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

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?

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.

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

Land donated to a public university

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

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? Multiple choice question.

$3,400

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

The total loss from each separate casualty from Federally Declared Disaster Areas during the year is reduced by a $__________ floor and the combined losses from all casualties for the year is reduced by __________% of AGI.

100, 10

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 $

10900

Gary incurred $5,200 in qualified medical expenses last year. His AGI was $50,000. Gary will be able to deduct $__________ as an itemized deduction for medical expenses.

1450

Homeowners may deduct interest on up to $__________ of acquisition indebtedness on up to two personal residences.

750,000

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 birth control pills Prescription nicotine patches

Which of the following types of taxes may be deducted from AGI as itemized deductions?

Real estate taxes on property held for investment Personal property tax on the value of a boat State and local income taxes

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

Which method of reporting foreign taxes on a tax return usually leads to a better tax result?

Take a credit on Form 1116

How, if at all, may a taxpayer report foreign taxes on a tax return?

Take a credit on Form 1116 Deduct on schedule A

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.

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.

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?

[($500 x 12) + $200] = $6200; $6200 - ($45,000 x 0.075) = $2,825.

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 gains

A(n) __________ __________ is defined as a loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck. Listen to the complete question

casualty loss

he only types of personal interest still available as a deduction are __________ interest and __________ interest.

mortgage, investment

The deduction of investment interest is limited to a taxpayer's

net investment income

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

political

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.

Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of

travel and lodging

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.

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 reimbursement