Chapter 6 worksheet

T or F: Investment interest expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years

true

T or F: a medical expense is generally deductible only in the year in which the expense is actually paid

true

Grace has AGI of $60,000 in 2017 and 2018. She makes cash contributions to public charities of $38,000 in 2017 and 35,000 in 2018. Grace's charitable carryover to 2019 is

$1,000 60,000*.6=36,000=allowed deductible amount in 2017 contribution=$38,000, but only 36,000 was deducted so $2,000 was carried over to 2018. In 2018 the contribution was $35,000 but because $2,000 was carried over, $36,000 was deducted. Now there is only $1,000 left to be carried over into 2019

Matt paid the following taxes: $4,000 real estate taxes on rental property he owns $8,600 real estate taxes on his own residence $8,000 federal income taxes $3,400 state income taxes $500 local city income taxes $700 State sales tax What amount can Matt deduct as an itemized deduction on his tax return?

$10,000 b/c of limit 8,600+3,400+500=12,500>10,000 the limit. Can only use the larger of the state income tax or state sales tax. In this case it is state income tax.

Teri pays the following interest expenses during they year: $8,500 Home mortgage interest on personal residence $550 Credit card interest on personal purchases $2,400 interest on loans used to purchase investments (net investment income is $2,000) $3,800 Interest on loans used for a business conducted as a sole proprietorship $470 interest on a credit card used exclusively in the business What is the amount of interest expense that can be deducted as an itemized deduction?

$10,500=8,500+2000

Wayne and Maria purchase a home on April 1st of the current year. in order to obtain a 30 year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home ?

$11,600=7200+4400

Van pays the following medical expenses this year: $1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse $300 for Van's eyeglasses $900 for Van's dental work $3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes How much can Van include on his return as qualified medical expenses before AGI limit?

$2,700=1500+300+900

Sacha purchased land in 2010 for $35,000 that she held as a capital asset. This year, she contributed the land to the Boy Scouts of America (a charitable organization) for use of a site for a summer camp. The market value of the land at the date of contribution is $40,000. Sacha's adjusted gross income is $90,000. Sacha's maximum deductible contribution this year is

$27,000 90,000*.30

Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her MAGI is $82,000?

$500 for AGI (82,000-70,000)/15=.80 2500*(1-.80)=$500

Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is

$850 b/c he is limited to his net investment income. 1,100-850 will be carried over the next year

In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year?

$9,000 deductible this year; $5,000 carried forward to next year

What are the 3 taxes deductible as itemized deductions?

1). state income tax 2). foreign real property taxes 3). local personal property taxes

Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. Carols deductible contribution is

18,000=60,000*.30 (7000 carried over

Don's records contain the following information: 1. Donated stock have a FMV of $3,600 to a qualified charitable organization. He acquired the stock 5 months ago previously at a cost of $2,400 2. Paid $700 to a church school as a requirement for the enrollment of his daughter. 3. Paid $200 for annual homeowner's association dues 4.Drove 400 miles in his personal auto. The travel was directly related volunteer services he performed for his church (actual costs were not available .14 per mile) Don's deductible contribution was

3656=3600+(400*.14)

Caleb's medical expenses before reimbursement for the year include: $11,000 medical premiums $3,500 Doctors, hospitals $600 prescriptions $5,000 Vitamins and health food for general health Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will be

9,100 11,000+3,500+600=15,100 50,000*.10=5,000 15,100-1,000-5000=9,100

T or F: if the principal reason for a taxpayer's presence in an institution is the need and availability of medical care, the entire cost of lodging and meals is considered qualified medical expenditures

true

Expenditures for long-term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of the individual

true: nursing homes

T or F: if a medical expense reimbursement is received in a year after a deduction has been taken on a previous year's return, the previous year's return must be amended to eliminate the reimbursed expense

False

T or F: A personal property tax based on the weight of the property is deductible

False: Based on value not weight

T or F: Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction

False: can only take 50%

T or F: Finance charges on personal credit cards are deductible interest expense

False: has to be specifically allowed

T or F: Medical expenses are deductible as "from" AGI deduction to the extent that they exceed 2% of the taxpayer's AGI

False: it is 10%

T or F: A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization

False: think of salvation army scenerio

What des SALT stand for and what is it's limit?

State and local income taxes : $10,000

T or F: For individuals, generally, all deductible expenses must be classified as deductions for AGI or deductions from AGI

True

T or F: In general, the deductibility of interest depends on the purpose for which the indebtedness incurred

True

T or F: Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business

True

T or F: acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence

True

T or F: Taxpayers may not deduct interest expense on most personal debt, including credit card debt, car loans, and other consumer debt.

True: only your mortgage

Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption

True

T or F: A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years

True

T or F: A taxpayer has made substantial donations of both cash and capital gain property. Due to lower income this year, the taxpayer could exceed the charitable contribution ceilings. The taxpayer will apply the 60% AGI ceiling before applying the 30% AGI ceiling

True

T or F: Assessments or fees imposed for specific privileges or services are not deductible as taxes

True

Investment interest expense is deductible

as an itemized deduction

T or F: In order for a taxpayer to deduct a medical expense, the amount must be paid to a licensed physician

false

Short-term capital gains meet the definition of

net investment income