per IRS guidelines.

Question 5

During 2017,Belen paid the following taxes: $\begin{array}{ll}
\text {Property taxes on residence (paid from escrow account) }&\$1,550 \
\text { Property tax portion of car registration (based on value)}&400 \
\text {Property taxes on land held for long-term appreciation }&350 \
\end{array}$
 What amount can Belen deduct as property taxes in calculating her itemized deductions for 2017?
A)$750.
B)$350.
C)$1,950.
D)$2,300.

Accepted Answer

Belen can deduct the total amount of property taxes paid on her residence, the property tax portion of her car registration, and the property taxes on land held for long-term appreciation, which adds up to $1,550 + $400 + $350 = $2,300.

Question 6

For the current year,Gina Hestopolis had adjusted gross income of $100,000.During the year,she contributed $6,000 to her church and an additional $3,000 to qualified charities.She also contributed religious artwork with a fair market value of $60,000 and a basis of $20,000 to her church.The church intends to display the religious artwork in the church foyer.What is the amount of the charitable contribution carry forward beyond the current year for Gina Hestopolis?
A)$30,000.
B)$20,000.
C)$10,000.
D)$0.

Accepted Answer

Gina's total contributions amount to $69,000 ($6,000 + $3,000 + $60,000). The IRS limits cash contributions to 60% of adjusted gross income (AGI) and property contributions to 30% of AGI, unless the property is used by the charity in its tax-exempt purpose, in which case the limit is 50% of AGI. Since the artwork will be displayed in the church foyer, it is used in the church's tax-exempt purpose, allowing Gina to deduct up to 50% of her AGI for the artwork contribution. Her AGI is $100,000, so she can deduct up to $50,000 for the artwork and $60,000 for cash contributions (60% of AGI), totaling $110,000. However, her total contributions are $69,000. Since her contributions do not exceed the combined limits, she can deduct the full amount in the current year, leaving no carry forward. However, the question asks for the carry forward amount, which implies looking for how much of her contribution exceeds her AGI limits. Given the mistake in the explanation regarding the application of limits, the correct interpretation should focus on the actual limits applied to her contributions and the resulting carry forward. The correct calculation should consider the specific limits for cash and property contributions relative to her AGI, leading to the realization that there's an error in the initial explanation provided. The correct approach would involve calculating the deductible amount based on the specific contribution types and their respective limits, then determining any excess as the carry forward. Given the error in the initial explanation, the correct answer should reflect the actual carry forward amount based on the proper application of IRS rules, which was not accurately captured in the provided explanation.

Question 7

In 2017,the Jurics' pleasure boat was severely damaged by a hurricane in an area that was declared a federal disaster area.They had AGI of $110,000 in 2017.The following information relates to the craft: $\begin{array}{lr}
\text { Cost Basis } & \$ 5,000 \
\text { FMV before casualty } & 145,000 \
\text { FMV after casualty } & 25,000
\end{array}$ The Jurics had insurance and received an $80,000 insurance settlement.
What is the allowable casualty loss deduction for the Jurics in 2017?
A)$50,000.
B)$15,000.
C)$3,900.
D)$3,000.

Accepted Answer

The allowable casualty loss deduction is calculated as the smaller of the decrease in fair market value (FMV) or the cost basis, minus any insurance recovery, and then further reduced by $100 and 10% of the Adjusted Gross Income (AGI). The decrease in FMV is $145,000 - $25,000 = $120,000. The insurance recovery is $80,000. So, the initial loss is $120,000 - $80,000 = $40,000. Since the cost basis ($5,000) is less than the decrease in FMV, it's not relevant in this calculation. The loss is then reduced by $100 and 10% of their AGI ($110,000 * 10% = $11,000), resulting in $40,000 - $100 - $11,000 = $28,900. However, since the loss is calculated based on the decrease in FMV or the cost basis minus insurance, and considering the specific details and limits for casualty losses, the correct calculation adheres to the specific rules for casualty loss deductions, which include adjustments for insurance and AGI. Given the provided options, none directly match the calculated figure, suggesting a need for clarification or a specific understanding of the tax rules applicable to the scenario. The correct answer, based on standard deduction calculations, would typically involve these steps, but the options given do not align with the expected outcome, indicating a possible error in the question or answer choices.

Question 8

Mr.Mugabi must use a wheelchair.Upon advice from his physician,he installed an elevator and widened the front entrance of his house in 2017,incurring $15,000 and $4,000 in costs,respectively.Mr.Mugabi originally purchased his house for $202,000.An appraisal showed the fair market value of Mrs.Hampton' house immediately after these modifications at $212,000.Compute his currently deductible medical expense in regards to these improvements before AGI limitations.
A)$19,000.
B)$15,000.
C)$9,000.
D)$4,000.

