Question 1

Which of the following charitable contributions is not tax deductible?

Accepted Answer

Time donated to charitable organizations is not tax deductible. Only donations of money or property (such as clothing or a car) are eligible for tax deductions. However, expenses incurred while volunteering for a charity (such as transportation costs) may be deductible.

Question 2

Stewart had adjusted gross income of $22,000 in 2016. During the year, he made the following contributions to qualified charities: ​- $7,000 cash
​- 1,000 shares of Able Corporation common stock, acquired in 1980 (cost and fair market value of $5,000)
​
Considering the charitable contribution deduction limitation, what amount can Stewart claim as a deduction for charitable contributions in 2016?

Accepted Answer

The charitable contribution deduction for cash contributions is limited to 50% of AGI. Therefore, Stewart can deduct $7,000 for the cash donation. The deduction for non-cash contributions, such as stock, is limited to 30% of AGI. Since the fair market value of the stock is $5,000, Stewart can deduct $1,500 ($5,000 x 30%). Therefore, the total deduction for charitable contributions is $8,500 ($7,000 + $1,500).

Question 3

Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.

Accepted Answer

The answer of Taxpayers must itemize their deductions to be...

Question 4

A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.

Accepted Answer

The IRS does not allow a deduction for the value of services or the use of property. A taxpayer can only deduct out-of-pocket expenses related to the donation of their services or the use of their property.

Question 5

​Which of the following types of interest are not likely to be deductible in 2016?

Accepted Answer

Interest on personal credit cards is generally not tax deductible.

Answer: B
 Interest on a home equity line used to buy a car may not be tax deductible as it depends on the specific circumstances and purpose of the loan.

Answer: C
 Interest on a mortgage on a principle residence is generally tax deductible.

Answer: D
 Private mortgage insurance premiums may be tax deductible, subject to income limitations.

Therefore, Choice A and B are not likely to be deductible in 2016.

Question 6

Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.​

Accepted Answer

The answer of Dongkuk uses his holiday bonus to pay...

Question 7

​Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, CA using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Accepted Answer

The mortgage interest deduction is limited for mortgages above $750,000 taken out after December 15, 2017, for qualified principal residences. In this case, since Richie took out a mortgage of $3 million, his mortgage interest deduction may be limited.

Question 8

Douglas and Dena paid the following amounts of interest during the current year:
​
  
a.Calculate the amount of their allowable deduction for investment interest for the current year.
b.Calculate the amount of Douglas and Dena's total allowable deduction for interest for the current year.

Accepted Answer

The answer of Douglas and Dena paid the following amounts...

Question 9

For 2016, Eugene and Linda had adjusted gross income of $30,000. Additional information for 2016 is as follows: What is the maximum amount that they can use as a deduction for charitable contributions for 2016?

Accepted Answer

The answer of For 2016, Eugene and Linda had adjusted...

Question 10

Sally and Jim purchased their personal residence in Santa Barbara 20 years ago for $150,000. The home has a fair market value today of $1,000,000. For the current year, they have a $10,000 first mortgage on their home, on which they paid $1,000 in interest. They also have a home equity loan secured by their home with a balance throughout the year of $110,000. The proceeds of the home equity loan were used to send their two children to college. They paid interest on the home equity loan of $5,500 for the year.
​
Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified home equity debt for the current year.
​
Qualified residence acquisition debt interest:
​
Qualified home equity debt interest:

Accepted Answer

The answer of Sally and Jim purchased their personal residence...

Question 11

Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.

Accepted Answer

The answer of Individual taxpayers may carry forward indefinitely charitable...

Question 12

​Perry Mayson, a single taxpayer, graduated law school last year with quite a bit of qualified student loan debt and ends up paying $4,300 in interest on the loan in the current tax year. Fortunately, Perry is well compensated and earns adjusted gross income of $85,000 during the current year. Perry may deduct his student loan interest in the current year.

Accepted Answer

The answer of ​Perry Mayson, a single taxpayer, graduated law...

Question 13

Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car. Which of the following statements is correct?

Accepted Answer

Option A is incorrect because the tax deduction for donating a vehicle is limited to the fair market value of the vehicle at the time of the donation, not equal to the amount she would have received if she sold the car directly.
Option B is incorrect because the tax deduction is limited to the fair market value of the vehicle, not its ultimate sale price.
Option D is incorrect because charitable organizations are required to provide written acknowledgment to donors who contribute $250 or more in goods or property. They are also required to provide a receipt to the donor describing the property being donated, whether the charity provided any goods or services in exchange for the donation, and a good-faith estimate of the value of the goods or services, if any, that were provided.
Therefore, Option C is correct because the donor can claim an estimated value for the auto if the charity uses it rather than selling it. However, the estimate must be based on the fair market value of the vehicle at the time of the donation.

