Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.
False
All of the listed personal expenditures except Federal income taxes are deductible as itemized deductions.
The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.
False
The election to itemize is appropriate when total itemized deductions exceed the standard deduction based on the taxpayer's filing status.
Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance, Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
False
Unnecessary cosmetic surgery is not deductible. However, Adrienne's surgery restored her appearance and corrected a problem caused by the accident.
A physician recommends a private school for Ellen's dependent child. Because of the physician's recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).
False
A recommendation of a physician, although helpful, does not make the expenditure automatically deductible as a medical expense.
Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.
False
The appraisal fee does not qualify as a medical expense, but it qualifies as a deduction under � 212 (related to the determination of tax liability) as a miscellaneous itemized deduction.
Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed's increase in utility bills due to the operation of the pool qualifi
True
Such expense does qualify as a medical expense.
Mason, a physically handicapped individual, pays $10,000 this year for the installation of wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the value of his personal residence by $2,000. Only $8,000 of th
False
The full $10,000 is included as a medical expense under a special rule applicable to physically handicapped persons.
Chad pays the medical expenses of his son, James. James would qualify as Chad's dependent except that he earns $7,500 during the year. Chad may claim James' medical expenses even if he is not a dependent.
True
Chad may deduct the medical expenses. The gross income test is waived in determining dependency status for medical expense purposes.
Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
True
The joint return test is waived in determining dependency status for medical expense deduction purposes. Bill may include the $2,500 in calculating his medical expenses.
In 2016, Dena traveled 600 miles for specialized medical treatment that was not available in her hometown. She paid $90 for meals during the trip, $145 for a hotel room for one night, and $15 in parking fees. She did not keep records of other out-of-pocke
True
Dena can deduct $114 (600 miles � 19 cents per mile) for transportation. The 19 cents per mile automatic mileage option for medical transportation does not include related parking fees and tolls, so she also can deduct the $15 paid for parking fees.
Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for lodging. The cost of Maria's airfare and lodging canno
False
A deduction is allowed for transportation and lodging expenses. In addition, Maria's deduction for lodging is allowed, since it falls within the limit of $50 per night.
In 2016, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the $3,000 in computing his medical expense deduction for the year.
Taxpayers over age 70 may include up to $4,870 of long-term care insurance premiums in computing medical expenses.
Jim's employer pays half of the premiums on a group medical insurance plan covering all employees, and employees pay the other half. Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in det
True
Medical coverage provided by an employer is a nontaxable fringe benefit. Premiums paid by the taxpayer may be included in determining deductible medical expenses.
Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2016. He expects $5,000 of these expenses to be reimbursed by an insurance company in 2017. In determining his medical expense deduction for 2016, Matt must reduce his 2016 medical expens
False
Unlike the casualty loss deduction, the medical expense deduction does not have to be reduced by anticipated recoveries. Matt can include all $11,000 as a medical expense in 2016.
In 2017, Rhonda received an insurance reimbursement for medical expenses incurred in 2016. She is not required to include the reimbursement in gross income in 2017 if she claimed the standard deduction in 2016.
True
The reimbursement is included in gross income only to the extent the taxpayer derived a tax benefit from deducting the expense in the previous year. Because Rhonda did not itemize in 2016, she received no tax benefit.
Georgia contributed $2,000 to a qualifying Health Savings Account in the current year. The entire amount qualifies as an expense deductible for AGI.
True
The payment to the HSA is a deduction for AGI, not an itemized medical expense deduction.
Shirley pays FICA (employer's share) on the wages she pays her maid to clean and maintain Shirley's personal residence. The FICA payment is not deductible as an itemized deduction.
True
The payment is a nondeductible personal expense.
Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business
True
As noted in the text, certain taxes are deductible and certain are nondeductible. Specified taxes (such as state income taxes and real and personal property taxes) are deductible as itemized deductions, but personal fees are not. However, fees incurr
A taxpayer may not deduct the cost of new curbing (relative to a personal residence), even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.
True
Such assessments are added to the basis of the taxpayer's property.
Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence. The new curbing was installed throughout Sergio's neighborhood as part of a street upgrade project. Sergio may not deduct $
True
Such assessments are added to the basis of the taxpayer's property.
