Question 1

On December 31,2017,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 2018.If Lynette itemizes,she can deduct the $500 in 2017.

Accepted Answer

Lynette made the charitable contribution in 2017, so she can deduct it on her 2017 tax return if she itemizes. The fact that she will pay her credit card balance in January 2018 does not affect her ability to take the deduction in 2017.

Question 2

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 3

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 4

Phyllis,a calendar year cash basis taxpayer who itemized deductions totaling $20,000,overpaid her 2016 state income tax and is entitled to a refund of $400 in 2017.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2017.She is required to recognize that amount as income in 2017.

Accepted Answer

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

Question 5

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 6

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 7

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 the IRS, points paid by a homeowner to refinance an existing mortgage must be treated as an acquisition cost and must be capitalized and amortized over the life of the new mortgage.

Question 8

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 from a sole proprietorship is not deducted as a business expense on Schedule C but is instead deducted as an itemized deduction on Schedule A of the individual's personal income tax return.

Question 9

Trent sells his personal residence to Chester on July 1,2017.He had paid $7,000 in real property taxes on March 1,2017,the due date for property taxes for 2017.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Accepted Answer

Trent may only deduct the portion of the property taxes he paid for the period of time in which he owned the property in 2017. Since he sold the property on July 1, 2017, he may only deduct the property taxes for the first half of the year, which he paid on March 1, 2017. The portion of property taxes paid for the second half of the year belongs to Chester, and Trent may not deduct it on his tax return.

Question 10

In April 2017,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2016.Even though it relates to 2016,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2017.

Accepted Answer

The payment made in 2017 qualifies as a tax deduction for the tax year 2017, even though it relates to the previous tax year (2016).

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

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

Question 14

Tom,whose MAGI is $40,000,paid $3,500 of interest on a qualified student loan in 2017.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Accepted Answer

The answer of Tom,whose MAGI is $40,000,paid $3,500 of interest...

Question 15

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 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

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31,2017.The $2,200 contribution is deductible on Sadie's 2017 tax return.

Accepted Answer

According to IRS guidelines, a charitable contribution is deductible in the year it is made. Therefore, Sadie can claim the $2,200 contribution on her 2017 tax return even if the check was mailed on December 31, 2017, as long as it was postmarked by that date.

Question 18

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 are deductible as a business expense, but state income taxes related to the net income of the business are not.

Question 19

Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2017.He prepaid all $3,600 of the interest on the loan on December 1,2017.Joe can deduct only $300 of the prepaid interest in 2017.

Accepted Answer

Under the cash method, prepaid interest can only be deducted in the year in which it is actually paid. Therefore, Joe can deduct only $300 of the prepaid interest in 2017, and the remaining $3,300 must be deducted in the subsequent year(s) as it accrues.

Question 20

In January 2018,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2017.The payment is deductible in 2017.

Accepted Answer

Even though the payment was made in January 2018, it pertains to the previous tax year of 2017. However, since Pam is a calendar year cash basis taxpayer, the payment is only deductible in the year it was paid (2018), and not in the previous tax year.

Quiz 10: Deductions and Losses: Certain Itemized Deductions