M2 Itemized Deductions

Question 1

MCQ-02011
Which of the following requirements must be met in order for a single individual to qualify for the additional standard deduction?
-Must Support Dependent Child or Aged Parent
-Must Be Age 65 or Older or Blind

Answer 1

No; Yes

In order to qualify for the additional standard deduction, an individual must be age 65 or older or blind by the end of the tax year. He or she does not have to support a dependent
child or aged parent.

Question 2

MCQ-15611
Bob and Nancy Goldberg are both age 67 and file a joint return. For the current year, the regular standard deduction for a couple married filing jointly is $25,900. What is the maximum standard deduction available to Bob and Nancy?

Answer 2

$28,700

Because both Bob and Nancy are 65 or older, they are entitled to the additional standard deduction of $1,400 each in addition to the regular amount.
$25,900 + $1,400 + $1,400 = $28,700

Question 3

MCQ-14723
Which of the following statements is correct regarding the deductibility of an individual’s medical expenses?

Answer 3

A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.

Question 4

MCQ-11782
Carroll, a 35-year-old unmarried taxpayer with an adjusted gross income of $100,000, incurred and paid the following unreimbursed medical expenses:
- Doctor bills resulting from a serious fall $5,000
- Cosmetic surgery that was necessary to correct a congenital deformity $15,000

Carroll had no medical insurance. For regular income tax purposes, what was Carroll’s maximum allowable medical expense deduction, after the applicable threshold limitation, for the year?

Answer 4

$12,500

Both medical expenses are deductible. The cosmetic surgery is not elective, because it was necessary to correct a congenital deformity.

Doctor bills $5,000
Surgery 15,000
Total $20,000

AGI floor ($100,000 × 7.5%) = -7,500)
Deduction $12,500

Question 5

MCQ-02118
During the year, Scott charged $4,000 on his credit card for his dependent son’s medical expenses. Payment to the credit card company had not been made by the time Scott filed his income tax return in the following year. In addition, in the current year, Scott paid a physician $2,800 for the medical
expenses of his wife, who died in the prior year. Disregarding the adjusted gross income percentage threshold, what amount could Scott claim in his current year income tax return for medical expenses?

Answer 5

$6,800

Scott could claim $6,800 on his current year tax return for medical expenses. Medical expenses charged to a credit card is expensed in the year the charge is made. It does not matter when the amount charged is actually paid. Expenses paid for the medical care of a decedent by the decedent’s spouse are included as medical expenses in the year paid, whether they
are paid before or after the decedent’s death

Question 6

MCQ-14730
The Stevensons are filing married filing jointly, and their adjusted gross income was $58,250.
Additional information is as follows:
Interest paid on their home mortgage 5,200
State taxes paid 2,000
Medical expenses in excess of AGI floor 1,500
Deductible contributions to IRAs 4,000
Alimony paid to Mr. Stevenson’s first wife (divorce finalized in 2015) 5,000
Child support paid for Mr. Stevenson’s daughter 5,100

What amount may the Stevensons claim as itemized deductions on their Schedule A?

Answer 6

$8,700

Home mortgage interest
State taxes paid
Medical expenses

Question 7

MCQ-02110
Which one of the following expenditures qualifies as a deductible medical expense for tax purposes?

Answer 7

Transportation to physician’s office for required medical care

Question 8

MCQ-02125
…What amount should the Burgs deduct for taxes expense in their itemized deductions on Schedule A
for the current year?

Answer 8

State income tax

Question 9

MCQ-05265
…What… should the Rites claim as an itemized deduction on their current year joint income tax return?

Answer 9

Real estate tax on personal residence
Personal property tax on personal automobile
Current-year state and city income taxes withheld

Question 10

MCQ-01951
…What total amount was Matthews entitled to claim for taxes on her current year Schedule A of Form 1040?

Answer 10

State and local INCOME TAXES withheld from a cash-basis taxpayer are deductible in the year withheld. She can also deduct the estimated tax liability she paid in the current year

Question 11

MCQ-02113
For regular tax purposes, with regard to the itemized deduction for qualified residence interest, home equity indebtedness incurred during a year:

Answer 11

Is only deductible when used to buy, build, or substantially improve the taxpayer’s home that
secures the loan.

