Chapter 7 - Itemized Deductions

Question 1

Below the Line Deductions

Answer 1

Includes: Medical expenses, taxes, interest, charitable contributions, casualty losses, miscellaneous itemized deductions.

Question 2

Medical Expenses - deductible

Answer 2

A person that itemizes can only deduct anything beyond 7.5% of their AIG. i.e. updating a bathroom.

Removal of structural barriers, add no value and are fully deductible.

Prescription Drugs
Expenses Related to Diagnosis,
Cure, and Treatment
Health Insurance Premiums - 100%
Capital Expenditures
Nursing Home and Special Schools 100% if for medical
Travel and Lodging (17 cents per mile and $50/night)

Question 3

Capital Improvements on Home

Answer 3

deductible to extent the cost of improvement exceeds the increase in value to the home.

Question 4

Taxes (state and local property and income) and Interest

Answer 4

TAXES (10k limit)
Prior to TCJA certain taxes such as State Income and Local Property Taxes were unlimitedly deductible, commonly known as “SALT” deduction.
Now TCJA limits to $10k total each year.

INTEREST (no limit)
Residence interest for primary and 1 more home.
Interest incurred in trade or business
Interest incurred in production of income
Investment Interest - net investment income NII
Prepaid interest, points: 100% in year of improvement or purchase.

Question 5

Charitable Giving

Answer 5

• Qualified organization
• Property, not service
• Deductible portion must exceed value received by donor
• Paid in cash or property before close of tax year.

Question 6

Charitable Giving in Cash - Itemized Deduction

Public / Private

Answer 6

Public = 60% of AGI
Ex. $100k AGI can only deduct 60% or $60k. So if $75k is donated, $15k will carry over for 5 years.

Private = 30% of AGI

Corporate Deduction is 10% of taxable income. Can move above the line.

Question 7

Charitable Giving in Property/Stock - Itemized Deduction

Public / Private

Answer 7

Non long term Capital Gain Property /Stock
Public 50%
Private: 30%

Long term capital gain Property / Stock
Public 30%
Private 20%

Question 8

Casualty Loss Deduction

Answer 8

Personal Loss can only be claimed in disaster declared by president.

Only since 2018

Business Loss - Above the line deduction
Personal Loss - Below the line deduction

Question 9

Personal Casualty and Theft Deduction Amount

Answer 9

Lesser of:

decline in value of asses less insurance proceeds
OR
taxpayer’s adjusted basis in the asset less insurance proceeds

• $100 deduction per occurrence
• Only casualties in access of 10% AGI are deductible

Question 10

Business Casualty and Theft Losses

Answer 10

Above the line deduction

Deductibility depends on if FMV down to zero or

loss = adjusted bases in property less insurance proceeds.

Question 11

QBI - Qualified Business Income - Eligible Entities

Answer 11

Below the line deduction

Available regardless if itemized or not

Use to create equality in treatment of Pass-through entities vs C corps.

QBI does include all business related income that passes through to the individual and is reported on the Form 1040

Question 12

QBI Calculated

Answer 12

Lesser of:
20% of QBI
OR
20% of Adjusted taxable income minus capital gains

QBI phase out:
MFJ: $326,600 - $426,600
All others: $163,300 - $213,300

Limited to only some service businesses if above income limit phase out.