Federal Taxation IV: Itemized Deductions

Question 1

Itemized deductions (“from AGI”)

Answer 1

primarily non-trade business expenses (employee/investment expenses) and a few allowed personal expenses.

Question 2

Six types of personal expenses that may be itemized (1040, Sch A)

Answer 2

1. Medical
2. Interest
3. Taxes
4. Charitable Contributions
5. Casualty Losses
6. Misc Deductions

Question 3

Standard Deduction Limits for 2015

Answer 3

Single: $6,300
Head of Household: $9,250
Married-joint: $12,600
Married-separate: $6,300

Question 4

Medical Expenses

Answer 4

Uninsured medical expenses eligible for deduction.

Qualified Medical Expenses
- Reimbursements from Insurance
- 10% of AGI
= Deductible Medical Expense

Question 5

Property and Personal Income Taxes

Answer 5

if imposed by state, local or foreign governments, can be deducted as an itemized deduction. For cash basis taxpayer: deducted in year paid/withheld (even if related to different tax year)

Question 6

Home Mortgage interest

Answer 6

interest paid on debt relating to principal abode and second home is eligible.

maximum $1 million

Question 7

Points

Answer 7

Can be deducted in year of purchase/improvement

Defined as compensation paid to a lender solely for the use or forbearance of money

Question 8

Investment Interest Expense

Answer 8

limited to net investment income (investment income - investment expense)

Question 9

Charitable Contributions

Answer 9

1. must be made to qualified recipients

2. can be made in cash or property but not services

Question 10

Charitable Contribution of Long Term Capital Gain Property

Answer 10

1. May deduct FMV, but limited to 30% of AGI.
2. deduction limited to adjusted basis of tangible personal property if charitable org does not use in a manner related to it’s tax-exempt purpose
3. if exceeds $5K and charity sells within 3 yrs, taxpayer must recapture deduction to extent it exceeded basis of the property

Question 11

Charitable Contribution of Property (other than LTCG)

Answer 11

1. FMV of property reduced by ordinary income or ST capital gain that would be recognized if property was sold

Question 12

Charitable Contribution of distributions from IRA

Answer 12

up to $100K tax-free if contributed to charitable organization by an individual age 70 or over

Question 13

Written record of contribution required when:

Answer 13

1. Single contribution > $250 requires written acknowledgement from donee
2. Cash contribution not deductible unless donor has canceled check, cc statement or written statement from the charity
3. Property > $500 requires description of property
4. Property > $5000 requires qualified appraisal
5. Property > $500,000 qualified appraisal must be attached to tax return

Question 14

Charitable Contribution of Autos, etc.

Answer 14

If claimed value is > $500 and donee sells vehicle, deduction is limited to gross sales proceeds. Donee must provide proof for donor to attach to return.

Question 15

Charitable Deduction Limitations

Answer 15

1. 50% AGI for aggregate cash/property contributions
2. 30% AGI for public charities
3. 20% AGI for private charities
4. Contributions in excess carry forward 5 yrs
5. 50% limitation applied 1st, then 30%, then 20%

Question 16

Casualty Loss

Answer 16

Lower of decline in FMV or AB of property.  Calculation:
-  Insurance Reimbursements
-  $100 per casualty
-  10% x AGI
=  Casualty loss deduction

Question 17

Limit on Casualty Loss amount

Answer 17

adjusted basis of damaged property is limited to lesser of adjusted basis or decline in value of the asset due to the casualty

Question 18

Net Casualty Gain

Answer 18

If insurance proceeds exceed property’s adjusted basis, then all casualty gains and losses are netted (before 10% of AGI reduction). Net casualty gain is a capital gain.

Question 19

Operation of 2% AGI floor limitation

Answer 19

1. floor limit is applied by subtracting 2% of AGI from aggregate amount of deductions subject to the floor
2. excess deductions over the floor are included with other itemized deductions

Question 20

5 types of misc deductions subject to AGI floor

Answer 20

1. Employee business expenses not reimbursed under an accountable plan
2. Investment expenses (not royalty/rental)
3. Tax Return prep fees
4. Home office expenses of an employee
5. Hobby expenses

Question 21

Misc deductions NOT subject to 2% AGI floor

Answer 21

1. Repayments of previously included income under claim of right doctrine
2. Remaining basis of terminated annuity
3. Gambling losses to extent of winnings

Question 22

Overall Limitation on Itemized Deductions

Answer 22

Threshold (2015)
Married filing joint = $309,900
Head of Household = $284,050
Single = $258,250

Reduction after threshold is lower of 3% of amount of AGI in excess of threshold OR 80% x (taxes + mort. int. + charity + 2% misc ded)

• Does not apply to medical, investment interest, casualty/theft losses, gambling losses