Question 12

MCQ-06473
On January 2, Year 1, the Kanes paid $60,000 cash and obtained a $300,000 mortgage to purchase a home. In Year 4, they borrowed $20,000 secured by their home on a home equity line of credit and used the cash to pay bills and take a vacation. That same year they took out a $7,000 auto loan.
The following information pertains to interest paid in Year 4:

Mortgage interest on first loan $19,000
Interest on home equity line of credit 2,500
Auto loan interest 500

For Year 4, how much interest is deductible?

Answer 12

$19,000

Interest on mortgages of up to $750,000 to buy, build, or substantially improve a home (the first loan) are fully deductible. Interest on home equity loans is only deductible if the proceeds are used to substantially improve the home. Interest for personal expenses such as auto loans and credit cards is not deductible. The total deduction is $19,000.

Question 13

MCQ-01934
Jackson owns two residences. The second residence, which has never been used for rental purposes, is the only residence that is subject to a mortgage. The following expenses were incurred for the second residence in the current year:

Mortgage interest $5,000
Utilities $1,200
Hazard insurance $6,000

For regular income tax purposes, what is the maximum amount allowable as a deduction for Jackson’s second residence in the current year?

Answer 13

$5,000 as an itemized deduction.

For a personal residence that is not used for rental purposes, no deduction is allowed for utilities costs or insurance, thus the only deductible amount here is for the mortgage interest. Note that property taxes (not present in this problem) are deductible. In this problem we are not told whether the interest relates to acquisition indebtedness or home equity indebtedness. If it is home equity indebtedness, the proceeds of the loan must be used to substantially improve the home
and are subject to an overall loan amount of $750,000 including any acquisition indebtedness

Question 14

MCQ-01986
On January 2, Year 1, the Philips paid $50,000 cash and obtained a $200,000 mortgage to purchase a home. In Year 4 they borrowed $15,000 secured by their home, and used the cash to add a new room to their residence. That same year they took out a $5,000 auto loan. The following information pertains to interest paid in Year 4:

Mortgage interest $17,000
Interest on room construction loan 1,500
Auto loan interest 500

For Year 4, how much interest is deductible?

Answer 14

$18,500

Mortgages of up to $750,000 to buy, build, or substantially improve a home allow for the full deduction of interest. Interest on auto loans (consumer interest) is not deductible.

Question 15

MCQ-02007
In Year 10, Farb, a cash basis individual taxpayer, received an $8,000 invoice for personal property taxes. Believing the amount to be overstated by $5,000, Farb paid the invoiced amount under protest and immediately started legal action to recover the overstatement. In November, Year 11, the matter
was resolved in Farb’s favor, and he received a $5,000 refund. Farb itemizes his deductions on his tax returns. Which of the following statements is correct regarding the deductibility of the property taxes?

Answer 15

Farb should deduct $8,000 in his Year 10 income tax return and should report the $5,000 refund as income in his Year 11 income tax return.

Under the tax benefit rule, Farb should report the $5,000 refund as income in Year 11 since Farb itemizes deductions and would have received a tax benefit from deducting the
$8,000 paid in Year 10.

Question 16

MCQ-01968
The deduction by an individual taxpayer for interest on investment indebtedness is:

Answer 16

Limited to the taxpayer’s net investment income for the year.

The deduction for interest expense on investment indebtedness is limited to net investment income (investment income less investment expenses).

Question 17

MCQ-07181
An individual taxpayer earned $10,000 in investment income, $8,000 in noninterest investment expenses, and $5,000 in investment interest expense. How much is the taxpayer allowed to deduct on the current-year’s tax return for investment interest expenses?

Answer 17

$5,000

The deduction for investment interest expense is limited to net taxable investment income. The noninterest investment expenses are not deductible; therefore, net investment income is equal to $10,000. All $5,000 of the investment interest expense is deductible because it is less than $10,000.

Question 18

MCQ-14910
Jefferson’s investment income consisted of $2,000 in interest from a U.S. Treasury bond and $1,000 interest from a municipal bond. Jefferson also paid $4,000 in investment interest expense. Assuming that Jefferson itemizes, what amount can Jefferson deduct for investment interest expense?

Answer 18

$2,000

The itemized deduction for investment interest expense is limited to net taxable investment income. The $1,000 interest from a municipal bond is nontaxable. The taxpayer’s taxable
investment income consists of the $2,000 taxable interest from a U.S. Treasury bond. Therefore the taxpayer’s investment interest expense deduction is limited to $2,000.

