TAX2000 Chapter 5
True or false: A taxpayer may take a combination of the deduction and tax credit for foreign taxes.
False
True or false: Health insurance premiums are always 100% deductible as a medical expense
False
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 The employer portion of SE tax is deductible for AGI
Which of the following types of interest expense is not deductible as an itemized deduction?
Interest on credit cards used to purchase furnishing for a personal residence
Which of the following statements related to investment interest expense is incorrect? Investment interest expense due to investments in tax-exempt securities is NOT deductible. Interest on loans to purchase land held for investment is NOT deductible. Investment interest expense not deductible in the current year may carry forward to a subsequent year. Investment interest expense is limited to net investment income.
Interest on loans to purchase land held for investment is NOT deductible.
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?
Lance will be able to deduct $30,000 as a charitable contribution.
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?
$3,400 8500 casualty-100 reduction - 5,000 AGE Limit=3400
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
Cash to public charities are limited to _____% of a taxpayer's AGI. Property donations to public charities are limited to _____% of a taxpayer's AGI. 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.
100% 60% 30% 20%
How much of the cost of long-term care (nursing home) is deductible if an individual's stay is primarily related to medical reasons?
100% deductible
Mr. Mugabi must use a wheelchair. Upon advice from his physician, he installed an elevator and widened the front entrance of his house in 2020, incurring $15,000 and $4,000 in costs, respectively. Mr. Mugabi originally purchased his house for $202,000. An appraisal showed the fair market value of Mr. Mugabi's house immediately after these modifications at $212,000. Compute his currently deductible medical expense in regards to these improvements before AGI limitations.
15000+4000=19000 212000-202000=10000 19000-10000=9000
When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for ______ years.
5
How many years can excess charitable contributions be carried over before expiring?
5 Years
Homeowners may deduct interest on up to $_______ of acquisition indebtedness on up to two personal residences.
750,000
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
80,000 45,000 30,000
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
Which of the following are deductible? Prescription drug obtained in Canada (not FDA approved) Prescription birth control pills Prescription medical marijuana Prescription nicotine patches
Birth Control Nicotine Patches
The only types of personal interest still available as a deduction are _______ interest and _______ interest
Mortgage Investment
In the current year, a taxpayer may take a medical deduction for doctor bills ______.
Paid by the taxpayer for his son who is claimed as a dependent by the taxpayer's ex-wife
Which of the following types of taxes may be deducted from AGI as itemized deductions?
Personal Property tax on the value of a boat Real estate taxes on property held for investment
Donations to ______ organizations are not deductible for federal income tax purposes.
Political
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?
Schedule A
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?
Schedule E
How, if at all, may a taxpayer report foreign taxes on a tax return?
Take a credit on Form 1116
Which method of reporting foreign taxes on a tax return usually leads to a better tax result?
Take credit on form 1116
Which of the following statements is incorrect regarding travel for medical reasons?
The cost of meals is deductible if required to be away from home overnight.
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?
The cost of vaccinations is deductible because it is for the prevention of a disease.
Which of the following is true concerning the deduction for qualified medical expenses?
The expenses must be reduced by 7.5% of AGI
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?
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? The taxpayer must include the appreciation of the asset in gross income. To qualify as capital gain property, the asset must have appreciated in value. The taxpayer will be allowed to deduct the fair market value of the property. To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year.
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?
Weakened
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 gain
A(n) _______ __________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 ____________ .
lodging Transportation
The deduction of investment interest is limited to a taxpayers ______ _______ _______
net investment income
Taxpayers are allowed to deduct charitable contributions of cash and ________ to qualified domestic charitable organizations.
property
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
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
taxpayer's tax basis in the damaged asset.
If a taxpayer uses a standard deduction and receives a tax refund, the taxpayer
will not have to include any of the refund in their taxable income for the next year.
Isabella pays $500 each month in after tax dollars for health insurance premiums. She is not self-employed. During the current year, she also incurred $200 in doctor bills and $50 in over-the-counter medications. Her AGI is $45,000. What amount will she be able to deduct as an itemized deduction after the AGI floor is applied?
$2,825 (500x12)+200=6200 6200-(45000x0175)=2825
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?
$250,000
