M2-Itemized Deductions

Question 1

Individuals that are 65 or older, are entitled to the additional standard deduction of what?

Answer 1

$1,250 each in addition to the regular amount

Question 2

Interest on mortgages of up to $1,000,000 to buy, build, or substantially improve a home (the first loan) are fully deductible. Interest on home equity loans of up to $100,000 in principal are fully deductible. (true or false)

Answer 2

true

Note, provided the loan is secured by the home, it does not matter what the proceeds are used for.

Interest on auto loans is not deductible. Note that if the money borrowed for the auto had been borrowed from a home equity line of credit and the total principal of that revolving credit line had been less than $100,000, the related interest for the auto purchase could have qualified for a deduction; however, in this case, the auto loan was a separate loan.

Question 3

Individual taxpayers may deduct the FMV of property donated to charity. The limit is 30% of the taxpayer’s AGI. (true or false)

Answer 3

true

Question 4

What amount can taxpayers deduct as itemized deductions for casualty losses, after the application of the threshold limitations? Whats the formula?

Answer 4

The starting point is the lesser of the adjusted basis or decrease in FMV.

Smaller loss

Taxpayer’s Loss

-------------------------------
Eligible Loss
<10% AGI Limitation>
--------------------------------
Deductible Loss
===================

Question 5

What transportation expense incurred by an employee is not deductible?

Answer 5

An employee drives from home to his or her office.

• An employee flies from San Francisco to Miami on business is deductible out-of-town travel.
• An employee drives from a first job to a second is deductible.
• An employee drives from his or her office to the office of a client (transportation from a main office to another office or temporary location is deductible). is deductible.

Question 6

Medical expenses are a category of itemized deductions that are subject to what limitation?

Answer 6

10% AGI limitation (or 7.5% if age 65 or older)

Question 7

Gambling losses to the extent of winnings are considered to be miscellaneous itemized deductions. (true or false)

Answer 7

true

However, they are not subject to the 2% of AGI limitation

Question 8

Subscriptions to professional journals are miscellaneous itemized deductions subject to the 2% of AGI limitation. (true or false)

Answer 8

True

So are Union Dues, Publications, Custodial Fees, and Tax preparation

Question 9

Employee business expenses, including unreimbursed car expense, are deductible as itemized deductions subject to the 2% floor. (true or false)

Answer 9

true

Question 10

The deduction for gambling losses are limited to what?

Answer 10

gambling winnings

Question 11

Home equity indebtedness is limited to $100,000 on a joint tax return (or single return), but only $50,000 if married filing separately. (true or false)

Answer 11

true

Question 12

An individuals losses on transactions entered into for personal purposes are deductible only if:

Answer 12

The losses qualify as casualty or theft losses. In addition, the individual must itemize deductions and the loss must exceed 10% of AGI plus $100 per casualty.

Question 13

Medical expenses charged to a credit card is expenses in the year the charge is made. It does not matter when the amount charged is actually paid. (true or false)

Answer 13

true

Question 14

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. (true or false)

Answer 14

True

Question 15

A loss that is controllable, and avoidable, and, thus, is not unexpected does not qualify as a “casualty.” (true or false)

Answer 15

true

Question 16

Contributions of long-term property are generally deductible at FMV at the date of gift. Contributions of short-term property are generally deductible at what?

Answer 16

The lower of cost or fair market value.

Question 17

The deduction for investment interest expenses is limited to net taxable investment income which is defined as taxable investment income minus all related investment expenses (other than investment interest expense). (true or false)

Answer 17

true

If the investment expense is an itemized deduction, then only those expenses exceeding 2% of AGI are considered.

The taxpayer’s deduction for investment interest expense is the lesser of

1) net investment income; or
2) investment interest expense

Question 18

Taxable investment income includes:

Answer 18

1) Interest and Dividends (if taxed at ordinary income tax rate)
2) Rents (if the activity is not a passive activity)
3) Royalties (in excess of related expenses)
4) Net short-term capital gains
5) Net long-term capital gains if the taxpayer elects not to claim the net capital gains reduced tax rate.

Question 19

A charitable contribution is not allowed for the value of services rendered to a charity. (true or false)

Answer 19

true

Question 20

A contemporaneous written acknowledgement is required for donations of _____ or more?

Answer 20

$250

Question 21

A qualified appraisal for real property donations is NOT required to be attached to the tax return UNLESS the property value exceeds ______?

Answer 21

$5000

Question 22

The charitable contribution deduction for long-term appreciated stock is limited to _____% of AGI?

Answer 22

30%

Question 23

If it is a casualty and theft loss, the loss starts at what?

Answer 23

The lesser of decrease in FMV or adjusted basis.

Question 24

Artwork donated to the local art museum is deductible to its basis. Although it may be appreciated property, in our example, Smith held the property for only four months, making it short-term capital gain property. Donations of short-term capital gain property are deductible to the extent of his/her adjusted basis. (true or false)

Answer 24

true

Question 25

The contribution limit for a church is 50% of the contribution base (AGI). (true or false)

Answer 25

true

Question 26

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

Answer 26

true

Question 27

Charitable contributions subject to the 50% limit that are not fully deductible in the year made may be carried forward how long?

Answer 27

five years