Question 19

MCQ-05516
Wilson, CPA, uses a commercial tax software package to prepare clients’ individual income tax returns. Upon reviewing a client’s computer-generated year 1 itemized deductions, Wilson discovers that the schedule’s deductible investment interest expense is less than the amount paid by the taxpayer and the amount that Wilson entered into the computer. After analyzing the entire tax return, Wilson determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct?

I. The client’s investment interest expense exceeds net investment income.
II. The client’s qualified residence interest expense reduces the deductible amount of investment interest expense.

Answer 19

I only

The computer-generated investment interest expense deduction will be limited to the net investment income of the taxpayer. Any excess amount will be carried forward indefinitely. For example, assume the taxpayer had $5,000 of investment interest for a year but had investment income of only $3,000. The tax preparer would enter the $5,000 paid as investment interest, and the computer would then allow only a $3,000 deduction for investment interest in the year. The remaining $2,000 of expense would be carried forward indefinitely to be applied to investment income in future
years. Qualified residence interest is not investment interest and would not affect investment interest income in any manner.

Question 20

MCQ-08619
An individual taxpayer reports the following information:

U.S. Treasury bond income $100
Municipal bond income $200
Rental income from apartment building $500
Investment interest expense $1,000

What amount of investment interest can the taxpayer deduct in the current year?

Answer 20

$100

Investment interest expense deduction is an itemized deduction limited to net investment income. Taxable interest is included in net investment income. Rental income and tax
exempt interest are not. Therefore, the limitation is the $100 U.S. Treasury bond interest.

Question 21

MCQ-01979
The Browns borrowed $20,000, secured by their home, to pay their son’s college tuition. At the time of the loan, the fair market value of their home was $400,000, and it was unencumbered by other debt. The interest on the loan qualifies as:

Answer 21

Nondeductible interest

Interest paid on debt not used to acquire or substantially improve a home is not deductible. This is true even if the debt is secured by a home.

Question 22

MCQ-08443
Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer?

Answer 22

A charitable contribution deduction is not allowed for the value of services rendered to a charity.

Question 23

MCQ-05893
Which of the following would qualify as a deductible charitable contribution in Year 1 for an individual taxpayer?

Answer 23

A $200 contribution to the taxpayer’s church charged by credit card on December 31, Year 1.

Contributions to charitable entities (including churches) are deductible. When the contribution is charged to a credit card, the contribution is deductible in the year the charge is
made, even if payment to the credit card issuer is made in a later year.

Question 24

MCQ-05977
Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for Year 13. During Year 13, Taylor donated land to a church and made no other contributions. Taylor purchased the land in Year 1 as an investment for $14,000. The land’s fair market value was $25,000 on the day of the donation.
What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for Year 13?

Answer 24

$25,000

Appreciated property held longer than one year is considered capital gain property. The fair market value of capital gain property is deductible as a charitable contribution.
Capital gain property given to a public charity, such as a church, is limited to 30% of AGI. Therefore, Taylor’s gift would be limited to $27,000 (30% of $90,000). The FMV of $25,000 is under the AGI limitation and is the allowed itemized deduction.

Question 25

MCQ-14722
Jimet, an unmarried taxpayer, qualified to itemize deductions. Jimet’s adjusted gross income was $30,000 and he made a $2,000 cash donation directly to a needy family. During the year, Jimet also donated stock, valued at $3,000, to his church. Jimet had purchased the stock four months earlier for $1,500. What was the maximum amount of the charitable contribution allowable as an itemized deduction of Jimet’s current year income tax return?

Answer 25

$1,500

The stock is ordinary income property because it was held for one year or less, so the amount of the deduction for the stock is the lesser of the adjusted basis ($1,500) or the fair market value at the time it was contributed ($3,000), which is $1,500.
The contribution of ordinary income property to public charities is limited to 50% of AGI ($30,000 AGI × 50% = $15,000). The $1,500 deduction is less than the $15,000 AGI limitation, so the deduction is not limited. The $2,000 cash donation to a needy family is not deductible because the contribution was not made
to a qualifying charity

Question 26

MCQ-14724
Smith, a single individual, made the following charitable contributions during the current year. Smith’s adjusted gross income is $60,000.

-Cash donation to Smith’s church $5,000
-Art work donated to the local art museum (Purchased four months ago for $2,000, currently appraised for $3,000) 3,000
-Cash contribution to a needy family 1,000

What amount should Smith deduct as a charitable contribution if Smith itemizes deductions?

