Chapter 5
Harli is taking her 6-month-old daughter to the doctor to receive vaccinations. Which of the following statements is correct regarding the deductibility of the vaccinations? A. The cost of vaccinations is NOT deductible because Harli's daughter is not receiving a cure or treatment for a current illness. B. The cost of vaccinations is deductible for Harli's daughter, but not for Harli. C. The cost of vaccinations is deductible because it is for the prevention of a disease. D. The cost of vaccinations is NOT deductible because receiving vaccinations is not mandatory, but a choice by the parents.
C. The cost of vaccinations is deductible because it is for the prevention of a disease.
Beth pays $500 of real estate taxes during the year related to her rental property. Where will she report this cost, if anywhere, on her tax return? A. Schedule A B. Schedule C C. Real Estate Taxes are not deductible. D. Schedule E
D. Schedule E
True or false: No drugs obtained from outside the US (with or without a prescription) can be deductible on the US Federal Tax Return.
False
True or false: Self-employment tax is deductible as an itemized deduction along with real estate taxes and state income tax.
False
Randy had an adjusted gross income of $70,000 in the current year. His car was destroyed in a hurricane that was in a Federally Declared Disaster Area during the year. His basis in the car was $25,000, but its fair market value prior to the accident was only $18,000. The car was a total loss. He did not have collision coverage, so he did not receive any insurance reimbursement for the accident. Randy's deductible tax loss for the casualty after all applicable floor limitations is $_____.
$10,900
The total loss from each separate casualty from Federally Declared Disaster Areas during the year is reduced by a $_____ floor and the combined losses from all casualties for the year is reduced by _____% of AGI.
$100, 10%
Homeowners may deduct interest on up to _____ of acquisition indebtedness on up to two personal residences.
$750,000
When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for _____ years.
5
Cash and property donations to public charities are limited to _____% of a taxpayer's AGI beginning in 2018. Donations of capital gain property to public charities are generally limited to _____% of a taxpayer's AGI. And, donations of capital gain property to private nonoperating foundations are limited to _____% of AGI.
60 30 20
April had an adjusted gross income of $50,000 last year. During the year, a flood damaged her home in a federally declared disaster area. Since she didn't live in a flood plain, she did not have flood insurance on her home. She sustained damage to her house and furnishings in the amount of $8,500. In a separate event, she discovered that a pair of gold earrings were stolen when she was on a business trip. The earrings were valued at $600. What is the total amount of April's deductible loss after all limitations have been applied? A. $3,400 B. $9,100 C. $3,900 D. $8,500 E. $3,500
A. $3,400 Rationale: Deduct 10% of AGI. 8,500 - (10% of 50,000) - ($100 for event) = 8,500 - 5,000 - 100 = 3,400
Which of the following donations will qualify as a deductible charitable contribution? A. Land donated to a public university B. Furniture given to a family whose home burned C. Volunteering at Habitat for Humanity for four hours D. Cash contributions to a political campaign
A. Land donated to a public university
Which of the following statements is incorrect regarding travel for medical reasons? A. The cost of meals is deductible if required to be away from home overnight. B. The cost of lodging for the taxpayer is deductible if away from home overnight (with restrictions). C. The cost of lodging for a caregiver is deductible if away from home overnight (with restrictions). D. Transportation costs, such as mileage or airfare, are deductible.
A. The cost of meals is deductible if required to be away from home overnight.
Certain contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to not qualify for a fair market value deduction? A. The tangible personal property donated is unrelated to the charity's operations. B. The asset is real property, such as land or a building. C. The asset was held for 367 days. D. The asset is intangible, such as stock or bonds.
A. The tangible personal property donated is unrelated to the charity's operations.
Regarding charitable contributions, which of the following statements is incorrect when referring to donations of capital gain property? A. To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year. B. The taxpayer must include the appreciation of the asset in gross income. C. The taxpayer will be allowed to deduct the fair market value of the property. D. To qualify as capital gain property, the asset must have appreciated in value.
B. The taxpayer must include the appreciation of the asset in gross income.
Which of the following terms does not describe a casualty that could be deductible for tax purposes? A. Sudden B. Weakened C. Unusual D. Unexpected
B. Weakened
If a taxpayer uses a standard deduction and receives a tax refund, the taxpayer A. may have to include all or part of the refund in their taxable income for the next year. B. will not have to include any of the refund in their taxable income for the next year.
