Exam 5: Deductions and Adjustments to Income

Randy is advised by his physician to install an elevator in his residence, since he is afflicted with heart disease.The cost of installing the elevator is $10,000 and it has an estimated useful life of 10 years.He installs the elevator in January of the current year, and it increases the value of his residence by $8,000.Disregarding the limitation based on adjusted gross income, how much of the cost of the elevator may Randy take into account in determining his medical expense deduction for the current year?

Which of the following statements is correct?

Daniel lives in a state that charges a vehicle registration fee of $50 plus $20 for every $1,000 of value.During the current year, Daniel paid $170 for registration of his automobile. a.​How much of the vehicle registration fee is deductible as a personal property tax on Schedule A of Daniel's Form 1040? b.Explain your answer.

Brittany determined that she paid $450 in gasoline excise taxes during the year when she bought gas for her commute to and from work.Brittany's gas excise taxes are deductible as an itemized deduction.

What is the maximum amount of home equity debt (not acquisition debt)on which interest is fully deductible?

Ellen supports her family as a self-employed attorney.She reports $90,000 of income on her Schedule C and pays $8,000 for health insurance for her family, $2,500 for dental insurance, $4,000 for health insurance for her 23-year-old daughter who is no longer a dependent, and $3,000 for disability insurance for herself.What is Ellen's self-employed health insurance deduction?

To calculate the amount of state and local income taxes which may be deducted as an itemized deduction, state income taxes paid during the year must be reduced by state income tax refunds received during the year.

Wilson and Joan, both in their 30s, file a joint income tax return for 2018.Wilson's wages are $15,000 and Joan's wages are $23,000 for the year.Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not. a.​What is the maximum amount that Wilson and Joan may each deduct for contributions to their traditional individual retirement accounts? b.​​If Joan's wages are $88,000 for 2018, instead of $23,000, and their adjusted gross income is $103,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to their traditional individual retirement accounts?

Which of the following is not an exception to the 10% early withdrawal penalty of a traditional IRA:

Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2018.What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP)for the year?

In 2018, the itemized deduction for taxes is limited to 10% of adjusted gross income.

To deduct interest paid with respect to indebtedness, the taxpayer must be legally liable for the debt.

If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.

Dongkuk uses his holiday bonus to pay his January 2019 mortgage payment in December 2018.The payment would normally be due January 31st.Dongkuk may deduct the interest paid as part of the early mortgage payment.

A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year.

Which of the following is not deductible as a medical expense on Schedule A?

Over the years, Monica contributed $15,000 to a Roth IRA opened 10 years ago.The IRA has a current value of $37,500.She is 54 years old and takes a distribution of $25,000.How much of the distribution will be taxable to Monica?

During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition.The sculpture's fair market value was $1,700 on the date of the donation, and Hom's adjusted gross income is $40,000. a.Assume Hom held the sculpture for 4 months and the $700 ($1,700 − $1,000) of appreciation is a short-term capital gain.Calculate the amount of his itemized deduction for the contribution. b.Assume Hom held the sculpture for 2 years and the $700 appreciation is a long-term capital gain.Calculate the amount of his itemized deduction for the contribution.

What is the amount of the deductible HSA for each of the following taxpayers? a.Amelia and Albert, both age 43, have a qualifying high-deductible insurance plan.They contribute $5,700 to a family HSA. b.Betsy, who is single, 72 years old and covered by Medicare, wants to contribute the maximum amount to an HSA. c.Carlo has health insurance through his employer which has low deductible amounts.He is 34 years old and is married.Carlo wants to contribute the maximum to an HSA. d.Diane is 57 years old.She has a qualifying high-deductible insurance plan.She has contributed $5,350 to her HSA.

Andy borrows $20,000 to invest in bonds.During the current year, his interest on the loan is $2,000.Andy's interest income from the bonds is $400 and his investment expenses are $300.​ a.Calculate Andy's itemized deduction for investment interest for this year. b.Is Andy entitled to a deduction in future years?