Exam 5: Itemized Deductions and Other Incentives

Bill has a mortgage loan on his personal residence. He decides to pay 18 months of interest in advance on October 1, 2016. The total advanced interest payment is $36,000. How much of the advance interest payment can he deduct in 2016?

If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.

Ellen and Rick are married with one dependent child. They have AGI of $355,300, and itemized deductions consisting of $20,000 state income taxes and $20,000 medical expenses, after applying the 10 percent of AGI limitation. ​ Compute the following for 2016: ​ a.Itemized deductions allowed after the phase-out for high-income taxpayers. b.Exemption deductions (ordinarily $4,050 x 3) after the high-income phase-out. c.Taxable income.

If personal property is completely destroyed, the casualty loss deduction is still reduced by a floor amount.

Which of the following is a miscellaneous itemized deduction?

Steve keeps a valuable bonsai collection in his back yard. In the current year, thieves disarmed his security system and stole several of the bonsai. The stolen bonsai had a fair market value and adjusted basis of $4,500. Assuming that Steve had no insurance coverage on the bonsai and his adjusted gross income for the current year is $28,000, calculate the amount of his theft loss deduction.

The adjusted gross income (AGI) limitation on medical expenses is 15 percent.

During the current year, George, a salaried taxpayer, paid the following taxes which were not incurred in connection with a trade or business: What amount can George claim for the current year as an itemized deduction for the taxes paid, assuming he elects to deduct state and local income taxes?

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.​ If Hom had held the sculpture for 4 months and the $700 ($1,700 - $1,000) of appreciation would have been a short-term capital gain, calculate the amount of his itemized deduction for the contribution. b.​ If Hom had held the sculpture for 2 years and the $700 gain would have been a long-term capital gain, calculate the amount of his itemized deduction for the contribution.

During the current year, Mary paid the following expenses: What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation of itemized deductions on Mary's current year income tax return?

Sally and Jim purchased their personal residence in Santa Barbara 20 years ago for $150,000. The home has a fair market value today of $1,000,000. For the current year, they have a $10,000 first mortgage on their home, on which they paid $1,000 in interest. They also have a home equity loan secured by their home with a balance throughout the year of $110,000. The proceeds of the home equity loan were used to send their two children to college. They paid interest on the home equity loan of $5,500 for the year. ​ Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified home equity debt for the current year. ​ Qualified residence acquisition debt interest: ​ Qualified home equity debt interest:

Premiums paid for life insurance policies are deductible as medical expenses.

​Glenda heard from a friend that prescriptions drugs were considerably cheaper overseas and purchases her regular prescription over the internet from a foreign company for $500. Though technically illegal, Glenda saves quite a bit and is pretty sure "everyone is doing it." Glenda can include the $500 cost of the prescription as a deductible medical expense.

Which of the following is not considered a deductible medical expense?

​Agnes is retired and has only a $12,000 annual pension as income. In 2016, Agnes' aunt dies and leaves her land worth $1.2 million. Agnes sees no need for the land and donates it immediately to a qualified public charity. Agnes may deduct a $1.2 million charitable contribution on her 2016 tax return.

Damage resulting from which of the following would probably not give rise to a casualty loss deduction?

Matthew purchases a new principal residence in the current year and pays points of $2,000 to obtain a mortgage loan. What is the proper tax treatment for the points paid?

Phillip, a single parent, would like to contribute $1,800 to an educational savings account for his 10-year-old son. His AGI is $98,000. Calculate the amount of the contribution he can make.

An employee may deduct the cost of welder's safety goggles used at work as a miscellaneous itemized deduction.

The investment interest expense deduction is limited to the taxpayer's net investment income.