Question 1

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?

Accepted Answer

Pedro's charitable contribution is $800, which is the amount of the donation ($1,000) minus the normal registration fee ($200) that the donation was intended to cover. The tuition payment is not considered a charitable contribution.

Question 2

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?

Accepted Answer

The answer of Byron owned stock in Blossom Corporation that...

Question 3

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?

Accepted Answer

When medical expenses are paid for with after-tax dollars, they may be an itemized deduction on Schedule A of Form 1040. However, if the taxpayer receives a reimbursement for those expenses, it is not included in income if the taxpayer did not take a tax deduction for the expenses in the previous year. Since Scotty did not itemize deductions in 2015, he is not required to report the reimbursement as income in 2016.

Question 4

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?

Accepted Answer

The $8,000 payment to become a charter member of the Athletic Council is considered a charitable contribution as it goes towards supporting Mammoth University's athletics program. Therefore, the full $8,000 qualifies as a charitable contribution. However, the $2,200 payment for season tickets is not considered a charitable contribution as it only provides a personal benefit to Jerry and his wife. Therefore, the total amount that qualifies as a charitable contribution is $8,000 (from the Athletic Council payment) + $200 (the difference between the retail price and what Jerry paid for the season tickets) = $6,400.

Question 5

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:

Accepted Answer

Karen can deduct the full amount of the cash donation ($30,000) and the fair market value of the land ($210,000) since it was held for more than one year. However, the deduction for appreciated property is limited to 30% of AGI, which is $135,000. Therefore, the total allowable deduction is $30,000 (cash) + $135,000 (land) = $165,000.

Question 6

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:

Accepted Answer

The answer of Brad,who would otherwise qualify as Faye's dependent,had...

Question 7

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?

Accepted Answer

- The tax on residence is partially deductible as an itemized deduction for the portion of the year that Nancy owned the residence (March 1 through June 30), which is 122 days out of 366 days in 2016. So, the deductible portion is calculated as: $5,250 x (122/366) = $1,750.
- The state motor vehicle tax and state sales tax are also deductible as an itemized deduction.
- The state income tax is deductible as an itemized deduction only if Nancy elects to deduct state and local income taxes instead of state and local sales taxes.
- The real estate taxes are not deductible since they were not prorated between the buyer and the seller. 
Therefore, the total deductible amount is $1,750 + $430 + $3,500 + $3,050 = $7,730. However, since Nancy sold the personal residence and did not have to pay any real estate taxes for the year, the total deductible amount is reduced by the amount of the tax on residence that was already paid: $7,730 - $5,250 = $2,480. Thus, the answer is C) $7,382.

Question 8

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).

Accepted Answer

Tom's medical expenses include his airfare ($350), medical treatment ($3,500), and prescription medicine ($600), totaling $4,450. Jean's expenses are not included as they are not directly related to Tom's medical care.

Question 9

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?

Accepted Answer

Since Reggie sold the house on May 1, he is not the owner on January 1, meaning he is not liable for the real property tax for the current tax year. Dana, as the new owner, paid the entire tax on June 1. Therefore, Reggie cannot deduct any portion of the property taxes.

Question 10

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:

Accepted Answer

The answer of Hannah makes the following charitable donations in...

Question 11

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:

Accepted Answer

The answer of Zeke made the following donations to qualified...

Question 12

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?

Accepted Answer

The answer of During 2016,Hugh,a self-employed individual,paid the following amounts:
Real...

Question 13

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?

Accepted Answer

Emily can deduct the cost of transportation, lodging, and meals that are directly related to her volunteer work for Habitat for Humanity. Therefore, her total deduction is $2,200 ($600 transportation + $1,200 lodging + $400 meals). The $1,500 she plans to deduct as a charitable contribution is not relevant to this specific trip and cannot be included in the deduction.

Question 14

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?

Accepted Answer

If Boris is self-employed, he may deduct the full amount of his health insurance premiums and HSA contributions as a deduction for AGI.

Question 15

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?

Accepted Answer

According to the Tax Cuts and Jobs Act of 2017, taxpayers can only deduct interest on home equity loans or lines of credit if the funds are used to buy, build, or improve their home. In this case, Joseph and Sandra used the funds from their home equity loan to purchase an airplane for recreational travel purposes, which does not qualify as a deductible use.

However, the answer is not E because the maximum amount of debt on which they can deduct home equity interest is still limited by the total amount of home equity debt. The total amount of home equity debt in this case is $220,000, but the maximum amount of debt on which they can deduct home equity interest is $100,000. Therefore, the best choice is B, as it is the closest option to the maximum limit of $100,000.

Question 16

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?

Accepted Answer

The answer of Barry and Larry,who are brothers,are equal owners...

Question 17

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)?

Accepted Answer

Brad paid $600 in state income taxes for 2015, which is not deductible on his 2016 federal tax return. However, he had $3,550 withheld for state income tax purposes in 2016 and received a refund of $800 in 2017. According to IRS rules, Brad can choose to deduct either the income taxes paid in 2016 or the income taxes withheld in 2016, whichever is larger. In this case, $3,550 is the larger amount, so Brad can deduct this on his 2016 federal tax return. Adding the $600 Brad paid for 2015, Brad can claim a total of $4,150 in state income taxes as a deduction on his federal tax return for 2016.

Question 18

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?

Accepted Answer

The answer of Quinn,who is single and lives alone,is physically...

Question 19

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?

Accepted Answer

Phillip can deduct the cost of the first-floor bedroom as a medical expense because it was primarily for medical care. However, he must reduce the cost of the addition by the increase in the value of his home resulting from the addition, which is $17,000. Therefore, he can deduct $32,000 - $17,000 = $15,000 for the first-floor bedroom. In addition, he can also deduct the cost of the entrance ramp and hallway widening because they are necessary for his mobility due to his condition. Therefore, he can deduct $5,500 + $8,500 = $14,000 for these modifications. The total deductible medical expenses for Phillip in 2016 is $15,000 + $14,000 = $21,500, which is option C.

Question 20

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?

Accepted Answer

The maximum amount of debt on which the Ryans can deduct home equity interest is limited to the lesser of $100,000 ($50,000 for married filing separately) or the fair market value of the home reduced by the acquisition debt (mortgage) on the home. In this case, the fair market value of the home is $200,000 and the acquisition debt is $125,000, leaving $75,000 as the maximum amount of debt on which the Ryans can deduct home equity interest. The fact that they used the funds to purchase a sailboat that does not qualify as a residence does not affect the calculation of the limit.

Quiz 10: Deduction and Losses Certain Itemized Deductions

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?

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?

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?