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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 31

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Hannah makes the following charitable donations in the current year: $\begin{array}{lrr}&\text { Basis}&\text { Fair Market }\\&&\text { Value }\\\begin{array}{l}\text { Inventory held for resale in Hannah's business (a } \\\text { sole proprietorship) }\end{array} & \$ 8,000 & \$ 7,200 \\\begin{array}{l}\text { Stock in HBM, Inc., held as an investment } \\\text { (acquired four years ago) }\end{array} & 16,000 & 40,000 \\\begin{array}{l}\text { Baseball card collection held as an } \\\text { investment (acquired six years ago) }\end{array} & 4,000 & 20,000 \\\hline\end{array}$ The HBM stock and the inventory were given to Hannah's church, and the baseball card collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Hannah's current charitable contribution deduction is:

A) $28,000.
B) $51,200.
C) $52,000.
D) $67,200.
E) None of these.

F) A) and B)
G) D) and E)

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Question 32

True/False

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During the year, Eve (a resident of Billings, MT) spends three consecutive weeks in Louisville, KY. One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relatives. One-third of Eve's travel expenses will qualify as a charitable deduction.

A) True
B) False

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Question 33

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Linda borrowed $60,000 from her parents for a down payment on a condominium. She paid interest of $5,500 in 2017, $0 in 2018, and $9,000 in 2019. The IRS disallowed the deduction. Can you offer any explanation for the disallowance?

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.

Aaron, age 45, had AGI of $70,000 for 2019. He was injured in a skiing accident and paid $3,600 for hospital expenses and $2,400 for doctor bills. Aaron also incurred medical expenses of $1,200 for his child who lives with his former wife and is claimed as a dependent by her. In 2020, Aaron was reimbursed $1,300 by his insurance company for the medical expenses attributable to the skiing accident. For 2019, the standard deduction for single taxpayers is $12,200 and $18,350 for those claiming head-of-household status. a. Compute Aaron's deduction for medical expenses in 2019. b. Assume that Aaron would have elected to itemize his deductions even if he had no medical expenses in 2019. How much, if any, of the $1,300 reimbursement must be included in gross income in 2020? c. Assume that Aaron's other itemized deductions in 2019 were $16,900 and that he filed as a head of household. How much of the $1,300 reimbursement must he include in gross income in 2020?

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).

Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.

Samuel, a 36-year-old individual who has been physically handicapped for a year, paid $15,000 for the installation of wheelchair ramps, support bars, railings, and widening doorways in his personal residence. These improvements increased the value of his personal residence by $4,000. How much of Samuel's expenditures qualify as a medical expense deduction (subject to the 10%-of-AGI floor)? Explain.

Trent sells his personal residence to Chester on July 1, 2019. He had paid $7,000 in real property taxes on March 1, 2019, the due date for property taxes for 2019. Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Charitable contributions that exceed the percentage limitations for the current year can be carried over for up to three years.

For all of the current year, Randy (a calendar year taxpayer) allowed the Salvation Army to use rent-free a building he owns. The building normally rents for $24,000 a year. Randy will be allowed a charitable contribution deduction this year of $24,000.

Shirley sold her personal residence to Mike for $400,000. Before the sale, she paid the real estate taxes of $7,030 for the calendar year. For income tax purposes, the deduction is apportioned as follows: $4,000 to Shirley and $3,030 to Mike. a. What is Mike's basis in the residence? b. What is Shirley's amount realized from the sale of the residence? c. What amount of real estate taxes can Mike deduct? d. What amount of real estate taxes can Shirley deduct?

On 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 qualifies as a medical expense.

This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using a home equity loan of $350,000 on her principal residence. She has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming that Carol itemizes her deductions?

Quinn, who is single and lives alone, is physically handicapped as a result of a diving accident. To live independently, he modifies his personal residence at a cost of $30,000. The modifications included widening halls and doorways for a wheelchair, installing support bars in the bathroom and kitchen, installing a stairway lift, and rewiring so he could reach electrical outlets and appliances. Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after. As a result of the operation of the stairway lift, Quinn experienced an increase of $680 in his utility bills for the current year. Disregarding the AGI floor for medical expenses, how much of these expenditures qualify as medical expense deductions?

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.

Richard, age 50, is employed as an actuary. For calendar year 2019, he had AGI of $130,000 and paid the following medical expenses: Medical insurance premiums $5,300 $\begin{array}{lr}\text { Doctor and dentist bills for Derrick and Jane (Richard's parents) } & 7,900 \\\text { Doctor and dentist bills for Richard } & 5,100 \\\text { Prescribed medicines for Richard } & 830 \\\text { Nonprescribed insulin for Richard } & 960\end{array}$ Derrick and Jane would qualify as Richard's dependents except that they file a joint return. Richard's medical insurance policy does not cover them. Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2019 and received the reimbursement in January 2020. What is Richard's maximum allowable medical expense deduction for 2019?

Diane contributed a parcel of land to the United Way. In addition, she contributed bibles and song books from her proprietorship's book store inventory to First Church, a qualified charitable organization. Should Diane's charitable contribution deduction for these contributions be determined by the basis or fair market value of the contributed items?

Which of the following items would be an itemized deduction on Schedule A of Form 1040?

For the past several years, Jeanne and her two sisters have taken turns claiming a dependency exemption deduction for their mother under a multiple support agreement. This year Jeanne will be entitled to the exemption, and her mother needs money for surgery and new eyeglasses. Should Jeanne pay for the medical expenses as her share of her mother's expenses? How would this benefit Jeanne?