Question 1

Which of the following types of interest are likely to be deductible in 2019?

Accepted Answer

A) Interest on personal credit cards 
B) Interest on a $40,000 home equity line used to buy a car 
C) Interest on a $150,000 mortgage on a principle residence 
D) Interest on a $90,000 home equity line used to pay college tuition 
E) All of these are likely to be deductible

Question 2

Which of the following is true about the self-employed health insurance deduction?

Accepted Answer

A) Dental insurance is not part of the allowable deduction. 
B) Medical insurance is allowed as a deduction, subject to a dollar limitation. 
C) Life insurance is allowed as a deduction. 
D) Long-term care insurance is allowed as a deduction, subject to a dollar limitation. 
E) The cost of insurance for dependent children is not allowed.

Question 3

Kat owns a small bungalow which is destroyed in a federally declared disaster in 2019. Kat is not insured for hurricane damage. 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.

Accepted Answer

The answer of Kat owns a small bungalow which is...

Question 4

Jim is a single high school chemistry teacher. In 2019, his chemistry lab is short supplies and so he spends $300 of his own money purchasing missing items needed for the upcoming labs. Jim may deduct the entire $300.

Accepted Answer

A) True 
 B)False

Question 5

For an individual taxpayer with AGI of $65,000, private mortgage insurance (PMI) is deductible in 2019.

Accepted Answer

A) True 
 B)False

Question 6

In 2019, the adjusted gross income (AGI) limitation on medical expenses is 15 percent.

Accepted Answer

A) True 
 B)False

Question 7

In 2019, Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, California using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Accepted Answer

A) True 
 B)False

Question 8

In 2019, David, age 65, had adjusted gross income of $32,000. During the year he paid the following medical expenses: $$\begin{array} { l r } 
\text { Prescription medicines } & \$ 200 \
\text { Doctors } & \$ 2,500 \
\text { Medical care insurance } & \$ 1,400 \
\text { Over-the-counter hair growth tonic } & \$ 250
\end{array}$$ ? What amount can David deduct as medical expenses (after the adjusted gross income limitation) in calculating his itemized deductions for 2019?

Accepted Answer

A) $0 
B) $900 
C) $1,700 
D) $4,100 
E) None of these is correct

Question 9

Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

Accepted Answer

A) True 
 B)False

Question 10

Jon, age 45, had adjusted gross income of $26,000 in 2019. During the year, he incurred and paid the following medical expenses: $$\begin{array} { l r } 
\text { Drugs and medicines prescribed by doctors } & \$ 300 \
\text { Health insurance premiums } & \$ 750 \
\text { Doctors' fees } & \$ 2,650 \
\text { Eyegl asses } & \$ 75
\end{array}$$ Jon received $900 in 2019 as a reimbursement for a portion of the doctors' fees. If Jon were to itemize his deductions, what would be his allowable medical expense deduction after the adjusted gross income limitation is taken into account?

Accepted Answer

A) $0 
B) $275 
C) $3,775 
D) $2,875 
E) None of these is correct

Question 11

Agnes is retired and has only a $12,000 annual pension as income. In 2019, 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 2019 tax return.

Accepted Answer

A) True 
 B)False

Question 12

What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2019 tax returns, assuming their self-employment income exceeds their medical insurance payments?

Accepted Answer

A) 60 percent 
B) 70 percent 
C) 50 percent 
D) 90 percent 
E) 100 percent

Question 13

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:

Accepted Answer

The answer of Sally and Jim purchased their personal residence...

Question 14

Which of the following interest expense amounts is not deductible in 2019?

Accepted Answer

A) Education loan interest of $2,000, assuming the taxpayer is single and has income of $150,000. 
B) Home equity loan interest of $9,000 on a loan of $100,000, the proceeds of which were used to purchase an addition to the taxpayer's primary residence. 
C) Investment interest expense of $10,000, assuming the taxpayer has $15,000 of net investment income. 
D) Points of $2,000 paid on a mortgage loan for the purchase of a new principal residence.

Question 15

Mortgage interest on a taxpayer's personal residence is not deductible on Schedule A.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

A) The points are a nondeductible personal expense. 
B) The points must be amortized over the life of the loan. 
C) The points are fully deductible in the current year. 
D) The points must be capitalized into the cost of the residence. 
E) The points must be amortized over 5 years.

Question 17

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. He is an active participant in his employer's pension plan. What is the maximum amount Donald can contribute to a Roth IRA in 2019?

Accepted Answer

A) $550 
B) $610 
C) $1,220 
D) $3,000 
E) $6,000

Question 18

Contributions by a self-employed individual to a SEP plan for 2019 are limited to the lesser of a percent of net earned income or:

Accepted Answer

A) $19,000 
B) $0 
C) $55,000 
D) $56,000 
E) None of these is correct

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is false about health savings accounts (HSAs)?

Accepted Answer

A) HSAs must be paired with qualifying high-deductible health insurance. 
B) Taxpayers qualifying for Medicare do not qualify to make HSA contributions. 
C) Distributions from HSAs which are not used for medical expenses are generally subject to a 20 percent penalty and income taxes. 
D) Distributions from HSAs which are used for qualifying medical expenses are not subject to tax or penalty. 
E) Deductible contributions to HSAs are unlimited.

Exam 5: Deductions for and From AGI

Which of the following types of interest are likely to be deductible in 2019?

Which of the following is true about the self-employed health insurance deduction?

Jim is a single high school chemistry teacher. In 2019, his chemistry lab is short supplies and so he spends $300 of his own money purchasing missing items needed for the upcoming labs. Jim may deduct the entire $300.

For an individual taxpayer with AGI of $65,000, private mortgage insurance (PMI) is deductible in 2019.

In 2019, the adjusted gross income (AGI) limitation on medical expenses is 15 percent.

In 2019, Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, California using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.

Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.

What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2019 tax returns, assuming their self-employment income exceeds their medical insurance payments?

Which of the following interest expense amounts is not deductible in 2019?

Mortgage interest on a taxpayer's personal residence is not deductible on Schedule A.

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?

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. He is an active participant in his employer's pension plan. What is the maximum amount Donald can contribute to a Roth IRA in 2019?

Contributions by a self-employed individual to a SEP plan for 2019 are limited to the lesser of a percent of net earned income or:

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

Which of the following statements is false about health savings accounts (HSAs) ?