Standard Deduction/Itemized Deductions

Question 1

What conditions permit a taxpayer to receive a bonus on the standard deduction?

Answer 1

Taxpayers that are Blind or Over 64 may receive an extra couple thousand dollars of standard deduction.

Question 2

What is the standard deduction for dependents?

Answer 2

The greater of:
(1) $1,300, or
(2) Earned income plus $450 (limited to regular standard deduction.

Question 3

Basic list of Itemized Deductions (6)

Answer 3

(1) Medical Expenses
(2) State and Local Taxes
(3) Interest Expense (Home and Investment)
(4) Charitable Contributions
(5) Casualty/theft loss
(6) Gambling Losses

Question 4

The medical expense deduction covers medical expenses spent on behalf of which parties?

Answer 4

(1) The taxpayer
(2) Taxpayer’s spouse, and
(3) Dependent who received more than half of their support from filing taxpayer.

Question 5

What is the definition of dependent for purposes of medical expense deduction eligibility?

Answer 5

(1) Supported over 50% by taxpayer
(2) Must be citizens
(3) Must be relative OR
(4) Unrelated but lives with taxpayer all year.

Same as normal test but allows for dependents filing a joint return and no gross income test.

Question 6

What is the formula/calculation for determining medical expense deduction?

Answer 6

Qualified Medical Expenses
-Insurance Reimbursement
=Qualified Medical Expenses paid
-7.5% of AGI
=Deductible medical expenses

Question 7

Deductible and Nondeductible Expenses (Add later)

Question 8

Tax impact of insurance reimbursements for expenses paid in current year and prior years?

Answer 8

Reimbursement of current expenses reduces amount of expenses prior to application of 7.5% floor.
Reimbursement for deduction in prior year is income in current year.

Question 9

How much may be deducted for state and local taxes?

Answer 9

A maximum of $10,000 may be deducted.

Question 10

What taxes may not be deducted as state and local taxes?

Answer 10

(1) Federal Taxes
(2) Inheritance Taxes
(3) Business and Rental Property Taxes (Reported on Schedules C and E)
(4) Either state income or sales tax on choice of taxpayer

Question 11

What are the floor rules for casualty losses?

Answer 11

Each individual loss must be at least $100 and total losses must exceed 10% of AGI.

Question 12

Casualty loss formula/calculation?

Answer 12

Smaller loss
-Insurance recover
=Taxpayer’s loss
-$100
=Eligible Loss
-10% AGI Floor
=Deductible loss

Question 13

What are the rules regarding casualty losses and insurance?

Answer 13

Casualty loss cannot be claimed for property unless a claim was filed or the property was not insured.

Question 14

Can a casualty loss be claimed for loss, misplaced, or broken property?

Answer 14

No

Question 15

How much may the amount of gambling losses be deducted?

Answer 15

Gambling losses may be deducted to the extent of gambling winnings.

Question 16

When will miscellaneous itemized deductions be allowed?

Answer 16

Miscellaneous itemized deductions are disallowed until 2026.

Question 17

What is a qualified residence for purposes of the interest deduction?

Answer 17

A taxpayer’s principal residence and one other residence if the taxpayer lives there for at least 14 days during the year.

Question 18

How much interest may be deducted in relation to a qualified residence?

Answer 18

The taxpayer may deduct interest on up to $750,000 of home-related indebtedness.

Question 19

What are the requirements for loans that qualify for the interest deduction related to residences?

Answer 19

The loan
(1) must be incurred in buying, constructing, or improving the taxpayer’s qualified residence, and
(2) must be secured by the home.

Question 20

What is the main limit on investment interest expense?

Answer 20

Investment interest expense is limited to the amount of net taxable investment income of the taxpayer.

Question 21

Basic list of taxable investment income that investment interest expense can be deducted against? (5)

Answer 21

(1) Interest
(2) Dividends (Other than qualified dividends)
(3) Royalties (in excess of expenses)
(4) STCG
(5) Net LTCG and qualified dividends (If taxpayer elects not to claim reduced capital gains rates)

Question 22

Tax treatment of dividends from stock purchased with borrowed funds?

Answer 22

Dividends from stock purchased with borrowed funds that taxpayer treats as investment income for purposes of the investment interest expense limitation does not qualify for favorable rates.

Question 23

Tax treatment of interest expense on debt used to purchase tax free bonds?

Answer 23

This interest expense is not deductible.

Question 24

What happens to investment interest expense in excess of investment interest income?

Answer 24

It may be carried forward indefinitely.

Question 25

When may prepaid interest be deducted for a cash basis taxpayer?

Answer 25

Even if interest is prepaid, deduction is allocated over period of loan.

Question 26

What are three types of gratuitous contributions and what are their tax consequences?

Answer 26

(1) Charity: deductible
(2) Gifts to individuals: nondeductible
(3) Political Contributions: nondeductible

Question 27

What are the two classifications of property that determine how much charitable deduction is allowed for the property’s contribution?

Answer 27

(1) Ordinary income property, and
(2) Long term capital gain property.

Question 28

What is the amount of the charitable deduction allowed for contributions of ordinary income property? What are examples of ordinary income property? (4)

Answer 28

The allowable deduction is the lesser of the FMV or basis of the property.
Examples of ordinary income property include:
(1) Inventory
(2) Short-term assets (held less than a year)
(3) Investment or personal-use assets that depreciated in value
(4) Depreciation recapture on long-term, business-use assets.

Question 29

What is the amount of the charitable deduction allowed for contributions of LTCG property? What are examples of LTCG property? (3)

Answer 29

(1) Investment Assets
(2) Personal Use Assets
(3) Gain in excess of ordinary depreciation recapture for long-term, business-use assets.

Question 30

What are the AGI limits for charitable contributions and how does it change depending on type of nonprofit and property contributed?

Answer 30

For public charities and operating private foundations, cash is 60% AGI, ordinary income property is 50% of AGI, and LTCG is 30%.
For nonoperating private foundations, cash is 30%, ordinary income property is 30%, and LTCG is 20%.