Trent sells his personal residence to Chester on July 1, 2016. He had paid $7,000 in real property taxes on March 1, 2016, the due date for property taxes for 2016. Trent may not deduct the portion of the taxes he paid for the period the property was owne
True
The real property taxes paid by the seller (Trent) but apportioned to the buyer (Chester) is treated as reducing the amount Trent realized from the sale of the residence. Trent may not deduct the portion of the taxes related to the period Chester own
Herbert is the sole proprietor of a furniture store. He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.
True
Herbert may deduct the real property taxes on the store building as a business expense. However, the position of the IRS is that state and local income taxes imposed upon an individual are deductible only as itemized deductions, even if the taxpayer'
Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship. Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.
False
State and local income taxes imposed on an individual are deductible only as an itemized deduction even if the taxpayer's sole source of income is from a business.
In April 2016, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2015. Even though it relates to 2015, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2016.
True
The amount is deductible in 2016 because Bertie is a cash basis taxpayer.
In January 2017, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2016. The payment is deductible in 2016.
False
Cash basis taxpayers can deduct amounts paid or withheld for state income taxes in the year paid, no matter which year the payments pertain to. The January 2017 payment is a deduction for 2017.
Phyllis, a calendar year cash basis taxpayer who itemized deductions totaling $20,000, overpaid her 2015 state income tax and is entitled to a refund of $400 in 2016. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2016. Sh
True
It does not matter for Federal income tax purposes whether the overpayment is refunded or applied toward the 2016 state income tax liability if the overpayment resulted in a tax benefit.
For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.
False
A qualified residence includes the taxpayer's principal residence and one other residence of the taxpayer or spouse.
For purposes of computing the deduction for qualified residence interest, a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.
False
A qualified residence includes a principal residence and one other residence.
For purposes of computing the deduction for qualified residence interest, a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.
False
A qualified residence includes a principal residence and one other residence.
Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns) is deductible as qualified residence interest.
False
A $1 million limit for qualified residence interest applies to acquisition indebtedness ($500,000 or less for married persons filing separately).
A taxpayer pays points to obtain financing to purchase a second residence. At the election of the taxpayer, the points can be deducted as interest expense for the year paid.
False
The special rule for the expensing of points applies when a personal residence is involved (i.e., the taxpayer's principal residence).
Points paid by the owner of a personal residence to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage.
True
Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase. Jack can deduct the points as interest.
False
Points paid by the seller of a personal residence are deductible as interest by the buyer (i.e., Steven). Such amounts reduce the seller's (Jack's) amount realized.
Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early. The $1,600 is deductible as interest expense.
True
Prepayment penalties are considered to be deductible interest.
Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds. The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.
False
Interest incurred to purchase or carry tax-exempt bonds is not deductible.
Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2016. He prepaid all $3,600 of the interest on the loan on December 1, 2016. Joe can deduct only $300 of the prepaid interest in 2016.
True
Cash basis taxpayers are required to allocate prepaid interest to the tax years to which the interest relates. Therefore, Joe can deduct only $300 ($3,600 X 1/12) in 2016 and the other $3,300 in 2017.
Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2016. The $2,200 contribution is deductible on Sadie's 2016 tax return.
True
The mailing date is treated as the date of the charitable contribution.
On December 31, 2016, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2017. If Lynette itemizes, she can deduct the $500 in 2016.
True
The date the charge is made on a credit card determines the year of deduction.
Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn. Judy may claim an $80 charitable contribution deduction.
False
The deduction is limited to the excess of the amount paid over the value of the benefit received (i.e., the cookies and popcorn).
For all of the current year, Randy (a calendar year taxpayer) allowed the Salvation Army to use a building he owns rent-free. The building normally rents for $24,000 a year. Randy will be allowed a charitable contribution deduction this year of $24,000.
False
The rent-free use of building space is not deductible as a charitable contribution.
Al contributed a painting to the Metropolitan Art Museum of St. Louis, Missouri. The painting, purchased six years ago, was worth $40,000 when donated, and Al's basis was $25,000. If this painting is immediately sold by the museum and the proceeds are pla
True
The property was put to an "unrelated use" by the charitable organization. Al is allowed a deduction for the contribution based on the $25,000 basis, not the $40,000 FMV.
