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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 51

True/False

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Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship.Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.

A) True
B) False

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Question 52

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Pat died this year.Before she died,Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization) .The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000.In the year of her death,Pat had AGI of $300,000.In completing her final income tax return,how much of the charitable contribution should Pat's executor deduct?

A) $90,000
B) $150,000
C) $180,000
D) $210,000
E) None of these

F) A) and B)
G) C) and D)

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Question 53

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Upon the recommendation of a physician,Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool,Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

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?

Sandra is single and does a lot of business entertaining at home.Because Arthur,Sandra's 80­year 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: $\begin{array}{lr}\text { Room at Twilight } & \$ 4,500 \\\text { Meals for Arthur at Twilight } & 850 \\\text { Doctor and nurse fees } & 700 \\\text { Cable TV service for Arthur's room } & 107 \\\text { Total } & \$ 6,157\end{array}$ Twilight has medical staff in residence.Disregarding the AGI floor,how much,if any,of these expenses qualify for a medical deduction by Sandra?

Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.

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).

Personal expenditures that are deductible as itemized deductions include medical expenses,Federal income taxes,state income taxes,property taxes on a personal residence,mortgage interest,and charitable contributions.

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

In Piatt 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 and is payable on July 1 in the real property tax year.On June 30 of this year (assume not a leap year),Harry sells his house to Judy for $110,000 and on July 1,Judy pays the entire real estate tax of $4,380 for the current year ending December 31. a.How much of the property taxes may Harry deduct? b.How much of the property taxes may Judy deduct?

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?

Joe,a cash basis taxpayer,took out a 12-month business loan on December 1,2014.He prepaid all $3,600 of the interest on the loan on December 1,2014.Joe can deduct only $300 of the prepaid interest in 2014.

Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence.The appraisal fee qualifies as a deductible medical expense.

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 2014:

Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early.The $1,600 is deductible as interest expense.

A physician recommends a private school for Ellen's dependent child.Because of the physician's recommendation,the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.

Brian,a self-employed individual,pays state income tax payments of: $900 on January 15,2014 (4th estimated tax payment for 2013) $1,000 on April 15,2014 (1st estimated tax payment in 2014) $1,000 on June 16,2014 (2nd estimated tax payment in 2014) $1,000 on September 15,2014 (3rd estimated tax payment in 2014) $800 on January 15,2015 (4th estimated tax payment of 2014) Brian had a tax overpayment of $500 on his 2013 state income tax return and applied this to his 2014 state income taxes.What is the amount of Brian's state income tax itemized deduction for his 2014 Federal income tax return?

In 2015,Rhonda received an insurance reimbursement for medical expenses incurred in 2014.She is not required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in 2014.

Joe,who is in the 33% tax bracket this year,expects to retire next year and be in the 25% tax bracket.He plans to donate $50,000 to his church.Because he will not have the cash available until next year,Joe donates land (long-term capital gain property)with a basis of $10,000 and fair market value of $50,000 to the church in December of the current year.He reacquires the land for $50,000 in February of next year.Discuss Joe's tax objectives and all tax issues related to his actions.