Chapter 9 MC Flashcards
Johnson makes a $500,000 building available five nights a week at no charge to the local Boy Scout Council. Which of the following statements correctly describes how the use of Johnson’s property will be treated for purposes of the charitable contribution deduction?
Johnson has no deduction for the rent-free occupancy.
Allowing a charitable, religious, educational, or similar organization to use property on a rent-free basis does not give rise to a charitable deduction.
Faith Forrester has the following selected information concerning her interest expenses and investment income for this year:
Interest income from corporate bonds = $5,000
Dividend income not eligible for the lower maximum tax rates on qualifying dividends = $10,000
Interest paid to acquire common stock portfolio = $18,000
Interest income from public-purpose municipal bonds = $4,000
Interest paid to acquire the municipal bonds = $2,000
Qualified residence interest paid on principal residence = $10,000
Based on the above information, the total amount of all of Faith’s interest deductions for this year is
Faith can deduct investment interest up to the limit of her net investment income. However, municipal bond interest income or the interest paid to acquire municipal bonds does not qualify as investment income or interest. Thus, the only investment interest that qualifies is the $18,000 paid to acquire the common stocks. Since Faith has only $15,000 of net investment income, she is limited to a $15,000 investment interest deduction. The $10,000 mortgage interest on the home is fully deductible. Faith has total interest deductions this year of $25,000.
For the current year an individual taxpayer will have the following income and medical expenses:
Adjusted gross income = $100,000
Medical expense insurance = $3,000
Unreimbursed hospital and doctor bills = $2,000
Unreimbursed prescription drug expenses = $1,000
The individual taxpayer will have a medical expense deduction for the current year of
$0
The total medical expenses ($6,000) are less than 7.5 percent of adjusted gross income ($7,500).
An individual taxpayer received an inheritance of $20,000 in cash, which he donated to a public charity. His adjusted gross income for the year is $30,000. The maximum charitable deduction that the taxpayer will be allowed for the current year is
The current deduction is limited to one-half of adjusted gross income, or $15,000 in this case.
This year an individual taxpayer (other than a married individual filing a separate return) has $30,000 of investment interest expense and $1,000 of net investment income. The maximum amount of investment interest expense this taxpayer may deduct this year is
The deduction is limited to the taxpayer’s net investment income for the year, or $1,000.
Which of the following statements concerning the itemized deduction for medical expenses is (are) correct? I. Any expenses for cosmetic surgery will qualify for the medical expense deduction. II. Physicians’ fees are deductible at 50 percent of the cost.
Neither I nor II
I is incorrect because expenses for cosmetic surgery are subject to strict rules regarding deductibility under current law. II is incorrect because allowable medical expenses, including physicians’ fees, are fully deductible as itemized deductions, but only to the extent that they exceed 7.5 percent of the taxpayer’s adjusted gross income.
Which of the following statements concerning the income tax treatment of qualified long-term care insurance contracts is (are) correct?
I. Premiums paid for such contracts are deductible as medical expenses subject to annual limitations based on the covered individual’s age.
II. Premiums paid for such contracts are not eligible for the “above-the-line” deduction for health insurance premiums of self-employed taxpayers.
I only
II is incorrect because premiums for qualified long-term care insurance contracts are eligible for the “above-the-line” deduction.
An individual taxpayer irrevocably assigns a level premium whole life insurance policy on his life to a qualified public charity. Which of the following statements concerning the charitable contribution deduction treatment of this policy gift is (are) correct? I. The taxpayer will receive a charitable deduction in the current year equal to the lesser of the premiums paid or the value of the policy. II. The taxpayer will receive a charitable deduction in the year of his death equal to the net policy proceeds.
I only
II is incorrect because there is no income tax charitable deduction for policy proceeds. The deduction is taken in the year of contribution and is not based upon the death proceeds.
An individual may typically deduct all the following expenses from adjusted gross income EXCEPT
the attorney’s fee for drafting a simple will
While attorneys’ fees are deductible as they relate to business, profit making, or tax matters, the drafting of a simple will is a personal expenditure that is nondeductible.
All the following are considered to be nondeductible personal, living, or family expenses EXCEPT
interest on a $250,000 first mortgage secured by the taxpayer’s residence
Interest on a first mortgage of up to $1 million of principal secured by the taxpayer’s residence will generally qualify as deductible qualified residence interest.
All the following taxes may generally be deducted by an individual taxpayer who itemizes his deductions EXCEPT
federal income taxes
Federal income taxes are not deductible.