B. will not have to include any of the refund in their taxable income for the next year.
Jenny and Jerry have a home with a fair market value of $625,000. They borrowed $400,000 ten years ago to purchase the home. They currently owe $250,000 on the acquisition loan. They recently borrowed $110,000 on a home-equity loan. The proceeds were used to purchase a car, take a vacation, and redecorate their home. What is the maximum amount of their indebtedness that can generate deductible interest in the current year? A. $350,000 B. $360,000 C. $250,000 D. $400,000
C. $250,000
Which one of the following types of charitable contributions is not deductible for federal income tax purposes? A. Contributions made with credit cards where the charge is paid in a subsequent year B. Contributions made through payroll deduction C. Cash paid to attend a fundraising event where only a portion of the funds go to a charitable cause D. Travel costs incurred for charitable purposes
C. Cash paid to attend a fundraising event where only a portion of the funds go to a charitable cause
Which of the following medical payments would be deductible for the taxpayer in the current year? A. Doctor bills incurred by the taxpayer in the current year that will be paid next year B. Doctor bills incurred by the taxpayer and paid with the taxpayer's pre-tax flexible spending account dollars C. Doctor bills paid by the taxpayer for his son who is claimed as a dependent by the taxpayer's ex-wife D. Doctor bills incurred by the taxpayer, but paid by the taxpayer's health insurance company
C. Doctor bills paid by the taxpayer for his son who is claimed as a dependent by the taxpayer's ex-wife
How many years can excess charitable contributions be carried over before expiring? A. One year B. Three years C. Five years D. Indefinitely
C. Five years
Which of the following types of interest expense is not deductible as an itemized deduction? A. Interest on acquisition debt secured by a personal residence B. Interest on a loan used to purchase taxable securities to generate interest income C. Interest on credit cards used to purchase furnishing for a personal residence D. Interest on a home-equity loan to remodel the kitchen
C. Interest on credit cards used to purchase furnishing for a personal residence
Lance paid $21,000 for seven acres of land six years ago. During the current year, Lance donated the land to his church. An appraisal of the land determined that the fair market value of the land is $30,000. Which of the following statements is true concerning the donation of land? A. Lance will need to include the appreciation of $9,000 in gross income in order to take the full deduction. B. The church, a tax exempt entity, will have to pay tax on a gain of $9,000 if it chooses to sell the land. C. Lance will be able to deduct $30,000 as a charitable contribution. D. Lance must deduct $21,000 for the land.
C. Lance will be able to deduct $30,000 as a charitable contribution.
Beth pays $500 of real estate taxes during the year related to her personal residence. Where will she report this cost, if anywhere, on her tax return? A. Real Estate Taxes are not deductible. B. Schedule C C. Schedule A D. Schedule E
C. Schedule A
Which of the following statements is incorrect regarding travel for medical reasons? A. Transportation costs, such as mileage or airfare, are deductible. B. The cost of lodging for the taxpayer is deductible if away from home overnight (with restrictions). C. The cost of meals is deductible if required to be away from home overnight. D. The cost of lodging for a caregiver is deductible if away from home overnight (with restrictions).
C. The cost of meals is deductible if required to be away from home overnight.
If the state tax payments that were deducted resulted in the taxpayer receiving a refund in the following year, the state tax refund must be included as taxable income according to the _____ _____ rule.
Tax benefit
In general, when contributing property to charity, taxpayers are allowed to deduct the fair market value of appreciated _____ _____ property on the date of the donation.
capital gains
A _____ _____ is defined as a loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck.
casualty loss
After determining the loss on each of the assets affected by the casualty, the taxpayer must further reduce the loss by any _____ _____ the individual is eligible to receive.
insurance settlement
Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of _____ and _____.
logding and transportation
Taxpayers are allowed to deduct charitable contributions of _____ and _____, to qualified domestic charitable organizations.
money and property
The only types of personal interest still available as a deduction are _____ interest and _____ interest.
mortgage, investment
When donating _____ _____ property as a charitable contribution, taxpayers can only deduct the _____ of (1) the property's fair market value or (2) the property's adjusted basis.
ordinary income, lesser
Gary, age 47, incurred $4,200 in qualified medical expenses last year. His AGI was $50,000. Gary will be able to deduct $_____ as an itemized deduction for medical expenses.