During the year, Victor spent $300 on bingo games sponsored by his church. If all profits went to the church, Victor has a charitable contribution deduction of $300.
False
Costs of raffles, bingo, or lottery tickets do not qualify for the charitable deduction regardless of who receives the profits.
In 2016, Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah. In addition, she spent $250 for meals while away from home. In total, Allison may take a charitable contribution deduction of $112 (800 mi
False
Transportation for charitable purposes is deductible at 14 cents per mile. The cost of meals is deductible because they were incurred while the taxpayer was away from home. Therefore, Allison's charitable contribution deduction is $362 [$250 + (800
During the year, Eve (a resident of Billings, Montana) spends three consecutive weeks in Louisville, Kentucky. One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relative
False
Two weeks out of three weeks would be considered "a significant element" for vacation time. Therefore, none of Eve's travel expenses will qualify.
In order to dissuade his pastor from resigning and taking a position with a larger church, Michael, an ardent leader of the congregation, gives the pastor a new car. The cost of the car is deductible by Michael as a charitable contribution.
False
The pastor is not a qualified charitable organization. Therefore, the gift is not deductible as a charitable contribution.
Dan contributed stock worth $16,000 to his college alma mater, a qualified charity. He acquired the stock 11 months ago for $4,000. He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).
False
Dan's deduction is $4,000, the basis of the property. Contributions of short-term capital gain property are treated the same as contributions of ordinary income property and the amount of the deduction is measured by its basis.
Ronaldo contributed stock worth $12,000 to the Children's Protective Agency, a qualified charity. He acquired the stock 20 months ago for $7,000. He may deduct $7,000 as a charitable contribution deduction (subject to percentage limitations).
False
Ronaldo's deduction is $12,000, the FMV of the property. Capital gain property contributions usually are measured by FMV, not basis.
Capital assets donated to a public charity that would result in long-term capital gain if sold, are subject to the 30%-of-AGI ceiling limitation on charitable contributions for individuals.
True
However, a limited exception applies if the long-term capital gain property is tangible personalty that is put to an unrelated use by the charity. In this situation, the deduction is subject to the 50%-of-AGI limitation.
Noah gave $750 to a good friend whose house was destroyed by an earthquake. In addition, Noah contributed his time, valued at $250, in the cleanup effort. Noah may claim a charitable deduction of $1,000 on his tax return for the current year.
False
Gifts of property made to needy individuals are not tax deductible. Deductible gifts need to be made to a qualifying charity. Furthermore, contributions of one's services, even if provided to a qualifying charity, are not deductible.
Maria made significant charitable contributions of capital gain property in the current year. In fact, the amount of the contributions exceeds 30% of her AGI. The excess charitable contribution that is not deductible this year can be carried over for five
True
A five year carryover period applies. In the carryover process, the carryover will continue to be classified as 30 percent property.
Charitable contributions that exceed the percentage limitations for the current year can be carried over for up to three years.
False
A five year carryover period applies to individual taxpayers.
Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.
True
They will continue to be subject to the 30% ceiling.
Contributions to public charities in excess of 50% of AGI may be carried back 3 years or forward for up to 5 years.
False
They may be carried forward for up to 5 years, but they may not be carried back.
Employee business expenses for travel qualify as itemized deductions subject to the 2%-of-AGI floor if they are not reimbursed.
True
Unreimbursed employee expenses qualify as itemized deductions subject to the 2%-of-AGI floor.
Gambling losses may be deducted to the extent of the taxpayer's gambling winnings. Such losses are subject to the 2%-of-AGI floor for miscellaneous itemized deductions.
False
Gambling losses may be deducted to the extent of the taxpayer's gambling winnings. However, such losses are not subject to the 2%-of-AGI floor for miscellaneous itemized deductions.
A phaseout of certain itemized deductions applies for all taxpayers who choose to itemize their deductions.
False
The phaseout of certain itemized deductions applies to only certain high-income taxpayers.
Your friend Scotty informs you that he received a "tax-free" reimbursement in 2016 of some medical expenses he paid in 2015. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
a. Scotty
b. Scotty did not itemize deductions in 2015.
