Chapter 8 Questions Flashcards
A business purchase of a warehouse is deductible in the year it was purchased.
False. A purchase of property expected to last longer than a year is a capital expenditure. Such expenditures are not deductible but depreciation may be taken in later years.
Repairs to a business’s van would be deductible in the year they are made.
True. Vehicle repairs are an ordinary and necessary part of conducting business.
Repairs to an individual’s commuter car would be deductible in the year they are made.
False. Nonbusiness personal expenses are not deductible.
Any eligible purchase made with an FSA or an HSA is also deductible as a medical expense
False. Expenses paid from an FSA or HSA are not deductible.
Starting in 2019, medical expenses are only deductible to the extent they exceed a floor of 10% of AGI
True. This rule limits the number of people who will deduct medical expenses.
Small business owners can deduct medical insurance premiums above-the-line whereas employees must deduct these premiums below-the-line subject to a 10% AGI floor.
True. People who must pay their own medical insurance premiums might consider opening a small business just to take advantage of this rule.
No long-term care expenses are deductible if someone has purchased long-term care insurance.
False. Long-term care expenses paid above-and-beyond long-term care insurance benefits may still be deductible, subject to other limitations.
For individuals and businesses, paid state income taxes are deductible below-the-line.
False. Businesses may deduct state income taxes above-the-line. Only individuals deduct these taxes below-the-line.
Individuals may choose to deduct state sales taxes instead of state income taxes.
True. This rule is particularly relevant to individuals living in states with no income tax.
Whether interest from an automobile loan is deductible depends on whether the automobile is purchased by a business or an individual.
True. The business is likely able to deduct the interest above-the-line while the individual will not be able to deduct the interest.
A surgeon (AGI = $400K) with $200K of student loans can deduct up to $2,500 of interest on those loans every year.
False. The deductibility of student loan interest is subject to a phaseout starting at an AGI of $80K (single) or $165K (MFJ).
Large donations to private charities are subject to stricter deductibility limits than identical donations to public charities.
True. This rule is meant to prevent abuse.
A taxpayer can choose whether a donation of capital gains property is deductible based on the basis or the fair market value
True. Charitable deduction rules favor capita-gains property donations.
A taxpayer can choose whether a donation of ordinary income property is deductible based on the basis or the fair market value
False. For ordinary income property, this choice is only available on donations of use-related tangible property.
Donations of permanent life insurance policies (and any future premium payments) are donations of ordinary income property
True. Ultimately the death benefit will be received tax-free by the donee.
