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Exam 10: Deduction and Losses Certain Itemized Deductions

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Question 41

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Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2016.He prepaid all $3,600 of the interest on the loan on December 1,2016.Joe can deduct only $300 of the prepaid interest in 2016.

A) True
B) False

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Question 42

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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?

A) $75,000
B) $90,000
C) $110,000
D) $125,000
E) None of the above

F) None of the above
G) C) and D)

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Question 43

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Linda,who has AGI of $120,000 in the current year,contributes stock in Mauve Corporation (a publicly traded corporation)to the Salvation Army,a qualified charitable organization.The stock is worth $65,000,and Linda acquired it as an investment four years ago at a cost of $50,000. a.What is the total amount that Linda can deduct as a charitable contribution,assuming she carries over any disallowed contribution from the current year to future years? b.Describe the restrictions that apply when calculating the deduction in the carryover years.

Linda borrowed $60,000 from her parents for a down payment on a condominium.She paid interest of $5,500 in 2014,$0 in 2015,and $9,000 in 2016.The IRS disallowed the deduction.Can you offer any explanation for the disallowance?

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:

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?

Jim's employer pays half of the premiums on a group medical insurance plan covering all employees,and employees pay the other half.Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.

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?

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?

Upon the recommendation of a physician,Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool,Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

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.

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:

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.

Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the 2%-of-AGI floor?

In January 2017,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2016.The payment is deductible in 2016.

In 2016,Dena traveled 600 miles for specialized medical treatment that was not available in her hometown.She paid $90 for meals during the trip,$145 for a hotel room for one night,and $15 in parking fees.She did not keep records of other out-of-pocket costs for transportation.Dena can include $179 in computing her medical expenses.

Fred and Lucy are married,ages 33 and 32,and together have AGI of $120,000 in 2016.They have four dependents and file a joint return.They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account.During the year,they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses,and $3,000 for prescribed medicine and drugs.In October 2016,they received an insurance reimbursement of $4,400 for the hospitalization.They expect to receive an additional reimbursement of $1,000 in January 2017.Determine the maximum itemized deduction allowable for medical expenses in 2016.

Maria traveled to Rochester,Minnesota,with her son,who had surgery at the Mayo Clinic.Her son stayed at the clinic for the duration of his treatment.She paid airfare of $300 and $50 per night for lodging.The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.

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.

Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence.The appraisal fee qualifies as a deductible medical expense.