Chapter 10: Itemized Deductions

Which of the following items would be an itemized deduction on Schedule A of Form 1040? a. Professional dues paid by an accountant (employed by Ford Motor Co.) to the National Association of Accountants. b. Gambling losses to the extent of gambling winnings. c. Job-hunting costs. d. Subscription to the Wall Street Journal

b. Gambling losses to the extent of gambling winnings

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? a. $0 b. $6,400 c. $8,000 d. $10,200

a. $0

This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using a home equity loan of $350,000 on her principal residence. She has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming that Carol itemizes her deductions? a. $0 b. $10,000 c. $16,000 d. $125,000

a. $0

Hugh, a self-employed individual, paid the following amounts during the year: Real estate tax on Iowa residence $3,800 State income tax 1,700 Real estate taxes on a vacation home 2,100 Gift tax paid on gift to daughter 1,200 State sales taxes 1,750 State occupational license fee 300 Property tax on value of his automobile (used 100% for business) 475 What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI? a. $7,650 b. $8,850 c. $9,625 d. $10,000

a. $7,650

Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization) in the current year. The stock was worth $180,000. She had acquired it as an investment four years ago at a cost of $120,000. She reported AGI of $300,000 for the year. In completing her current income tax return, how much is her current-year charitable contribution deduction? a. $90,000 b. $120,000 c. $150,000 d. $180,000

a. $90,000

In 2020, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true? a. If Boris is self-employed, he may deduct $7,200 as a deduction for AGI. b.If Boris is self-employed, he may deduct $3,400 as a deduction for AGI and may include the $3,800 premium when calculating his itemized medical expense deduction. c. If Boris is an employee, he may deduct $7,200 as a deduction for AGI. d.If Boris is an employee, he may include $7,200 when calculating his itemized medical expense deduction

a. If Boris is self-employed, he may deduct $7,200 as a deduction for AGI.

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? a. $3,300 b. $10,500 c. $12,150 d. $13,800

b. $10,500

Paul, a calendar year single taxpayer, has the following information for 2020: AGI $175,000 State income taxes 13,500 State sales tax 3,000 Real estate taxes 18,900 Gambling losses (gambling gains were $12,000) 6,800 Paul's allowable itemized deductions for 2020 are: a. $10,000. b. $16,800. c. $39,200. d. $42,200.

b. $16,800.

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, IN 70,000 210,000 The land had been held as an investment and was acquired four 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: a. $100,000. b. $165,000. c. $225,000. d. $240,000.

b. $165,000.

In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume that this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. Assuming that Reggie itemizes his deductions and the $10,000 limit on state and local taxes does not apply, how much of the property taxes may Reggie deduct? a. $0 b. $2,614 c. $2,625 d. $7,950

b. $2,614

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2020. 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 2020, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2021. Determine the maximum itemized deduction allowable for medical expenses in 2020. a. $800 b. $3,800 c. $9,200 d. $12,800

b. $3,800

Quinn, who is single and lives alone, is physically handicapped as a result of a diving accident. To live independently, he modifies his personal residence at a cost of $30,000. The modifications included widening halls and doorways for a wheelchair, installing support bars in the bathroom and kitchen, installing a stairway lift, and rewiring so he could reach electrical outlets and appliances. Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after. As a result of the operation of the stairway lift, Quinn experienced an increase of $680 in his utility bills for the current year. Disregarding the AGI floor for medical expenses, how much of these expenditures qualify as medical expense deductions? a. $11,680 b. $30,680 c. $30,880 d. $34,880

b. $30,680

Tom, age 48, is advised by his family physician that he needs back surgery to correct a problem from his last back surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to Rochester, MN, for in- patient treatment at the Mayo Clinic, which specializes in this type of surgery. Tom incurred the following costs in 2020: Round-trip airfare ($350 each) $ 700 Jean's hotel in Rochester for four nights ($95 per night) 380 Jean's meals while in Rochester 105 Tom's medical treatment 3,500 Tom's prescription medicine 600 Compute Tom's allowable medical expenses for the trip (before application of the AGI floor). a. $4,000 b. $5,000 c. $5,180 d. $5,285

b. $5,000

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: a. $28,000. b. $51,200. c. $52,000. d. $67,200

b. $51,200.