Answer 26

$7,000

This question requires the candidate to determine which items are deductible charitable contributions. The $5,000 cash donation to the church is allowable. The amount of the
deduction for the artwork donated to the local art museum is $2,000. The artwork is ordinary income property because it was held for one year or less. The amount of the deduction for ordinary income property is the lesser of the property’s adjusted basis ($2,000) or its FMV at the time it is contributed
($3,000), which is $2,000.The contribution to a needy family is not a deductible contribution, as it was not made to a qualifying charitable organization.

Question 27

MCQ-14725
Deet, an unmarried taxpayer, qualified to itemize current year deductions. Deet’s adjusted gross income was $40,000 and he made a $1,500 substantiated cash donation directly to a needy family. Deet also donated art, valued at $11,000, to a local art museum. Deet had purchased the art work two years earlier for $2,000. What was the maximum amount of the charitable contribution allowable as an itemized deduction on Deet’s current year income tax return?

Answer 27

$11,000

The $1,500 donation is not deductible because it was made directly to the needy family rather than to a qualified organization. Because the artwork had been held for more
than one year and has appreciated in value, the fair market value of $11,000 could be deducted. The deduction of appreciated long-term capital gain (LTCG) property is limited to 30 percent of AGI. In this case, the $11,000 deduction amount is less than the AGI limit of $12,000 ($40,000 AGI × 30%), so the deduction is not limited.

Question 28

MCQ-01926
Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for the current year. During the current year, Taylor donated land to a church and made no other contributions. Taylor purchased the land 15 years ago as an investment for $14,000. The land’s fair market value was $25,000 on the
day of the donation. What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for the current year?

Answer 28

$25,000

Individual taxpayers may deduct the FMV of property donated to charity. The limit is 30 percent of the taxpayer’s AGI (30% × $90,000 = $27,000). The FMV of the property is $25,000 (which is within the allowable amount) and the church is a qualified charity

Question 29

MCQ-14727
Jeffrey, a single taxpayer, had $55,000 in adjusted gross income for the current year. During the current year he contributed $19,500 to his church. He had a $5,000 charitable contribution carryover from his prior year church contribution. What was the maximum amount of properly substantiated charitable contributions that Jeffrey could report as an itemized deduction for the current year?

Answer 29

$24,500 (limit 60% of AGI for charity)

The deduction for cash contributions to a public charity, such as a church, is limited to 60 percent of AGI. Jeffrey’s AGI limit for the current year would be $55,000 × 60% = $33,000. The current year contributions of $19,500 plus the charitable contributions carryover from the previous year of $5,000 = $24,500. The total of $24,500 is less than the $33,000 AGI limit, so the deduction is not limited.

Question 30

MCQ-01930
Stein, an unmarried taxpayer, had adjusted gross income of $80,000 for the year, and qualified to itemize deductions. Stein had no charitable contribution carryovers and only made one contribution during the year. Stein donated stock, purchased seven years earlier for $17,000, to a tax-exempt educational organization. The stock was valued at $25,000 when it was contributed. What is the amount of charitable contributions deductible on Stein’s current year income tax return?

Answer 30

$24,000 (limited 30% of AGI yr or longer stock)

Stein may deduct $24,000 on Stein’s current year income tax return. The taxpayer can deduct long-term (i.e., held longer than 12 months) capital gain property at the higher fair market value (higher than cost basis) without paying capital gains tax on the appreciated portion. This deduction is limited to 30 percent of adjusted gross income (AGI). A five-year carryforward period applies.

AGI 80,000 x 30% = 24,000
plus $1,000 carryforward

Question 31

MCQ-14731
Mary, an unmarried taxpayer, made the following charitable contributions during the current year:

-A cash contribution to a church $2,000
A donation to a hospital’s thrift shop of furniture purchased
two years ago for $2,000, with a fair market value of $500
-A donation to a state university of publicly traded stock
purchased by Mary for $3,000 four months ago, with a fair
market value of $4,000

Assuming that Mary’s adjusted gross income was $50,000, what amount can Mary claim as a charitable contribution deduction?

Answer 31

$5,500

Cash to church $2,000
Used furniture to thrift shop (FMV) 500
Publicly traded stock (cost basis) 3,000 (less than a year owned)
Total $5,500

Question 32

MCQ-15613
Moore, a single taxpayer, had $50,000 in adjusted gross income for the year. During the year she contributed $18,000 to her church. She had a $10,000 charitable contribution carryover from her prior year church contribution. What was the maximum amount of properly substantiated charitable
contributions that Moore could claim as an itemized deduction for the current year?

