Chapter 10

Question 1

What is Bunching

Answer 1

Bunching of deductions is when you bunch deductions in a single year (giving charity every 2 years instead of every year) to get a higher tax benefit and take the standard deduction

Question 2

What medical expenses are deductible

Answer 2

General medical expenses except elective cosmetic surgeries (generally), general health items (gym), and non prescription drugs (generally). Exceptions occur as business expenses

Question 3

What percent of medical expenses are deductible

Answer 3

Excess in 7.5% of AGI

Question 4

How are medical expense deductions a stealth tax

Answer 4

The more money you make the less you can deduct as medical expenses. This makes every new dollar taxed at a higher rate because you have extra taxable income per new dollar of AGI.

Question 5

What business taxes can you deduct on a federal tax return

Answer 5

State/local taxes on business/rental.

Question 6

What personal taxes can you deduct on a federal tax return

Answer 6

Sch. A deduct the following but less than 10k

• State/local personal property based on value
• State/local real property taxes
• State/local income taxes

Question 7

What can you deduct interest expense for

Answer 7

Business interest / Rental interest
Student loan interest (above the line)
Investment interest
Qualified residence interest

Question 8

How is interest qualified on student loans treated

Answer 8

Deductible for AGI
Max 2500 per year
Phases out for tax payers with AGI between 70 and 85k (stealth tax)
Not allowed if deductor is dependent of MFS

Question 9

What is investment interest

Answer 9

Interest on loans whose proceeds are used to purchase investment property (stocks, bonds, land)
Temporary BTD
Carry forward limited to total investment income

Question 10

What is qualified residence interest

Answer 10

Interest on indebtedness secured by principle residence and one other qualified residence (see slides for more info). Interest paid on acquiring debt <750k is qualified interest if it is required to construct/improve the home

Question 11

How do you treat state and local refunds

Answer 11

Include in GI he less amount of refund enjoyed in prior year or refund.

Question 12

You have state and local taxes withheld 10,000 and a charity deduction of 3,000. If you are single should you itemize or take the SD

Answer 12

You should itemize because the 13,000 in tax benefit is greater than the 12,400 provided by the standard deduction

Question 13

State and local taxes withheld for 2020 is 10,000. Actual amount due is 9900 so the state gives you a refund of $100 in 2021. How is this refund treated?

Answer 13

According to the tax benefit rule, include refund (deductible) enjoyed in prior year in GI. The $100 is taxable.

Question 14

To deduct charitable contributions they must be made to what

Answer 14

U.S. charities

Question 15

What are the conditions of a charitable donation, can you receive a benefit

Answer 15

Must have donative intent and expect nothing in return. If you receive tangible benefit the FMV should be deducted from the amount of contribution

Question 16

There is a U.S. based charity and Poland based charity, which can you afford to donate more to

Answer 16

The U.S. charity because you can donate more and deduct it through itemization given MTR > 0 and not taking standard deduction. You cannot deduct a non U.S. charity.

Question 17

How do you deduct gambling losses

Answer 17

Deduct the amount of losses to the extent of gambling winnings. You cannot deduct hobby expenses

Question 18

How do you deduct unrecovered investment in annuity

Answer 18

Itemize. Must be due to death.