Zeke made the following donations to qualified charitable organizations during the year: Basis Fair Market Value Used clothing of taxpayer and his family (all acquired more than a year ago) $ 1,350 $ 375 Stock in ABC, Inc., held as an investment for 15 months 12,000 10,875 Stock in MNO, Inc., held as an investment for 11 months 15,000 18,000 Real estate held as an investment for two years 15,000 30,000 The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for the year is: a. $43,350. b. $56,250. c. $59,250. d. $60,375

b. $56,250.

Sandra is single and does considerable business entertaining at home. Because Arthur, Sandra's 80-year-old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur: Room at Twilight $4,500 Meals for Arthur at Twilight 850 Doctor and nurse fees 700 Cable TV service for 107 Arthur's room Total $6,157 Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra? a. $6,157 b. $6,050 c. $5,200 d. $1,550

b. $6,050

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? a. $0 b. $800 c. $1,000 d. $6,800

b. $800

Your friend Scotty informs you that in 2020 he received a tax-free reimbursement of some medical expenses he paid in 2019. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income? a. Scotty itemized deductions in 2019. b. Scotty did not itemize deductions in 2019. c. Scotty itemized deductions in 2020. d. Scotty did not itemize deductions in 2020.

b. Scotty did not itemize deductions in 2019.

Richard, age 50, is employed as an actuary. For calendar year 2020, he had AGI of $130,000 and paid the following medical expenses: Medical insurance premiums $5,300 Doctor and dentist bills for Derrick and Jane (Richard's parents) 7,900 Doctor and dentist bills for Richard 5,100 Prescribed medicines for Richard 830 Nonprescribed insulin for Richard 960 Derrick and Jane would qualify as Richard's dependents except that they file a joint return. Richard's medical insurance policy does not cover them. Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2020 and received the reimbursement in January 2021. What is Richard's maximum allowable medical expense deduction for 2020? a. $0 b. $7,090 c. $10,340 d. $20,090

c. $10,340

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2020: Cataract operation for Brad $ 5,400 Brad's prescribed contact lenses 1,800 Copyright Cengage Learning. Powered by Cognero. Page 12 Name : Clas s: Dat e: Chapter 10: Deductions and Losses: Certain Itemized Deductions Faye's doctor and dentist bills 12,600 Prescribed drugs for Faye 2,550 Total $22,350 Faye has a medical expense deduction of: a. $6,150 b. $10,350 c. $13,350 d. $22,350

c. $13,350

Phillip, age 66, developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for 2020 was $75,000. How much of these expenditures can Phillip deduct as a medical expense in 2020? a. $0 b. $21,500 c. $23,375 d. $29,000

c. $23,375

Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2020, he files his state return for 2019, paying an additional $600 in state income taxes. During 2020, his withholdings for state income tax purposes amount to $3,550. On April 13, 2021, he files his state return for 2020 claiming a refund of $800. Brad receives the refund on June 3, 2021. If he itemizes deductions, how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2020 (filed in April 2021)? a. $3,350 b. $3,550 c. $4,150 d. $5,150

c. $4,150

Nancy paid the following taxes during the year: Tax on residence (for the period from March 1 through August 31) $5,250 State motor vehicle tax (based on the value of the personal use automobile) 430 State sales tax 3,500 State income tax 3,050 Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy? a. $9,180 b. $9,130 c. $7,382 d. $5,382

c. $7,382

Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 7.5%-of-AGI floor)? a. $0 b. $6,000 c. $9,000 d. $15,000

c. $9,000

During the current year, Ralph made the following contributions to the University of Oregon (a qualified charitable organization): Cash $63,000 Stock in Raptor, Inc. (a publicly traded corporation) 94,500 Ralph acquired the stock in Raptor as an investment 14 months ago at a cost of $42,000. Ralph's AGI for the year is $189,000. What is his charitable contribution deduction for the current year? a. $56,700 b. $63,000 c. $94,500 d. $157,500

c. $94,500

Which of the following is not allowed as an itemized deduction? a. Cash donation to a church. b. Interest expense on a $800,000 loan incurred in 2016 to buy a principal residence. c. A subscription to the Wall Street Journal to help with personal investment decisions. d. Gambling losses to the extent of gambling winnings.

c. A subscription to the Wall Street Journal to help with personal investment decisions.

Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily's deduction associated with this charitable activity? a. $600 b. $1,200 c. $1,800 d. $2,200

d. $2,200