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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 31

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Richard, age 50, is employed as an actuary. For calendar year 2014, he had AGI of $130,000 and paid the following medical expenses: $\begin{array}{llr} \text { Medical insurance premiums} &\$5,300\\ \text { Doctor and dentist bills for Derrick and Jane (Richard's} &7,900\\ \text { Doctor and dentist bills for Richard } &5,100\\ \text {Prescribed medicines for Richard } &830\\ \text { Nonprescribed insulin for Richard } &960\\\end{array}$ 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 2014 and received the reimbursement in January 2015. What is Richard's maximum allowable medical expense deduction for 2014?

A) $0.
B) $7,090.
C) $13,000.
D) $20,090.
E) None of the above.

F) C) and D)
G) All of the above

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Question 32

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Charles, who is single and age 61, had AGI of $400,000 during 2014. He incurred the following expenses and losses during the year. $\begin{array}{llr} \text { Medical expenses before 10\%-of-AGI limitation } &\$39,500\\ \text {State and local income taxes } &5,200\\ \text { Real estate taxes} &4,400\\ \text { Home mortgage interest } &5,400\\ \text {Charitable contributions } &4,800\\ \text { Casualty loss before 10 \% limitation (after \( \$ 100 \) floor) } &47,000\\ \text { Unreimbursed employee expenses subject to \( 2 \% \)-of-AGI limitation} &8,900\\ \text { Gambling losses (Charles had \( \$ 7,400 \) of gambling income) } &9,800\\ \text { Compute Charles's total itemized deductions for the year:} &\\\end{array}$

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Charles's itemized deductions are comput...

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Question 33

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Linda borrowed $60,000 from her parents for a down payment on a condominium. She paid interest of $5,500 in 2012, $0 in 2013, and $9,000 in 2014. The IRS disallowed the deduction. Can you offer any explanation for the disallowance?

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.

Dan contributed stock worth $16,000 to his college alma mater, a qualified charity. He acquired the stock eleven months ago for $4,000. He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).

Phyllis, a calendar year cash basis taxpayer who itemized deductions, overpaid her 2013 state income tax and is entitled to a refund of $400. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2014. She is required to recognize that amount as income in 2014.

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?

Mason, age 70, a physically handicapped individual, pays $10,000 in 2014 for the installation of wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical deduction (subject to the AGI floor).

Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2014, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2015, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2014?

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: $\begin{array}{lrr}& \text {Basis}&\text {Fair Market Value}\\ \text { Cash donation to State University } & \$ 30,000 & \$ 30,000 \\\text { Unimproved land to the City of Terre Haute, Indiana } & 70,000 & 210,000\end{array}$ The land had been held as an investment and was acquired 4 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 is:

Quinn, who is single and lives alone, is physically handicapped as a result of a diving accident. In order 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 percentage of AGI limitation, how much of the above expenditures qualify as medical expense deductions?

John gave $1,000 to a family whose house was destroyed by fire. John may claim a charitable deduction of $1,000 on his tax return for the current year.

Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns) is deductible as qualified residence interest.

In order to dissuade his pastor from resigning and taking a position with a larger church, Michael, an ardent leader of the congregation, gives the pastor a new car. The cost of the car is deductible by Michael as a charitable contribution.

A taxpayer may not deduct the cost of new curbing (relative to a personal residence), even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.

Hannah makes the following charitable donations in the current year: $\begin{array}{llr}& \text {Basis}&\text {Fair Market Value}\\ \text { Inventory held for resale in Hannah's business } &\\ \text {(a sole proprietorship) } &\$8,000&\$7,200\\ \text { Stock in HBM, Inc., held as an investment (acquired } &\\ \text {four years ago) } &16,000&40,000\\ \text {Baseball card collection held as an investment } &\\ \text { (acquired six years ago) } &4,000&20,000\\\end{array}$ 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:

Jim's employer pays half of the premiums on a group medical insurance plan covering all employees, and employees pay the other half. Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.

Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.

During 2014, Kathy, who is self-employed, paid $650 per month for an HSA contract that provides medical insurance coverage with a $3,000 deductible. The plan covers Kathy, her husband, and their three children. Of the $650 monthly fee, $300 was for the high-deductible policy, and $350 was deposited into an HSA. How much of the amount paid for the high-deductible policy can Kathy deduct as a deduction for AGI?

Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for lodging. The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.