If Scotty did not itemize in 2015, he can exclude the reimbursement from gross income in 2016. If Scotty itemized deductions in 2015, he must report the reimbursement as gross income in 2016 to the extent he r
In 2016, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true?
a. If Boris is self-employed, he may deduct $
a. If Boris is self-employed, he may deduct $7,200 as a deduction for AGI.
Boris, who is self-employed, may deduct 100% of the premium ($3,800) as a deduction for AGI. He may also deduct the $3,400 HSA contribution as a deduction for AGI.
Rick and Carol Ryan, married taxpayers, took out a mortgage of $160,000 when purchasing their home ten years ago. In October of the current year, when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage, the Ryans took out
Interest is deductible only on the portion of a home equity loan that does not exceed the lesser of:
?
The fair market value of the residence, reduced by the acquisition indebtedness ($200,000 FMV - $125,000 acquisition indebtedness = $75,000).
$100,000 (
Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 15 years ago. In May of this year, when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage, they took out a home equity loan for $220,000
Interest is deductible only on the portion of the $220,000 home equity loan that does not exceed the lesser of:
?
The fair market value of the residence, reduced by the acquisition indebtedness ($450,000 FMV - $250,000 acquisition indebtedness = $200,000)
Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this info
b
The taxpayer's donation of $1,000 in lieu of the normal $200 registration fee would be deductible to the extent of $800 [$1,000 - $200 benefit received (the registration fee)]. The tuition of $6,000 is a personal expense that cannot be deducted as a cha
In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games. Also this year, Jerry pays $2,200 (the reg
b
Under the exception to the tangible-benefit-received rule, Jerry can deduct $6,400 (80% of $8,000) of the charter membership to Mammoth University's Athletic Council. The amount Jerry pays ($2,200) to purchase tickets at the regular price is not deducti
Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpent
d
RATIONALE: Emily cannot deduct the estimated value of $1,500 of her contributed services. However, she can deduct out-of-pocket costs of $2,200 ($600 for transportation, $1,200 for lodging, and $400 for meals).
Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the sto
b
RATIONALE:
If ordinary income property is contributed to a qualified charitable organization, the deduction is equal to the fair market value of the property less the amount of ordinary income that would have been reported if the property were sold. In
Zeke made the following donations to qualified charitable organizations during the year:
Used clothing (all acquired more than a year ago) of taxpayer and his family:
Basis $ 1,350; FMV $ 375
Stock in ABC, Inc., held as an investment for fifteen months:
B
b. $56,250.
For the used clothing and the ABC stock, fair market value controls in determining the amount of the deduction. The ABC stock was held long term, but it was not appreciated property. The MNO stock would not yield a long-term capital gain if so
Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year:
Cash donation to State University
Basis $30,000; FMV $ 30,000
Unimproved land to the City of Terre Haute, Indiana
Basis 70,000; FMV 210,00
b. $165,000
$30,000 (cash) + $135,000 (30% � $450,000 AGI) = $165,000. The capital gain property is limited to 30% of $450,000 AGI, or $135,000. The carryover to the next five years is $75,000 [$210,000 (FMV of the land) - $135,000 (deduction allowed for
Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the 2%-of-AGI floor?
a. Professional dues paid by an accountant (employed by Ford Motor Co.) to the National Association of Accountants.
b. Gambling loss
b. Gambling losses to the extent of gambling winnings.
Items a., c., and d. are miscellaneous deductions that are subject to the 2%-of-AGI floor.
aul, a calendar year married taxpayer, files a joint return for 2016. Information for 2016 includes the following:
AGI $175,000
State income taxes 13,500
State sales tax 3,000
Real estate taxes 18,900
Gambling losses (gambling gains were $12,000) 6,800
Pa
c. $39,200.
State income taxes exceed state sales tax, so the state sales tax is not deductible (even if that option is available in 2016). The itemized deductions allowed are $39,200 ($13,500 + $18,900 + $6,800). Paul is not subject to the overall limita
Ross, who is single, purchased a personal residence eight years ago for $170,000 and took out a mortgage of $100,000 on the property. In May of the current year, when the residence had a fair market value of $220,000 and Ross owed $70,000 on the mortgage,
Interest is deductible only on the portion of a home equity loan that does not exceed the lesser of:
?The fair market value of the residence, reduced by the acquisition indebtedness ($220,000 FMV - $70,000 acquisition indebtedness = $150,000).
or, ?$100,0