Chapter 7 Flashcards
Clint is an avid fan of his alma-mater’s football team. The team has had such a good record in the last six years that getting tickets to the games has proven difficult. Recently the school announced that those wishing to purchase football tickets could have their name placed on a waiting list once they made a $5,000 contribution to the University. Since Clint did not want to miss any of the games, he made the contribution, and also paid $1,000 for the season tickets. How much can Clint deduct as a charitable contribution on his income tax return?
$0
Owen is a tax attorney who specializes in intergenerational wealth transfer planning. He is also very charitably inclined, and sits on several charitable boards. A local animal shelter and Friends of Animals group recently decided to work together on joint goals, and decided to form a new charitable organization, which meets the definition of a public charity. Owen created the organization and received exempt determination status from the IRS. He usually charges $5,000 to perform this service, plus the exempt determination letter fee charged by the IRS of $500, but he volunteered for this activity since his wife will be on the board. Owen was not reimbursed for the expenses he incurred. Assuming that his AGI and contribution base is $150,000, how much can Owen deduct for income tax purposes?
$500
Alana, a college student, had her car recently broken into. The perpetrators caused $800 in damage to her car, and stole a camera with a fair market value of $700 that was originally purchased for $1,500. Alana’s AGI for the year is $8,000. How much can Alana claim as a casualty loss deduction on her income tax return this year?
$0
All of the following statements regarding the Section 199A qualified business income deduction are correct, except:
The deduction is not available for service businesses such as health and accounting.
Jake’s AGI for 2023 is $100,000. He inherited a large amount of money from the estate of his grandfather, and is very charitably inclined. A recent earthquake devastated several cities on the West Coast, and Jake wanted to assist in getting the people affected back on their feet. He gave a $75,000 donation to the Red Cross, which is spearheading relief efforts in the region. How much of the contribution can Jake deduct on his income tax return in 2023?
$60,000
In which of the following situations would educational expenses be deductible for income tax purposes in tax years after 2025?
A financial planner takes classes necessary to sit for the CFP® Certification Examination.
Sara is single and her share of qualified business income from a partnership is $80,000. Her total taxable income from all sources, before taking the 20% deduction for QBI, is $70,000. What is the amount of the Section 199A qualified business income deduction that Sara can take this year?
$14,000
Trisha, age 66, has a severe asthmatic condition, and her physician recommended that she install a lap pool in her home so that she can swim regularly, which should help control her condition. Trisha has a friend who is a real estate agent, and strongly advised her not to install the pool, since pools depress the market value of homes in the area. If Trisha’s AGI for the year is $100,000 how much of the cost of the lap pool can Trisha actually deduct as a medical expense if it cost her $12,000 to install the pool and all of her other health insurance costs were covered by her health insurance policy? The value of the house did not change due to the pool.
$4,500 as an itemized deduction.
Nelson is in a high tax bracket and decided to add some public purpose municipal bonds to his portfolio. He did not want to liquidate any of his current positions to acquire the bonds, however, so he took out a margin loan to make the purchase. Nelson incurred $800 of margin interest on the loan used to purchase the bonds and received $600 of coupon payments from the bonds this year. Assuming that Nelson had no other margin interest or other investment income this year, which of the following statements is correct?
Nelson cannot deduct any of the margin interest incurred this year.
Last year, Tim incurred the following tax expenses and related items:
Federal income tax paid with return $2,150
State income tax withheld this year $4,500
State income tax paid with return this year
$600
Real estate taxes paid on residence
$6,500
Sewer and water tax
$600
Car tax (flat rate for all car owners)
$300
State income tax refund from prior year $400
How much can Tim claim as a deductible tax expense for his itemized deductions this year?
$10,000
Rory and Joey Stapleton purchased their home in 2012 and took out a mortgage of $1,000,000. The current loan balance is $875,000 and the fair market value of the home is $1,400,000. The rate on their existing loan is 6% and the current rate for home loans is 4.5%. The Stapletons also have $7,000 of credit card debt at 14% interest. If the Stapletons refinance their mortgage, which of the following statements is(are) true regarding their ability to deduct interest on the refinanced loan?
- The Stapletons can refinance the credit card debt into the refinanced mortgage and deduct the full amount of the interest.
- The Stapletons can refinance the existing $875,000 mortgage and deduct the interest on the entire amount.
- The Stapletons can take out a home equity loan for $7,000 to pay off their credit card debt and can fully deduct the interest.
2 only
Naomi, a small business owner who is worn out from years of work without a vacation, decides she needs a break and wants to go on a 3-month cruise around the world. The cost of the cruise is $45,000, and Naomi does not have the liquid funds to pay for the extravagant vacation. Naomi does not want to liquidate investments to cover the expenses, and does not want to incur high-interest credit card debt. Her only debt outstanding is the remaining balance on her mortgage of $60,000, so she decides to take out a home equity loan for $45,000 to pay for the trip. Which of the following statements concerning this situation is correct?
The interest on the loan is not deductible because it is not acquisition indebtedness.
June and Ernest Carter have asked their financial planner for advice on minimizing overall income taxation. The Carter’s AGI this year will be $120,000 and they expect it to remain the same next year. They expect to pay state and local income taxes of $5,900 and real property taxes of $2,500 both this year and next. They give $4,000 per year in offering to their church, and every three years they donate $11,000 to the children’s hospital that treated their 3-year-old daughter for cancer just prior to her death 11 years ago. The contribution to the children’s hospital will be made in February of next year. This year they will pay $8,000 in mortgage interest and will pay off the mortgage in December of the current year. Which of the following recommendations will result in the greatest tax savings for the Carters over the 2-year period?
Make the $11,000 contribution to the children’s hospital and donate $1,000 of next year’s offering to the church in December of the current year.
Tammy has been an avid investor since her teenage years, when her uncle taught her the basics of investing. This year, Tammy incurred investment interest expense of $800. Tammy had $200 of nonqualified dividend income and $100 of interest income this year since she has a growth focus in her portfolio. Tammy also realized $600 of long-term capital gains for the current year. Applying the default rules for the deductibility of investment interest expenses, which of the following statements is correct?
Tammy will be able to carryover $500 of investment interest expense to deduct against future investment income in subsequent tax years.
Which of the following statements concerning the Section 199A qualified business income deduction is correct?
It applies at the individual level, so one business owner may be able to take the deduction while another owner of the same business cannot.
