Question 1

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building 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 the store building are a deductible expense for a sole proprietorship, but state income taxes related to the net income from the business are not deductible as a business expense.

Question 2

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 3

Phyllis,a calendar year cash basis taxpayer who itemized deductions,overpaid her 2011 state income tax and is entitled to a refund of $400.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2012.She is required to recognize that amount as income in 2012.

Accepted Answer

The answer of Phyllis,a calendar year cash basis taxpayer who...

Question 4

For all of 2012,Aaron (a calendar year taxpayer)allowed the City Men's Shelter,a qualified charitable organization,to use a building he owns rent-free.The building normally rents for $12,000 a year.Aaron must report $12,000 of rent income and will be allowed a charitable contribution deduction for 2012 of $12,000.

Accepted Answer

Aaron will not report any rental income since he allowed the qualified charitable organization to use the building rent-free. He will still be allowed a charitable contribution deduction for the fair market rental value of the building, which in this case is $12,000.

Question 5

Warren sold his personal residence to Alicia on July 1,2012.He had paid $4,200 in real property taxes on March 1,2012,the due date for property taxes for 2012.Warren must increase the amount realized for his property by the portion of the $4,200 allocable to Alicia.

Accepted Answer

The answer of Warren sold his personal residence to Alicia...

Question 6

Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2012.He prepaid all $3,600 of the interest on the loan on December 1,2012.Joe can deduct all $3,600 of the prepaid interest in 2012.

Accepted Answer

The answer of Joe,a cash basis taxpayer,took out a 12-month...

Question 7

If certain conditions are met,a buyer may deduct seller-paid points in the tax year in which they are paid.

Accepted Answer

If the buyer meets certain conditions, such as using the points to obtain a mortgage for their primary residence, they may be able to deduct the seller-paid points in the tax year in which they are paid.

Question 8

In April 2012,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2011.Even though it relates to 2011,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2012.

Accepted Answer

Under the cash basis method, taxpayers can deduct state and local income taxes in the year they are paid. Even if the payment was for a prior year, as long as it was paid in the current tax year, it can be deducted in that year for federal income tax purposes.

Question 9

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 10

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 11

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 12

In 2012 Michelle,single,paid $2,500 interest on a qualified student loan.Her MAGI was $70,000.She may deduct the $2,500 of interest as a deduction for AGI.

Accepted Answer

The answer of In 2012 Michelle,single,paid $2,500 interest on a...

Question 13

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 $1,600 prepayment penalty on a mortgage is considered deductible as interest expense.

Question 14

On December 31,2012,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 2013.If Lynette itemizes,she can deduct the $500 in 2012.

Accepted Answer

As long as Lynette made the contribution by December 31, 2012 and the credit card payment is made in January 2013, she can still deduct the $500 on her 2012 tax return if she itemizes her deductions.

Question 15

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 can be deducted as a business expense on the owner's personal tax return, but any remaining state income tax paid on personal income can be claimed as an itemized deduction.

Question 16

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 17

In January 2013,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2012.The payment is deductible in 2012.

Accepted Answer

Payments made in the following year, such as January 2013 for the 2012 tax year, cannot be deducted in the previous year. Pam would need to deduct the payment on her 2013 tax return.

Question 18

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31,2012.The $2,200 contribution is deductible on Sadie's 2012 tax return.

Accepted Answer

According to IRS rules, contributions made by check, credit card, or other electronic means count for the year in which they are mailed or charged, even if they are not received by the charity or credited to the account until the following year. Therefore, Sadie's $2,200 contribution made on December 31, 2012 is deductible on her 2012 tax return.

Question 19

A taxpayer pays points to obtain financing to purchase a personal 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 20

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...

Quiz 10: Deductions and Losses: Certain Itemized Deductions