Ch 10

Question 1

Acquisition indebtedness

Answer 1

Debt incurred in acquiring, constructing, or substantially improving a qualified residence of the taxpayer. The interest on such loans is deductible as qualified residence interest. However, interest on such debt is deductible only on the portion of the indebtedness that does not exceed $1,000,000 ($500,000 for married persons filing separate returns). ? 163(h)(3).

Question 2

Capital gain property

Answer 2

Property contributed to a charitable organization that if sold rather than contributed, would have resulted in long-term capital gain to the donor.

Question 3

Charitable contributions

Answer 3

Contributions are deductible (subject to various restrictions and ceiling limitations) if made to qualified nonprofit charitable organizations. A cash basis taxpayer is entitled to a deduction solely in the year of payment. Accrual basis corporations may accrue contributions at year-end if payment is properly authorized before the end of the year and payment is made within two and one-half months after the end of the year. ? 170.

Question 4

Health savings account (HSA)

Answer 4

A medical savings account created in legislation enacted in December 2003 that is designed to replace and expand Archer Medical Savings Accounts.

Question 5

Home equity loans

Answer 5

Loans that utilize the personal residence of the taxpayer as security. The interest on such loans is deductible as qualified residence interest. However, interest is deductible only on the portion of the loan that does not exceed the lesser of (1) the fair market value of the residence, reduced by the acquisition indebtedness, or (2) $100,000 ($50,000 for married persons filing separate returns). A major benefit of a home equity loan is that there are no tracing rules regarding the use of the loan proceeds. ? 163(h)(3).

Question 6

Medical expenses

Answer 6

Medical expenses of an individual, a spouse, and dependents are allowed as an itemized deduction to the extent such amounts (less insurance reimbursements) exceed 10 percent (or 7.5 percent if at least age 65) of adjusted gross income. ? 213.

Question 7

Miscellaneous itemized deductions

Answer 7

A special category of itemized deductions that includes expenses such as professional dues, tax return preparation fees, job-hunting costs, unreimbursed employee business expenses, and certain investment expenses. Such expenses are deductible only to the extent they exceed 2 percent of adjusted gross income. ? 67.

Question 8

Ordinary income property

Answer 8

Property contributed to a charitable organization that, if sold rather than contributed, would have resulted in other than long-term capital gain to the donor (i.e., ordinary income property and short-term capital gain property). Examples are inventory and capital assets held for less than the long-term holding period.

Question 9

Points

Answer 9

Loan origination fees that may be deductible as interest by a buyer of property. A seller of property who pays points reduces the selling price by the amount of the points paid for the buyer. While the seller is not permitted to deduct this amount as interest, the buyer may do so.

Question 10

Qualified residence interest

Answer 10

A term relevant in determining the amount of interest expense the individual taxpayer may deduct as an itemized deduction for what otherwise would be disallowed as a component of personal interest (consumer interest). Qualified residence interest consists of interest paid on qualified residences (principal residence and one other residence) of the taxpayer. Debt that qualifies as qualified residence interest is limited to $1 million of debt to acquire, construct, or substantially improve qualified residences (acquisition indebtedness) plus $100,000 of other debt secured by qualified residences (home equity indebtedness). The home equity indebtedness may not exceed the fair market value of a qualified residence reduced by the acquisition indebtedness for that residence. ? 163(h)(3).