Exam 5: Itemized Deductions and Other Incentives

Melvin owns his home and has a $200,000 mortgage related to his purchase of the residence. In the fall of 2014, he borrows $40,000 on credit cards for college costs for his two sons. The interest expense on the mortgage is $15,000 and the interest expense on the credit cards is $6,000. How much of the interest is deductible as an itemized deduction and why? If you were Melvin's accountant, what tax planning suggestion might you have made to him?

During 2014, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture's fair market value was $1,500 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 $500 ($1,500 - $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 $500 gain would have been a long-term capital gain, calculate the amount of his itemized deduction for the contribution.

Pat has a dependent daughter and files as head of household. She has AGI of $375,000. What percentage of the $3,950 personal exemption and $3,950 dependency exemption may she deduct on her 2014 income tax return?

Fran paid the following amounts of interest during 2014: Calculate the amount of Fran's interest deduction for 2014.

Which of the following charitable contributions is not tax deductible?

Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.

If an employee receives a reimbursement for employee business expenses, the amount of the reimbursement is always excluded from gross income and the expenses are deductible as deductions for adjusted gross income.

Expenses of education to improve or maintain existing skills are deductible as a miscellaneous itemized deduction even if the education incidentally leads to qualification in a new job or business.

During 2014, Sarah, age 29, had adjusted gross income of $13,000 and paid the following amounts for medical expenses: In 2014, Sarah drove 106 miles for medical transportation in her personal automobile, and she uses the standard mileage allowance. Her insurance company reimbursed Sarah $300 during the year for the above medical expenses. Using the schedule below, calculate the amount of Sarah's deduction for medical and dental expenses for the 2014 tax year.

All personal casualty losses incurred during the year are added together and only one $100 floor amount is used to reduce the casualty deduction.

Charles, a corporate executive, incurred business related, unreimbursed expenses in 2014 as follows: Assuming that Charles itemizes his deductions, how much of these expenses should he deduct on his 2014 Schedule A, before considering the 2 percent of adjusted gross income limitation?

If the taxpayer fails to locate a job, job hunting expenses are not deductible.

The cost of an appraisal of a painting may be deducted if the purpose of the appraisal is related to the preparation of an income tax return.

For 2014, the investment interest expense deduction is limited to the taxpayer's net investment income.

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

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

Ellen and Rick are married with one dependent child. They have AGI of $355,250, 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 2014: ​ a. Itemized deductions allowed after the phase-out for high-income taxpayers. b. Exemption deductions (ordinarily $3,950 x 3) after the high-income phase-out. c. Taxable income.

The cost of over-the-counter aspirin and decongestants is a deductible medical expense even though they are non-prescription drugs.

Kat owns a small bungalow which is destroyed in a fire. Kat is not insured for fire. The bungalow originally cost $22,000, but was worth $45,000 before the fire. Kat has $30,000 of adjusted gross income. How much can Kat claim as a casualty loss in her tax return? Explain.

The cost of uniforms is deductible only by self-employed taxpayers.