Question 14

​Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

Accepted Answer

Personal auto loan interest is not deductible on federal income tax returns, as the loan is not considered mortgage interest or investment interest.

Question 15

Gwen has written acknowledgments for each of the following charitable contributions during the current year:
What is Gwen's charitable contribution deduction for the current year?

Accepted Answer

The answer of Gwen has written acknowledgments for each of...

Question 16

Andy borrows $20,000 to invest in bonds. During the current year, his interest on the loan is $2,000. Andy's interest income from the bonds is $400 and his investment expenses are $300.
a.Calculate Andy's itemized deduction for investment interest for this year.
b.Is Andy entitled to a deduction in future years?

Accepted Answer

The answer of Andy borrows $20,000 to invest in bonds....

Question 17

If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.

Accepted Answer

If a taxpayer retains any rights to the donated property, such as the right to use it, then the contribution is not considered a complete and unconditional transfer of ownership, and a deduction may not be allowed.

Question 18

​For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.

Accepted Answer

According to the Internal Revenue Service, PMI is deductible for taxpayers with adjusted gross income below $100,000, and the deduction begins to phase out for those with incomes between $100,000 and $109,000. Therefore, a taxpayer with an adjusted gross income of $56,000 would be eligible to deduct their PMI in 2016.

Question 19

During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture's fair market value was $1,700 on the date of the donation, and Hom's adjusted gross income is $40,000.
a.​
If Hom had held the sculpture for 4 months and the $700 ($1,700 - $1,000) of appreciation would have been a short-term capital gain, calculate the amount of his itemized deduction for the contribution.
b.​
If Hom had held the sculpture for 2 years and the $700 gain would have been a long-term capital gain, calculate the amount of his itemized deduction for the contribution.

Accepted Answer

The answer of During the current year, Hom donates a...

Question 20

Melvin owns his home and has a $200,000 mortgage related to his purchase of the residence. In the fall of the current year, he borrows $40,000 on credit cards for college costs for his two sons. The interest expense on the mortgage is $15,000 and the interest expense on the credit cards is $6,000. How much of the interest is deductible as an itemized deduction and why? If you were Melvin's accountant, what tax planning suggestion might you have made to him?

Accepted Answer

The answer of Melvin owns his home and has a...

Quiz 5: Itemized Deductions and Other Incentives

Which of the following charitable contributions is not tax deductible?

Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.

A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.

Which of the following types of interest are not likely to be deductible in 2016?

Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.

Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, CA using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Douglas and Dena paid the following amounts of interest during the current year: a.Calculate the amount of their allowable deduction for investment interest for the current year. b.Calculate the amount of Douglas and Dena's total allowable deduction for interest for the current year.

For 2016, Eugene and Linda had adjusted gross income of $30,000. Additional information for 2016 is as follows: What is the maximum amount that they can use as a deduction for charitable contributions for 2016?

Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.

Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car. Which of the following statements is correct?

Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

Gwen has written acknowledgments for each of the following charitable contributions during the current year: What is Gwen's charitable contribution deduction for the current year?

If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.

For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.

Quiz 5: Itemized Deductions and Other Incentives

Which of the following charitable contributions is not tax deductible?

Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.

A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.

​Which of the following types of interest are not likely to be deductible in 2016?

Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.​

​Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, CA using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Douglas and Dena paid the following amounts of interest during the current year: ​ a.Calculate the amount of their allowable deduction for investment interest for the current year. b.Calculate the amount of Douglas and Dena's total allowable deduction for interest for the current year.

For 2016, Eugene and Linda had adjusted gross income of $30,000. Additional information for 2016 is as follows: What is the maximum amount that they can use as a deduction for charitable contributions for 2016?

Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.

Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car. Which of the following statements is correct?

​Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

Gwen has written acknowledgments for each of the following charitable contributions during the current year: What is Gwen's charitable contribution deduction for the current year?

If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.

​For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.

Which of the following types of interest are not likely to be deductible in 2016?

Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.

Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, CA using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Douglas and Dena paid the following amounts of interest during the current year: a.Calculate the amount of their allowable deduction for investment interest for the current year. b.Calculate the amount of Douglas and Dena's total allowable deduction for interest for the current year.

Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.