REG 2 - Itemized Deductions

Question 1

Who qualifies for medical expenses deduction

Answer 1

• Filing taxpayer
• Spouse
• Dependent who received more than half of his or her support from the filing taxpayer
• There is no limitation on the dependents gross income, however the citizenship and relative/lives with taxpayer requirements still apply

Question 2

Timing of medical expense deductions

Answer 2

Individuals are typically “cash basis” so therefore:

• incurred as an expense
• paid or charged to credit card before year end

Question 3

Calculation of deductible medical expenses

Answer 3

Qualified medical expenses
(Insurance reimbursement)
= Qualified medical expense "paid"
(7.5% of AGI)
= Deductible medical expenses

Question 4

Types of deductible medical expenses

Answer 4

• Medicine and prescription drugs
• Doctors
• Medically necessary surgery

Question 5

Types of nondeductible medical expenses

Answer 5

• elective surgery, elective cosmetic operations, illegal drugs
• Life insurance
• capital expenditures
• gym membership
• personal hygiene

Question 6

Deductible State, Local, and Foreign taxes (not federal income taxes)

Answer 6

1) Real Estate taxes
2) Personal property taxes
3) Income taxes (state, local, foreign)
4) Sales tax (Instead of state income taxes)
* Limited to 10,000 in aggregate

*Again, “cash basis” taxpayers are entitled to a deduction in the year an item is paid or charged. There is no matching to the year the tax is applicable.

Question 7

Nondeductible Taxes (FIB)

Answer 7

1) Federal taxes (including social security)
2) Inheritance taxes for states
3) Business (on Schedule C) and rental property taxes (on Schedule E)

Question 8

Interest Expense (HIpPe)

Answer 8

1) Home Mortgage interest
2) Investment Interest expense
- Like gambling loss rules
3) Personal (consumer) interest is not deductible
- a personal note to a bank, life insurance loans, etc
4) Prepaid interest
- deduct when both incurred and paid
5) Educational loan interest
- Adjustment to AGI, not itemized deduction

Question 9

Charitable Contributions

Answer 9

Can deduct up to 2,500 per year. AGI limitations are as follows:
Cash 60% of AGI
Ordinary income property (FMV) 50% of AGI
-inventory, short-term land
Long-term capital gain property (FMV) 30% of AGI
*applied in order, top to bottom
**excess can carryover for five years

Question 10

Consideration received for charitable contribution

Answer 10

Only deduct “excess” paid for the item. Cannot deduct value of free services, but may deduct out of pocket expenses incurred as a result of providing services to a charity

Question 11

Casualty Losses

Answer 11

Smaller loss of 
1) Lost cost/adjusted basis
2) Decreased FMV
(Insurance recovery)
=Taxpayers loss
($100)
=Eligible loss
(10% AGI)
=Deductible loss

*Must be a presidentially declared disaster area