Answer 32

$28,000 (limit 60% of AGI for charity)

The deduction for cash contributions to a public charity is limited to 60 percent of AGI. Moore’s contribution limit for the current year is 60% × $50,000 = $30,000. The current year
contributions of $18,000 plus the charitable contributions carryover from the previous year of $10,000 = $28,000. The total of $28,000 is less than the $30,000 AGI limit, so the deduction is not limited.

Question 33

MCQ-02006
Charitable contributions subject to the 60-percent limit that are not fully deductible in the year made may be:

Answer 33

Carried forward five years.

Charitable contributions subject to the 60 percent limit that are not fully deductible in the year made may be carried forward five years.

Question 34

MCQ-02132
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A. The following unreimbursed cash expenditures were among those
made by the Burgs during the year:

-Repair and maintenance of motorized wheelchair for physically handicapped dependent child $300
-Tuition, meals, and lodging at special school for physically handicapped dependent child in the institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care $4,000
-State income tax 1,200
-Self-employment tax 7,650
-Four tickets to a theatre party sponsored by a qualified charitable organization; not considered a business expense; similar tickets would cost $25 each at the box office $160
Repair of glass vase accidentally broken in home by dog; vase cost $500 5 years ago; fair
value $600 before accident and $200 after accident $90
Fee for breaking lease on prior apartment residence located 20 miles from new residence $500
Security deposit placed on apartment at new location $900

What amount should the Burgs deduct for gifts to charity in their itemized deductions on Schedule A for the current year?

Answer 34

$60

Payment to qualified charity $160
Fair value of 4 tickets at $25 = (-$100)
Charitable contribution $60

Question 35

MCQ-02116
An individual’s losses on transactions entered into for personal purposes are deductible only if

Answer 35

The losses qualify as casualty or theft losses.

An individual’s losses on transactions entered into for personal purposes are deductible only if the losses qualify as casualty or theft losses. Casualty and theft losses are limited to nationally declared disaster areas. In addition, the individual must itemize deductions and the loss must exceed 10 percent of AGI plus $100 per casualty.

Question 36

MCQ-04453
Jim had gambling losses totaling $2,500 for the year. He is including a lottery prize of $5,000 in his gross income this year. The gambling losses are:

Answer 36

A deduction from adjusted gross income

Gambling losses are deductible as a miscellaneous itemized deduction (from AGI) limited to gambling winnings

Question 37

MCQ-06474
In Year 1, Kane’s residence had an adjusted basis of $250,000 and it was destroyed by a tornado. The residence was located in a federally declared disaster area. An appraiser valued the decline in market value at $425,000. Later that same year, Kane received $200,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Kane’s Year 1 adjusted gross income was $100,000 and he did not have any casualty gains. What total amount can Kane deduct as a Year 1 itemized deduction for casualty loss, after the application of the threshold limitations?

Answer 37

$39,900

Smaller loss $250,000
Insurance recovery (200,000)
Taxpayer’s loss 50,000
Less $100 (100)
Total Eligible loss 49,900
10% AGI limitation (10,000)
Deductible loss $39,900

Question 38

MCQ-02138
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A. The following unreimbursed cash expenditures were among those
made by the Burgs during the year:

-Repair and maintenance of motorized wheelchair for physically handicapped dependent child $300
-Tuition, meals, and lodging at special school for physically handicapped dependent child in the institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care $4,000
-State income tax 1,200
-Self-employment tax 7,650
-Four tickets to a theatre party sponsored by a qualified charitable organization; not considered a business expense; similar tickets would cost $25 each at the box office $160
-Repair of glass vase accidentally broken in home by dog; vase cost $500 5 years ago; fair value $600 before accident and 200 after accident $90
-Fee for breaking lease on prior apartment residence located 20 miles from new residence $500
-Security deposit placed on apartment at new location $900

Without regard to the $100 “floor” and the adjusted gross income percentage threshold, what amount should the Burgs deduct for the casualty loss in their itemized deductions on Schedule A for the current year?

Answer 38

$0

$0 casualty loss deduction on Schedule A because damage caused in home by dog is controllable, and avoidable, and, thus, is not unexpected and does not qualify as a “casualty.”
In addition, a casualty loss is only deductible if it is in a nationally declared disaster area.