Accepted Answer

The currently deductible medical expense is calculated by subtracting any increase in the home's value due to the medical improvements from the total cost of those improvements. The total cost of the improvements is $19,000 ($15,000 + $4,000). The increase in the home's value after the improvements is $10,000 ($212,000 - $202,000). Therefore, the deductible amount is $9,000 ($19,000 - $10,000).

Question 9

In 2017,the U.S.President declared a federal disaster in Arizona due to wild fires.Hamed lives in the affected area and lost his home in the fires.What choice does he have regarding when he can claim the loss on his tax return?
A)It must be claimed in 2016 if the return has not been filed by the date of the loss.
B)It must be claimed in 2017 if the loss is greater than Hamed's modified adjusted gross income.
C)It may be claimed in 2018 if an election is filed with Hamed's 2017 return.
D)It may be claimed in either 2016 or 2017.

Accepted Answer

Hamed has the option to claim the loss from the wildfires on his tax return for the year the disaster occurred (2017) or for the year prior to the disaster (2016). This special provision allows taxpayers to potentially receive a quicker tax refund to help recover from the disaster.

Question 10

Which of the following costs are deductible on Form 1040,Schedule A,as taxes? 1.Real estate taxes on property owned in Mexico.
2)Property tax portion of vehicle registration,based on the value of the auto.
3)Fine for speeding.
4)Personal property tax on a pleasure boat.
A)1,2,and 4.
B)3 and 4.
C)None of the items are deductible.
D)All of the items are deductible.

Accepted Answer

Real estate taxes on property owned in Mexico and personal property tax on a pleasure boat are deductible as taxes on Schedule A. The property tax portion of vehicle registration can also be deducted if it is based on the value of the auto. Fines for speeding are not considered taxes and are not deductible.

Question 11

Reggie is divorced and 45 years old.In 2017,he had AGI of $55,000.During the year,he incurred and paid the following medical costs: $\begin{array}{ll}
\text { Doctor and dentist fees }&\$1,950 \
\text {Prescription medicines }& 275\
\text {Medical care insurance premiums }&340 \
\text { ealth club fee}& 600\
\text {Crutches for a sprained ankle }&50 \
\end{array}$
 What is Reggie's medical expense deduction (after application of the adjusted gross income limitation)for his 2017 tax return?
A)$0.
B)$2,615.
C)$3,215.
D)$4,125.

Accepted Answer

The answer of Reggie is divorced and 45 years old.In...

Question 12

During 2017 Yoko paid the following expenses: $\begin{array}{ll}
\text { Prescription medicines}& \$525\
\text { Doctors and dentists}&1,050 \
\text {Vitamins and ibuprofen }&575 \
\text {Health club membership fee }&450 \
\end{array}$
 What is the total amount of medical expenses (before application of the adjusted gross income limitation)that would enter into the calculation of itemized deductions on Yoko's 2017 income tax return?
A)$525.
B)$1,325.
C)$1,500.
D)$1,575.

Accepted Answer

The answer of During 2017 Yoko paid the following expenses:...

Question 13

Some charitable contributions are limited to 50% of the taxpayer's AGI,others may be limited to a lower % of AGI.Deductions to which of the following organizations are subject to the 50% limitation on deductible contributions?
A)Churches and conventions of organizations of churches and educational organizations.
B)Hospitals and certain medical research organizations associated with these hospitals.
C)Rotary,Elks,and Lions Clubs who raise money for public causes.
D)Both churches and conventions of organizations of churches and educational organizations and hospitals and certain medical research organizations associated with these hospitals.

Accepted Answer

Both churches and conventions of organizations of churches and educational organizations and hospitals and certain medical research organizations associated with these hospitals are subject to the 50% limitation on deductible contributions.

Question 14

For investment interest expense in 2017,the deduction by a taxpayer is:
A)Limited to the investment interest expense paid in 2017.
B)Limited to the taxpayer's net investment income for 2017.
C)Not limited.
D)Limited to the taxpayer's gross investment income for 2017.

Accepted Answer

The deduction for investment interest expense in 2017 is generally limited to the taxpayer's net investment income for the year. Any excess investment interest expense may be carried forward to future years. However, there are certain exceptions and special rules that may apply, such as the election to treat net long-term capital gain as investment income.

Question 15

If one or more non-cash gifts has a fair market value over $500,the taxpayer must:
A)Attach a written explanation to the Form 1040.
B)Complete Schedule D.
C)File Form 8283.
D)Attach a letter from the recipient organization.

Accepted Answer

Form 8283 is required for non-cash charitable contributions over $500 to provide information about the donated property.

