Ch 7 SB

Jenny and Jerry own a home with a fair market value of $625,000. Ten years ago they borrowed $400,000 to purchase the home and the current balance on the acquisition loan is $250,000. They recently borrowed $110,000 on a home-equity loan and used the proceeds to purchase a car and take a vacation. The maximum amount of their indebtedness that can generate deductible interest in the current year is ______.

$250000 interest on remaining acquisition debt is deductible interest on home equity debt is not deductible

Sally and Tom are married filing jointly. Sally is 58 and legally blind and Tom is 67. The amount of their standard deduction in 2020 is ______.

$27,400 The basic MFJ deduction is $24,800. Two additional $1,300 amounts are allowed because Sally is blind and Tom is over 65. The additional amount for age and/or blindness is $1,650 for head of household and single filers.

There are two types of interest expense that may be deductible as itemized deductions: (1) interest on acquisition indebtedness secured by a qualified BLANK and (2) BLANK interest.

1. residence 2. investment

Married filing joint taxpayers may deduct no more than $BLANK in total state and local taxes.

10000

Gary incurred $5,200 in qualified medical expenses in 2020. His AGI for the year is $50,000. Gary will be able to deduct $BLANK as an itemized deduction for medical expenses.

1450 50000 (0.075)= 3750 5200-3750=1450

The percentage used in the calculation of the deduction for qualified business income is BLANK%.

20

For mortgages obtained in 2020, a taxpayer who is married filing separately may deduct interest on up to $BLANK of acquisition indebtedness.

375000

For acquisition indebtedness incurred after December 15, 2017, married filing jointly taxpayers may deduct mortgage interest on up to $BLANK of acquisition indebtedness.

750000

Which of the following types of donations is NOT fully deductible for federal income tax purposes?

Cash paid to purchase fund-raising products where a portion of the proceeds go to fund a charitable cause

Which of the following expenses is most easily bunched, or accelerated, into one year, so that the itemized deductions can be used in one year and the standard deduction can be used the following year?

Charitable contributions

Lena is being claimed as a dependant on her parent's 2020 tax return. As such, her basic standard deduction is the greater of $BLANK(a) or $BLANK(b) plus her earned income, limited to the regular standard deduction amount.

a. 1100 b. 350

The deduction for qualified business income cannot exceed the greater of BLANK(a)% of the wages paid with respect to the business or the sum of BLANK(b)% of the wages paid plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property in the business.

a. 50 b. 25

Cash and property donations to public charities are limited to BLANK(a)% of a taxpayer's AGI. Donations of capital gain property to public charities are generally limited to BLANK(b)% of a taxpayer's AGI while donations of certain capital gain property to private non-operating foundations are limited to BLANK(c)% of AGI.

a. 60 b. 30 c. 20

The overall limitation for cash charitable contribution deductions for individual taxpayers is BLANK(a)% of AGI. The limit is reduced to BLANK(b)% for ordinary gain property other than cash, and BLANK(c)% for long-term capital gain property.

a. 60 b. 50 c. 30

Owen's adjusted gross income for the year will be $150,000 and he is planning to make only ONE of following charitable donations. If he contributes $100,000 cash to a public charity, he can deduct $BLANK(a). If he contributes property that is worth $80,000 to a public charity, he can deduct $BLANK(b). Or, if he contributes publicly traded stock with a FMV of $60,000 and a basis of $40,000 to a private non-operating foundation, he can deduct $BLANK(c).

a. 90000 b. 45000 c. 30000

A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n) BLANK(a) BLANK(b) disaster is a(n) BLANK(c) loss.

a. federally b. declared c. casualty

The deduction of investment interest is limited to a taxpayer's net BLANK(a) BLANK(b).

a. investment b. income

Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of BLANK(a) and BLANK(b).

a. lodging b. transportation

Taxpayers can only deduct the lesser of (1) the property's fair market value or (2) the property's adjusted basis when making a charitable donation of BLANK(a) BLANK(b) property.

a. ordinary b. income

A from AGI deduction that is in addition to the standard or itemized deduction and, with some exceptions, can be used by taxpayers who have ownership in partnerships, S corporations or sole proprietorships is called the deduction for BLANK(a) BLANK(b) BLANK(c).

a. qualfied (connect recorded misspelling as correct answer) b. business c. income

A qualified trade or business is any trade or business other than a(n) BLANK(a) BLANK(b) trade or business or business of being an BLANK(c).

a. specified b. service c. employee

Instead of itemized deductions, most individuals can elect the BLANK(a) BLANK(B) which is a flat amount.

a. standard b. deduction

Taxpayers may take an itemized deduction for interest on ______.

acquisition debt secured by a personal residence

A specified service trade or business for purposes of the qualified business income deduction excludes the fields of ______.

engineering architecture

True or false: Gambling expenses and losses are reported as miscellaneous itemized deductions without limitation.

false Gambling expenses losses are only deductible to the extent of gambling income reported in AGI.

Hobby expenses are deductible to the extent of hobby revenue reported in AGI.

false Hobby revenue is included in AGI, but hobby expenses are generally not deductible.

True or false: Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.

false Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.