Question 39

MCQ-01936
During the current year, Wood’s residence had an adjusted basis of $150,000 and it was destroyed by a tornado. The location was a federally declared disaster area. An appraiser valued the decline in market value at $175,000. Later in the current year, Wood received $130,000 from his insurance
company for the property loss and did not elect to deduct the casualty loss in an earlier year. Wood’s current year adjusted gross income was $60,000 and he did not have any casualty gains. What total amount can Wood deduct as a current year itemized deduction for casualty loss, after the
application of the threshold limitations?

Answer 39

$13,900

Casualty losses are deductible as an itemized deduction if located in a presidentially declared disaster area. Casualty losses are generally computed as the decline in fair market value, except that the fair market value is limited to the property’s basis, here $150,000. Casualty losses are reduced by the amount of any insurance recovery, reducing this loss to $20,000. Next, each individual loss is reduced by $100, bringing this loss to $19,900. Finally, the remaining total amount of all casualty losses (here there is only one) are deductible only to the extent that the amount exceeds 10% of AGI, or $6,000 here. ($150,000 - $130,000 = $20,000; $20,000 - $100 -
$6,000 = $13,900.)

Question 40

MCQ-03998
Robinson’s personal residence was partially destroyed by a hurricane. Robinson resided in a federally declared disaster area. The fair market value (FMV) before the hurricane was $500,000, and the FMV after the hurricane was $300,000. Robinson’s adjusted basis in the home was $350,000. Robinson settled the insurance claim for $175,000. If Robinson’s adjusted gross income for the year is $120,000, what amount of the casualty loss may Robinson claim after consideration of threshold limitations?

Answer 40

$12,900

Note: It is very important to remember that the $100 reduction applies to each separate casualty loss, while the reduction for 10% of AGI applies to casualty losses in the aggregate.

Lesser of:
Decrease in fair market value (500,000 - 300,000) = 200,000
Adjusted basis = 350,000

Then:
200,000
Less insurance proceeds -175,000
economic loss 25,000

Less: 100 floor = -100
total remaining loss $24,900

10% of AGI of $120,000 = -12,000
loss after consideration of all threshold limits $12,900

Question 41

MCQ-01953
In the current year, Joan Frazer’s residence was totally destroyed by a hurricane. It was located in a federally declared disaster area. The property had an adjusted basis and a fair market value of $130,000 before the hurricane. During the year, Frazer received insurance reimbursement of
$120,000 for the destruction of her home. Frazer’s current year adjusted gross income was $70,000. Frazer had no casualty gains during the year. What amount of the loss was Frazer entitled to claim as an itemized deduction on her current year tax return?

Answer 41

$2,900

The casualty loss is measured by the difference in the property’s value before ($130,000) and after (zero) the casualty, in other words, $130,000. The loss may not exceed the adjusted basis of the property. The casualty loss must be reduced by the $120,000 insurance recovery to $10,000. This loss is reduced by $100 per casualty to $9,900. The sum of all such casualty losses (there is only one in this case) is further reduced by 10% of the taxpayer’s adjusted gross income for the year. That is 10% x $70,000 = $7,000. The amount of the casualty loss that is deductible on Frazer’s tax return is $9,900 - $7,000 = $2,900.

Question 42

MCQ-08444
Pat, a single taxpayer, has adjusted gross income of $40,000 in the current year. During the year, a hurricane causes $4,100 damage to Pat’s personal use car on which Pat has no insurance. Pat resides in a federally declared disaster area. Pat purchased the car for $20,000. Immediately before the hurricane, the car’s fair market value was $11,000 and immediately after the hurricane its fair market value was $6,900. What amount should Pat deduct as a casualty loss for the current year after all threshold limitations are applied?

Answer 42

$0

The calculation starts with the lesser of adjusted basis or decrease in FMV. That is $4,100. This amount is then reduced by $4,000 (10% of AGI) and the $100 per casualty. The
result is zero ($4,100 – $4,000 – $100).

Question 43

MCQ-06910
Doyle has gambling losses totaling $7,000 during the current year. Doyle’s adjusted gross income is $60,000, including $3,000 in gambling winnings. Doyle can itemize the deductions. What amount of gambling losses is deductible?

Answer 43

$3,000

Gambling losses are miscellaneous itemized deductions. The deduction for gambling losses are, however, limited to gambling winnings.