Question 16

Sonia's car was completely destroyed in an accident that was her fault.Her loss was $8,500 and her insurance company reimbursed her $6,500.What amount of casualty loss can Sonia claim on her return (before deduction limitations)?
A)$0
B)$2,000
C)$6,500
D)$8,500

Accepted Answer

Sonia can claim the difference between her loss and the insurance reimbursement, which is $8,500 - $6,500 = $2,000.

Question 17

Karin lives in California,a state that imposes a tax on income.The following information relates to Karin's state income taxes for 2017: $\begin{array}{ll}
\text { Taxes withheld in 2017}& \$3,000\
\text {State refund received in 2017 from the 2016 tax return }&300 \
\text {Additional assessment paid in 2017 on the 2015 tax return }&800 \
\end{array}$
 Assuming she elects to deduct state and local income taxes,what amount should Karin use as an itemized deduction for state and local income taxes for her 2017 federal income tax return?
A)$1,100.
B)$2,700.
C)$3,800.
D)$4,100.

Accepted Answer

Karin should deduct the taxes withheld in 2017 ($3,000) plus the additional assessment paid in 2017 for the 2015 tax return ($800), totaling $3,800. The state refund received in 2017 from the 2016 tax return does not affect the deduction for 2017.

Question 18

For the current year,Gina Hestopolis had adjusted gross income of $100,000.During the year,she contributed $6,000 to her church and an additional $3,000 to qualified charities.She also contributed religious artwork with a fair market value of $60,000 and a basis of $20,000 to her church.The church intends to display the religious artwork in the church foyer.If Gina chooses to itemize her deductions,what is the amount of her deductible charitable contribution in the current year?
A)$9,000.
B)$20,000.
C)$39,000.
D)$49,000.

Accepted Answer

The deductible charitable contribution is calculated by adding up the cash donations and the fair market value of the non-cash donation. In this case, the cash donations total $9,000 ($6,000 to her church and $3,000 to qualified charities). The non-cash donation of the artwork has a fair market value of $60,000, which exceeds the 30% limit of Gina's AGI ($100,000 x 30% = $30,000). However, because the artwork is being donated to a church for use in its charitable activities, the limit is increased to 50% of her AGI, or $50,000. Therefore, the total deductible charitable contribution is $39,000 ($9,000 + $30,000).

Question 19

Which of the following interest expenses incurred by Trent is treated as personal interest expense and,therefore,not deductible as an itemized deduction?
A)Interest expense on personal credit cards.
B)Bonds purchased with accrued interest.
C)Interest on a home mortgage acquired in 2012.
D)Interest expense incurred by a partnership in which Trent is a limited partner.

Accepted Answer

Interest expense on personal credit cards is considered personal interest expense and is not deductible as an itemized deduction. The interest on bonds purchased with accrued interest, interest on a home mortgage, and interest expense incurred by a partnership can be deductible as itemized deductions in certain circumstances.

Question 20

Which of the following expenses is not deductible as medical expense?
A)Insulin used for diabetes.
B)Wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his/her hair from disease.
C)Joining a tennis club to become more active upon recommendation of a doctor.
D)Acupuncture used to treat migraines.

Accepted Answer

While expenses for medical treatments and medications are generally deductible as medical expenses, expenses for activities or memberships that are merely recommended by a doctor do not qualify as medical expenses. Joining a tennis club to become more active may be good for one's health, but it does not qualify as a medical expense. Therefore, choice C is not deductible as a medical expense.

Quiz 5: Itemized Deductions

Which of the following organizations do not qualify for deductible charitable contributions?

Which of the following may not be deducted either totally or partially as medical expenses? (Disregard any limitations which may apply. )

Taxes deductible as an itemized deduction include all of the following except:

In 2017,the U.S.President declared a federal disaster in Arizona due to wild fires.Hamed lives in the affected area and lost his home in the fires.What choice does he have regarding when he can claim the loss on his tax return?

Which of the following costs are deductible on Form 1040,Schedule A,as taxes? 1.Real estate taxes on property owned in Mexico. 2) Property tax portion of vehicle registration,based on the value of the auto. 3) Fine for speeding. 4) Personal property tax on a pleasure boat.

Some charitable contributions are limited to 50% of the taxpayer's AGI,others may be limited to a lower % of AGI.Deductions to which of the following organizations are subject to the 50% limitation on deductible contributions?

For investment interest expense in 2017,the deduction by a taxpayer is:

If one or more non-cash gifts has a fair market value over $500,the taxpayer must:

Sonia's car was completely destroyed in an accident that was her fault.Her loss was $8,500 and her insurance company reimbursed her $6,500.What amount of casualty loss can Sonia claim on her return (before deduction limitations) ?

Which of the following interest expenses incurred by Trent is treated as personal interest expense and,therefore,not deductible as an itemized deduction?

Which of the following expenses is not deductible as medical expense?