Exam 17: Tax Consequences of Personal Activities

William took out a $440,000 mortgage to purchase his personal residence.The residence is worth almost $1 million,and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt.William can deduct the interest he pays on both mortgages.

A taxpayer must have owned and lived in a personal residence at least two of the last five years in order to qualify for the maximum exclusion of gain on the sale of that residence.

The cost of commuting to and from a place of employment is a nondeductible personal expense.

Mr.and Mrs.Allen made the following interest payments.Determine their deduction for each payment. a.$28,000 on a $400,000 acquisition mortgage secured by their personal residence. b.$5,000 on a $60,000 second mortgage secured by their personal residence.The Allens used the proceeds to pay off credit card debt and take a second honeymoon. c.$2,400 on credit card debt. d.$1,500 on a bank loan incurred to purchase a new family car. e.$1,890 on an unsecured bank loan incurred to pay for a new roof on their personal residence.

Mr.and Mrs.Oliva incurred the following unreimbursed medical expenses this year. If the Olivas' AGI is $43,100,compute their medical expense deduction.