Question 1

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

When a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties or other personal purposes, the donation may not be considered a completed gift and may not qualify for a tax deduction as a charitable contribution. This is because the donor has not completely given up all rights and benefits associated with the painting.

Question 2

The cost of a fishing license is considered a personal property tax and is deductible as an itemized deduction.

Accepted Answer

The cost of a fishing license is not deductible as an itemized deduction. Personal property taxes that are deductible include taxes on your car or boat, but a fishing license is not the same type of tax.

Question 3

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

False

Question 4

To calculate the amount of state and local income taxes which may be deducted as an itemized deduction, state income taxes paid during the year must be reduced by state income tax refunds received during the year.

Accepted Answer

The answer of To calculate the amount of state and...

Question 5

The adjusted gross income (AGI) limitation on medical expenses is 15 percent.

Accepted Answer

The adjusted gross income (AGI) limitation on medical expenses is 10 percent, not 15 percent. This means that only medical expenses exceeding 10 percent of your AGI can be claimed as an itemized deduction on your tax return.

Question 6

The amount of a special assessment charged to residents for the installation of sidewalks on their street is not deductible on Schedule A as property taxes.

Accepted Answer

Special assessments are not considered property taxes and therefore cannot be deducted on Schedule A.

Question 7

The cost of over-the-counter aspirin and decongestants is a deductible medical expense even though they are non-prescription drugs.

Accepted Answer

Over-the-counter medications (like aspirin and decongestants) are generally not deductible unless prescribed by a doctor.

Question 8

In 2014, state income taxes may be deducted as an itemized deduction on Schedule A.

Accepted Answer

State income taxes are still deductible as an itemized deduction on Schedule A for tax year 2014. However, this may change in future tax years depending on potential changes in tax laws.

Question 9

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 10

Casualty and theft losses must be reduced by amounts recovered from insurance coverage.

Accepted Answer

Casualty and theft losses can only be claimed to the extent that they exceed any insurance reimbursement received. Therefore, the losses must be reduced by the amounts recovered from insurance coverage.

Question 11

To deduct interest paid with respect to indebtedness, the taxpayer must be legally liable for the debt.

Accepted Answer

The IRS allows taxpayers to deduct interest paid on certain types of debt, but only if the taxpayer is legally liable for the debt. This means that the taxpayer must have a legal obligation to repay the debt, and must have actually made the payments on the debt in order to qualify for the deduction. If the taxpayer is not legally liable for the debt, they cannot claim the interest paid as a deduction.

Question 12

Mortgage interest on a taxpayer's personal residence is not deductible on Schedule A.

Accepted Answer

Mortgage interest on a taxpayer's personal residence is deductible on Schedule A, subject to certain limitations.

Question 13

For 2014, the investment interest expense deduction is limited to the taxpayer's net investment income.

Accepted Answer

This is true for tax year 2014. However, this may have changed in subsequent years, so it's important to always refer to current tax laws and regulations.

Question 14

The cost of a chiropractor's services qualifies as a medical deduction.

Accepted Answer

According to IRS guidelines, expenses for medical care include fees paid to a chiropractor for medical treatment. Therefore, the cost of a chiropractor's services can be considered a medical deduction.

Question 15

If business property is fully destroyed as a result of a casualty, the loss is equal to the decrease in the fair market value of the property.

Accepted Answer

If business property is fully destroyed as a result of a casualty, the loss is equal to the adjusted basis of the property, which is typically the original cost of the property minus any depreciation taken.

Question 16

If personal property is completely destroyed, the casualty loss deduction is still reduced by a floor amount.

Accepted Answer

The casualty loss deduction is reduced by a floor amount of $100 and is deductible only to the extent that the loss exceeds 10% of the taxpayer's adjusted gross income (AGI).

Question 17

Premiums paid for life insurance policies are deductible as medical expenses.

Accepted Answer

Premiums paid for life insurance policies are not considered medical expenses and therefore are not deductible on your tax return.

Question 18

The interest paid on a loan used to acquire municipal bonds is not deductible.

Accepted Answer

The interest paid on a loan used to acquire tax-exempt municipal bonds is not deductible according to IRS regulations. This is because the interest income earned from the municipal bonds is also tax-exempt, and deducting the interest paid on the loan would result in a double tax benefit.

Question 19

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 20

If real property is sold during the year, the property taxes must be allocated between the buyer and seller based on the number of days the property was held by each party.

Accepted Answer

This is true. When real property is sold, the property taxes are typically prorated between the buyer and seller based on the number of days each party held the property during the year. This is to ensure that each party pays their fair share of property taxes based on the period of time they owned the property.

Quiz 5: Itemized Deductions and Other Incentives