Question 1

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31,2015.The $2,200 contribution is deductible on Sadie's 2015 tax return.

Accepted Answer

Charitable contributions made by taxpayers up to December 31st of that year are generally deductible on their tax return for that year. Therefore, Sadie's $2,200 contribution made on December 31, 2015, is deductible on her 2015 tax return.

Question 2

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

Accepted Answer

The answer of Judy paid $40 for Girl Scout cookies...

Question 3

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.

Accepted Answer

According to IRS regulations, points paid in a refinancing of a personal residence must be capitalized and amortized over the life of the new mortgage. This rule applies to both the original mortgage and any subsequent refinancing.

Question 4

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.

Accepted Answer

State income tax paid on business net income is considered a personal expense and must be deducted as an itemized deduction on Grace's personal income tax return. It cannot be deducted as a business expense for a proprietorship.

Question 5

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.

Accepted Answer

The answer of A taxpayer pays points to obtain financing...

Question 6

Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2015.He prepaid all $3,600 of the interest on the loan on December 1,2015.Joe can deduct only $300 of the prepaid interest in 2015.

Accepted Answer

Cash basis taxpayers can only deduct prepaid interest that applies to a period of less than 12 months in the year it is paid. In this case, since Joe prepaid interest for a 12-month loan, he can only deduct the portion that applies to the month of December 2015, which is $300. The remaining $3,300 will be deducted over the life of the loan.

Question 7

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

Accepted Answer

A qualified residence includes both the taxpayer's principal residence and one other residence selected by the taxpayer that is used for personal purposes for a certain minimum amount of time during the taxable year.

Question 8

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.

Accepted Answer

A qualified residence for the purpose of computing the deduction for qualified residence interest includes the taxpayer's principal residence and only one other residence of the taxpayer or spouse, not two.

Question 9

Trent sells his personal residence to Chester on July 1,2015.He had paid $7,000 in real property taxes on March 1,2015,the due date for property taxes for 2015.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Accepted Answer

Since Trent only owned the property until July 1, 2015, he can only deduct the portion of the property taxes he paid for the period of time he owned the property. Any property taxes paid after he sold the property to Chester cannot be deducted by Trent.

Question 10

Tom,whose MAGI is $40,000,paid $3,500 of interest on a qualified student loan in 2015.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Accepted Answer

The student loan interest deduction is an adjustment to income, not an itemized deduction, and is subject to income limits.

Question 11

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.

Accepted Answer

The answer of Leona borrows $100,000 from First National Bank...

Question 12

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.

Accepted Answer

Points paid by a seller on a loan for the purchase of a personal residence are considered a selling expense and cannot be deducted as interest by the seller. They may, however, reduce the seller's capital gain on the sale.

Question 13

In January 2016,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2015.The payment is deductible in 2015.

Accepted Answer

Since Pam is a calendar year cash basis taxpayer, she can only deduct expenses in the year in which they were actually paid. Therefore, the estimated state income tax payment for 2015 made in January 2016 cannot be deducted on her 2015 tax return. Instead, it can be deducted on her 2016 tax return.

Question 14

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.

Accepted Answer

Real property taxes on a business property can be deducted as a business expense, while state income taxes related to the proprietor's personal income cannot be deducted as a business expense.

Question 15

In April 2015,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2014.Even though it relates to 2014,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2015.

Accepted Answer

The payment of state income tax for a previous year can be deducted on the federal income tax return for the year in which the payment is made. In this case, Bertie paid the state of Michigan additional income tax in 2015 for the year 2014, which qualifies as a tax deduction on the federal income tax return for 2015.

Question 16

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.

Accepted Answer

The answer of Letha incurred a $1,600 prepayment penalty to...

Question 17

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.

Accepted Answer

The answer of For all of the current year,Randy (a...

Question 18

Phyllis,a calendar year cash basis taxpayer who itemized deductions totaling $20,000,overpaid her 2014 state income tax and is entitled to a refund of $400 in 2015.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2015.She is required to recognize that amount as income in 2015.

Accepted Answer

The overpayment of state income tax is considered a refund of a prior year's deduction, which must be included in income in the year of receipt.

Question 19

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.

Accepted Answer

The answer of Interest paid or accrued during the tax...

Question 20

On December 31,2015,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 2016.If Lynette itemizes,she can deduct the $500 in 2015.

Accepted Answer

Lynette can deduct the $500 contribution on her 2015 tax return since she made the contribution in 2015, even if she pays off her credit card balance in January 2016.

Quiz 10: Deductions and Losses: Certain Itemized Deductions