M2 Itemized Deductions

Question 1

Itemized deduction are considered ____

Answer 1

“Below the line” - deductions FROM / After AGI

Question 2

Additional deduction for who?

Answer 2

Age 65+ and blind (2,500 both 65 and/or blind - joint.. see chart page R2-18)

Question 3

Limitation on Itemized Deductions. Which itemized deductions are NOT limited by the phase-out when AGI exceeds 313,800 (married joint) $261,500 single? Mnemonic?

Answer 3

GIMC
G = Gambling Losses
I = Investment interest expense
M = Medical expenses
C = Casualty and theft losses (nonbusiness)

Question 4

Medical expenses. Timing -
Paid when
Charged when

Answer 4

Paid amounts during the year
Charged amounts during the year (regardless of when paid)
*NOTE Payments made for a deceased spouse is deductible in the year paid regardless if it is different than the year spouse died

Question 5

Medical expenses formula (considered the __% threshold)

Answer 5

10% AGI
Qualified medical expenses

Qualified medical expense “paid”
<10% AGI>
——————————————-
Deductible medical expenses

Question 6

What are the 7 types of itemized deductions? (Sch A)

Answer 6

• Medical
• Taxes
• Interest
• Charity
• Casualty
• Theft
• Miscellaneous

Question 7

Taxes. Which types are included in the itemized deduction? (5)

Answer 7

-State, local and foreign
NOT Federal income taxes paid
-Real estate taxes
-Income taxes (Estimated taxes, withheld taxes, assessments)
-Personal Property taxes
-Sales tax

Question 8

Taxes. Sales tax - taxpayer may elect to deduct either the state and local general sales tax OR —?

Answer 8

State and local income taxes (i.e. taxpayer in NJ which has high taxes would take the income taxes, whereas taxpayer in Florida may take the general sales tax deduction)

Question 9

Taxes. What are the nondeductible taxes. MNEMONIC

Answer 9

“FIB”
F = Federal taxes (including Social Security)
I = Inheritance taxes for states
B = Business taxes (on Sch C) and property taxes (Sch E)

Question 10

Interest Deductions/Rules. MNEMONIC ?

Answer 10

HIPPE

• H = Home Interest Mortgage = Deductible up to 1,000,000 on first and second home; home equity line up to 100,000
• I = Investment interest
• P = Personal interest is NOT deductible
• P = Prepaid interest = allocate to proper period incurred and paid
• E = educational loan interest ADJUSTMENT from AGI NOT a deduction

Question 11

Interest deduction - investment interest. Like gambling loss rules, limited to the what?

Answer 11

NET investment income (no negative amount is allowed as an adjustment)

Question 12

Charitable contributions. Two types that would not qualify as a charitable contribution deduction

Answer 12

Gifts (including to a “needy” family)

Political contributions

Question 13

Charitable contributions. If property is given, what value is deducted?

Answer 13

LESSER of property’s basis or FMV at the time contribution made

Question 14

Charitable contributions. Maximum allowable for Cash, for Property?

Answer 14

Cash = up to 50% AGI
Property = up to 30% AGI (Long term capital gain property)

Question 15

Charitable contributions. LT Appreciated Property - three special rules:

1) Deduct at what amount?
2) AGI Limits?
3) Combination rules

Answer 15

1) Deduct at FMV if held for more than one year
2) 30 percent/ 50 percent AGI Limit
3) Combo rules - total deduction for ALL gifts still can’t exceed the 50% of AGI threshold

Question 16

Charitable contributions. Consideration for the contribution rule (excess..)

Answer 16

Can only deduct the EXCESS contribution over the consideration received (NET amount is the deduction)

Question 17

Charitable contribution. Services deduction?

Answer 17

NOT ALLOWED - cannot deduct the value of free services

Question 18

Charitable contributions. Carryforward rules?

Answer 18

5 year carry forward

Question 19

Charitable contributions. Substantiation requirement for cash contributions? For large noncash contributions?

Answer 19

$250

$500 noncash or more, must file form 8283

Question 20

Casualty and theft losses. AGI Test?

Answer 20

10% AGI

Question 21

Casualty and Theft Loss calculation and general rule/tip.

Answer 21

Smaller loss (cost/adjusted basis or decreased FMV)

Taxpayer’s loss

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

*GENERAL RULE - smallest loss is the correct answer

Question 22

Casualty loss. Must be ___ or ____.

Also need to notify who in order to deduct?

Answer 22

SUDDEN or unexpected

Insurance claim filed and losses aren’t covered

Question 23

Miscellaneous deductions. AGI test?

Answer 23

2% AGI

Question 24

Miscellaneous deduction. List of items subject to the 2% AGI test? (11)

Answer 24

• Unreimbursed Business expenses (EMPLOYEE not SCH C) - travel, meals, lodging
• Education expenses (those not above the line) - NOT included if needed to meet minimum job requirements
• Uniforms
• Business Gifts (MAX is $25 per person)
• Employment agency fees (job hunting) - NOT for first job in new profession
• Expenses of Investors (safe deposit box, investment advice, investment newsletters)
• Subscriptions to professional journals
• Tax Prep fees
• Debit card convenience fees
• Activities not engaged for profit HOBBY (3 of 5 years test - if showing profit 3 years = business Sch C)
• Union Dues

Question 25

Miscellaneous deductions. NOT subject to the 2% rule? (2)

Answer 25

• Gambling losses (up to gambling winnings)

- Fed estate tax paid on income in respect of a descendant