Personal Expenses

Question 1

Are personal expenses deductible?

Answer 1

ONLY if statutorily authorized.

Question 2

What are the five most important statutorily authorized personal expense deductions?

Answer 2

1. Interest paid on a mortgage
2. State and local taxes paid
3. Casualty losses and thefts
4. Charitable contributions
5. Medical expenses

Question 3

Are personal expenses above-the-line or itemized deductions when they are allowed?

Answer 3

Below-the-line, itemized deductions.

Question 4

When can you deduct interest paid on a mortgage?

Answer 4

When the mortgage proceeds were used to buy, build, or improve your house.

Question 5

How much can you deduct for interest paid on a mortgage?

Answer 5

Depends on when the loan was taken out:

• on or before December 15, 2017: the interest allocable to the first $1M of debt is deductible.
• after December 15, 2017: the interest allocable to the first $750K of debt.

Question 6

How much of state and local taxes can you deduct?

Answer 6

Up to $10,000, including only one of sales and income tax. (Cannot deduct both sales and income tax.)

N.B.: If the state and local taxes are related to business or investment expenses, then they are deductible above-the-line.

Question 7

When can you deduct casualty losses?

Answer 7

From a theft OR when

1. a sudden or unexpected event that
2. is declared a disaster by the president
3. causes a loss in the value of the property or the taxpayer’s basis in the property (whichever is less)
4. that exceeds $100 AND
5. exceeds 10% of the taxpayers adjusted gross income.

Example: Casualty costs you $20,100. Deduct the first 100 = $20,000. Deduct 10% of your adjusted gross income (let’s say that is 8,000) = $12,000. You can itemize a $12,000 deduction.

Question 8

When can you deduct a charitable contribution?

Answer 8

When you make a donation

1. to a qualified donee (a non-profit or the government)
2. with no expectation of a return benefit (even a mug giveaway–you can only recover the contribution minus the price of the gift!)
3. the total deduction does not exceed 60% of your adjusted gross income, AND
4. any donation of at least $250 is accompanied by a written receipt.

Question 9

When are medical expenses deductible?

Answer 9

Only when

1. paid for yourself, your spouse, or your dependents AND
2. in excess of 10% of your adjusted gross income.

N.B.: Drug costs only count if they’re prescribed drugs, not OTC.