Excess charitable contributions can be carried forward ______ year(s) before expiring.

five

Medical costs that may be deductible as qualified medical expenses include ______.

laser eye surgery dental work eyeglasses

Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $445,000 in taxable income before any QBI deduction. Is Bruce eligible to claim the deduction for QBI for his tax service?

no Since their taxable income is above the $326,600 threshold for MFJ + $100,000, Bruce may not claim the QBI deduction.

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. In regards to the donation, the stock is ______.

ordinary income property and Markita can deduct $1,000 Since the stock has been held for less than one year, it is ordinary income property and, therefore, limited to the lesser of the property's FMV or adjusted basis.

Donations to ______ organizations are NOT deductible for federal income tax purposes.

political

When seeking medical treatment, the taxpayer cannot deduct ______.

the cost of meals if the taxpayer is required to be away from home overnight

Expenses that may be classified as miscellaneous itemized deductions for 2020 include ______.

the unrecovered cost of a life annuity when the taxpayer dies casualty and theft losses on investment property

When a taxpayer has more than one business, the qualified business income wage-based limitation is applied separately to each qualified business.

true It is applied separately to each business and the limitations only apply to taxpayers whose income exceeds certain limitations.

Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $315,000 in taxable income before any QBI deduction. Is Bruce eligible to claim the deduction for QBI for his tax service?

yes Since their taxable income is below $326,600 threshold for MFJ, he can claim the QBI deduction.

Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $361,600 in taxable income and $375,000 in profit from the tax service, before the deduction for qualified business income (QBI). How much of the income from Bruce's tax services is eligible for the QBI deduction?

$243,750 Since their taxable income is above the $326,600 threshold for MFJ but below $426,600, the phase-out rules apply. ($361,600 - $326,600) = $35,000 ÷ $100,000 phase out = 35% is not eligible for the QBI deduction. $243,750 is eligible ($375,000 × 65%).

Patrick has an adjusted gross income of $120,000 in the current year. He donated $50,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $35,000 to a public charity, and publicly traded stock with a basis of $12,000 and a fair market value of $25,000 to a private nonoperating foundation. Patrick's deductible contribution for the current year is ______.

$50,000 in cash to the public charity, $10,000 in property to the public charity, and $0 in stock to the private nonoperating foundation Patrick is limited to a total deduction of $60,000 ($120,000 × 50%). He can deduct the $50,000 in cash and $10,000 of the capital gain property to the public charity.

Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $40,000 to a public charity, and publicly traded stock with a basis of $20,000 and a fair market value of $35,000 to a private nonoperating foundation. The amount that Patrick can deduct for the stock donation to the private nonoperating foundation is ______.

$8,000 He can deduct the $30,000 in cash, $40,000 of the capital gain property (up to $160,000 x 30%) to the public charity, and up to $8,000 of the stock to the private foundation ((AGI x 30%) - contributions subject to the 30% limit or $48,000 - $40,000).

Nancy donated an antique desk to her church that she paid $800 for six years ago. An appraisal indicates the current fair market value of the desk is $1,000. The church donated the desk to a family whose home was destroyed in a fire. As a result, Nancy will be able to deduct $BLANK for her contribution.

800

Which of the following statements related to investment interest expense is INCORRECT?

Interest on loans to purchase land held for investment is NOT deductible.

Certain charitable contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of capital gain property will definitely cause it to qualify for a fair market value deduction?

It is intangible property such as stocks and bonds. The deduction for capital gain property that is tangible personal property is limited to the adjusted basis of the property if the charity uses the property for an unrelated purpose.

Which of the following statements regarding the standard deduction is NOT correct?

It is not available for the married filing separately status.

Which of the following donations will qualify as a deductible charitable contribution?

Land donated to a public university

Hobby expenses are ______.

NOT deductible, but revenues generated by the hobby are taxable

Which of the following types of taxes may be considered when determining the itemized deduction for taxes?

Real estate taxes on property held for investment Personal property tax on the value of a boat

Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims clean up for five days. He also donated $1,500 to the American Red Cross by charging the amount to his credit card. By the end of the year, he plans to have $900 of the $1,500 charge paid. What amounts will Andrew be able to deduct for charitable contributions this year? (Check all that apply.)

The entire $1,500 charged to the credit card during the year The cost of lodging while he is volunteering Mileage for the 200 miles he drove to the ravaged area

Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2020 tax year?

The expenses must be reduced by 7.5% of AGI.

Which of the following statements is INCORRECT regarding charitable donations of capital gain property?

The taxpayer must include the appreciation of the asset in gross income.

Which of the following is NOT a qualified medical expense?

Vitamins for promoting good health

Which of the following terms does NOT describe a casualty that could be deductible for tax purposes if it occurs in a federally-declared disaster area?

Weakened

Lance paid $21,000 for seven acres of land six years ago. During the current year, Lance donated the land which now has a fair market value of $30,000 to his church. Lance will ______.

be able to deduct $30,000 as a charitable contribution

The system of shifting itemized deductions into one year such that the amount of itemized deductions exceeds the standard deduction for the year, and then deducting the standard deduction the next year is known as BLANK itemized deductions.

bunching