Tax Ch 6

Doctor Bones prescribed physical therapy in a pool to treat Jack's broken back. In response to this advice (and for no other reason), Jack built a swimming pool in his backyard and strictly limited use of the pool to physical therapy. Jack paid $25,000 to build the pool, but he wondered if this amount could be deducted as a medical expense. Determine if a capital expenditure such as the cost of a swimming pool qualifies for the medical expense deduction by referring to Reg 1.213-1(e)(1)(iii) of Revenue Procedure.

The entire expenditure incurred to build the pool qualifies for medical expense deduction. No expenditure incurred to build the pool qualifies for medical expense deduction as it permanently results in increase in value of the residence. Explanation: Under Reg 1.213-1(e)(1)(iii) capital expenditures that are medical necessities are deductible to the extent the expenditure exceeds the increase in the value of the underlying property. No deduction is allowed for the cost of making the architectural changes for aesthetic purposes. Hence, the taxpayer could likely deduct some part of the $25,000 expenditure depending upon the extent of any increase in the value of the residence. The IRS will not issue advance rulings on this issue (Rev Proc 87-3, 1987-1 CB 523), so the taxpayer should expect some interaction with the service if the deduction is large. Rev Rul 87-106, 1987-2 CB 67, lists other types of capital expenditures that may be acceptable as medical expenses.

Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from Counti Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for higher education expenses and interest on higher education loans under the following circumstances a. Lionel's AGI before deducting interest on higher education loans is $50,000. Deductible interest expense: Deductible education expenses: b. Lionel's AGI before deducting interest on higher education loans is $74,000. Deductible interest expense: Deductible education expenses: c. Lionel's AGI before deducting interest on higher education loans is $90,000. : (Leave no answer blank. Enter zero if applicable.) Deductible interest expense: Deductible education expenses:

a. Deductible interest expense $1,440 Deductible education expenses $4,000 b. Deductible interest expense $576 Deductible education expenses $1,754 c. Deductible interest expense $0 Deductible education expenses $0

In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) neither deductible for nor from AGI before considering income limitations or the standard deduction. a. Ted paid $17 rent on a safety deposit box at the bank. In this box he kept the few shares of stock that he owned. b. Tyler paid $177 for minor repairs to the fence at a rental house he owned. c. Timmy paid $585 for health insurance premiums this year (not through an exchange). Timmy is employed full-time and his employer paid the remaining premiums as a qualified fringe benefit. d. Tess paid $2,090 of state income taxes on her consulting income. (W-2)

a. Deduction from AGI - investment expense deducted as a miscellaneous itemized deduction. b. Deduction for AGI - rental/royalty expense. c. The health insurance is from AGI - medical itemized deduction but subject to an AGI floor limitation. d. The state income taxes are deductible from AGI (an itemized deduction).

Clyde currently commutes 55 miles to work in the city. He is considering a new assignment in the suburbs on the other side of the city that would increase his commute considerably. He would like to accept the assignment, but he thinks it might require that he move to the other side of the city. Determine if Clyde's move qualifies for a moving expense deduction and calculate the amount (if any) under the following circumstances: a. Clyde estimates that unless he moves across town, his new commute would be almost 70 miles. He also estimates the costs of a move as follows: Lodging while searching for an apartment $ 126 Transportation — auto (100 miles @ 23 cents/mile, rounded) 23 Mover's fee (furniture and possessions) 1,500 Meals while en route 35 (i) Does Clyde's move qualify for a moving expense deduction? (ii) Calculate the amount of deduction. b. Clyde estimates that unless he moves across town, his new commute would be almost 115 miles. (i) Does Clyde's move qualify for a moving expense deduction? (ii) Calculate the amount of deduction. c. Clyde's new commute would be almost 150 miles and the movers intend to impose a $450 surcharge on the moving fee for the additional distance. (i) Does Clyde's move qualify for a moving expense deduction? (ii) Calculate the amount of deduction.

a. [$0]. Clyde would not qualify for a moving expense deduction. To qualify for a moving expense deduction the new commute from Clyde's current residence would need to be a minimum of 105 miles. That is, his commute from his old residence to the new job must be more than 50 miles longer than his current commute. b. [$1,523] Clyde now qualifies for a moving expense deduction (assuming he is employed for 39 of the next 52 weeks). Estimated costs of $1,523 are deductible for AGI. This excludes the cost for lodging while searching for an apartment and the meals en route. c. [$1,973] Clyde qualifies for a moving expense deduction (assuming he is employed for 39 of the next 52 weeks). Estimated costs of moving increase to $1,973, and this total is deductible for AGI.