R1 M5 - Itemized Deduction Flashcards
Paul paid the real estate taxes on his rental apartment building. The real estate taxes are:
A. A deduction from adjusted gross income, subject to a 10 percent AGI floor. B. Not deductible. C. A deduction to arrive at adjusted gross income. D. A deduction from adjusted gross income.
Choice “C” is correct. Rental property expenses are reported on Schedule E (for AGI), and, subject to the passive activity loss provisions, the net rental income appears on Page 1 of the Form 1040 in arriving at AGI.
Choice “A” is incorrect. Rental property expenses are not an itemized deduction subject to a 10 percent AGI floor.
Choice “B” is incorrect. See explanation for choice “C”.
Choice “D” is incorrect. Rental property expenses are not a deduction from adjusted gross income. They are taken into account in arriving at adjusted gross income.
Choice “D” is correct. The state taxes of $3,000 and the real estate taxes of $800 are permitted as itemized deductions ($3,800).
Choice “A” is incorrect. This choice indicates that all items listed in the question are deductible, except for the federal income tax. The state occupational license fee is not deductible as a tax when itemizing deductions, but is deductible as a business expense on the taxpayer’s Schedule C (for IRS Form 1040).
Choice “B” is incorrect. This choice indicates that the state income tax and the state occupational license fee are deductible as taxes. The real estate taxes are also deductible as taxes, and the occupational license fee is not deductible as a tax.
Choice “C” is incorrect. The real estate taxes are also deductible.