$450
Nancy donated an antique desk to her church. Nancy paid $800 for the desk six years ago. An appraisal of the desk reported the fair market value to be $1,000. The church officers decided to donate the desk to a family whose home had been destroyed in a fire. Nancy will be able to deduct $_____ for her contribution.
$800
Owen is considering giving a large charitable contribution to an organization in the current year. Owen's adjusted gross income for the year will be $150,000. He wants to contribute $80,000 in either cash or property. If he contributes cash to a public charity, he can deduct $_____ this year. If he contributes capital gain property that is worth $80,000 to a public charity, he can deduct $_____. Or, if he contributes the capital gain property to a private nonoperating foundation, he can deduct $_____ this year.
$90,000 $45,000 $30,000
Which of the following are deductible? (Check all that apply.) A. Prescription birth control pills B. Prescription nicotine patches C. Prescription drug obtained in Canada (not FDA approved) D. Prescription medical marijuana
Answers: A, B
Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims of the disaster in the clean up for five days. He also donated $1,500 to the American Red Cross, but charged the amount of the donation on his credit card. He plans to pay $300 plus interest each month on the credit card charge, so he will pay $900 of the $1,500 charge by the end of the year. What amounts will Andrew be able to deduct for his charitable contributions? (Check all that apply.) A. Mileage for the 200 miles he drove to the ravaged area B. $900 that is actually paid toward the credit card bill during the year C. $1,500 charged to the credit card during the year D. The cost of lodging while he is volunteering E. The value of his time for five days based on his current salary
Answers: A, C, D
Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.) A. State and local income taxes B. Federal income taxes C. Excise taxes paid on cigarette and alcohol purchases D. Real estate taxes on a primary residence E. Personal property tax on the value of a car
Answers: A, D, E
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) A. Liposuction to improve appearance B. Plastic surgery to reduce scarring after a dog bite C. Health insurance premiums paid with after tax dollars D. Chiropractic services E. Prescription medications
Answers: B, C, D, E
Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.) A. Federal estate taxes B. Real estate taxes on property held for investment C. Federal gift taxes D. Personal property tax on the value of a boat E. Social security tax withheld from pay
Answers: B, D
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) A. Over-the-counter medications B. Lasik eye surgery C. Tummy tuck D. Eyeglasses E. Dental work
Answers: B, D, E
Which of the following is true concerning the deduction for qualified medical expenses? A. The expenses are fully deductible. B. The expenses must be reduced by 7.5% of AGI C. The expenses can be increased by 7.5% D. Most individuals are able to deduct medical expenses.
B. The expenses must be reduced by 7.5% of AGI
Markita donated stock that she has held for less than a year to a qualified charitable organization. Her basis in the stock is $1,000 and the fair market value of the stock is $1,200. Which of the following statements is true regarding Markita's donation? A. The stock is capital gain property. She will deduct $1,000, since her basis is less than fair market value. B. The stock is capital gain property. She will deduct $1,200, since capital gain property is allowed to be deducted at fair market value. C. The stock is ordinary income property. She will deduct $1,000, since her basis is less than fair market value. D. The stock is ordinary income property. She will deduct $1,200, since a stock donation is valued at fair market value.
C. The stock is ordinary income property. She will deduct $1,000, since her basis is less than fair market value.
Which of the following items is not a qualified medical expense? A. Vaccinations for the prevention of a disease B. Prescription medication for the cure of an illness C. Vitamins for promoting good health D. MRI for the diagnosis of a bodily injury
C. Vitamins for promoting good health
When determining the amount of the tax loss from any specific casualty from a Federally Declared Disaster Area, the loss is the lesser of the decline in value of the property or the A. insured value of the damaged asset. B. fair market value of the damaged asset. C. taxpayer's tax basis in the damaged asset. D. replacement cost of the damaged asset.
C. taxpayer's tax basis in the damaged asset.
Concerning charitable contributions, when donating ordinary income property, taxpayers can only deduct the lesser of (1) the property's _____ _____ value or (2) the property's _____ _____.
fair market, adjusted basis
