Taxes: Itemized - Medical, Taxes, Interest

Question 1

Taxes:
Itemized - Medical, Taxes, Interest
6 Types

Answer 1

Itemized - Medical, Taxes, Interest
6 Types:
1. Medical Expenses
2. Interest
3. Taxes
4. Charitable Contributions
5. Casualty Losses
6. Miscellaneous Deductions

Question 2

Taxes:
Itemized - Medical, Taxes, Interest
Medical

Answer 2

Medical
- must exceed 10% of AGI (7.5% if age 65 or older)
Definition
- expenditure for care, prevention, cure, or treatment of a disease or bodily injury for taxpayer, spouse, or dependent
Not Deductible
funeral, nonprescription drugs, bottled water, toiletries, unnecessary cosmetic surgery
Nursing Home
- okay if there for medical reasons
Capital Expenditures
- qualify if based on advice of physician, used by patient alone, expense is reasonable
Qualifying Auto Expenses
- actual expenses or $0.23 per gallon
- lodging up to $50 per night for ill person and companion
Not Deductible
- until paid or treatment recieved

Question 3

Taxes:
Itemized - Medical, Taxes, Interest
Medical
Calculation

Answer 3

Qualified Medical Expenses
- Reimbursements of insurance
- 10% AGI
= Deductible Medical Expense

Question 4

Taxes:
Itemized - Medical, Taxes, Interest
Deductible Taxes

Answer 4

Deductible Taxes:
- property and income taxes by state, local, or foreign governments
- deducted in year paid/withheld
- federal taxes in general are not deductible
Property Taxes
- not if special assessments
- not fees and licenses
Deducted in Year Paid/Withheld

Question 5

Taxes:
Itemized - Medical, Taxes, Interest
Deductible Interest
Home Mortgage Interest

Answer 5

Deductible Interest
Home Mortgage Interest
- interest on principle residence and second home:
- interest on a of max $1M of acquisition indebtedness if used to purchase, construct, or improve
- interest on lower of $100k or equity in the home regardless of how used
- points can be deducted if paid by taxpayer in year of purchase/improvement
- points on refinancing = prepaid interest
- premiums for qualified mortgage insurance related to acquisition indebtedness are treated as qualified mortgage interest
- phased out if AGI > $100k. 10% for each $1k that exceeds

Question 6

Taxes:
Itemized - Medical, Taxes, Interest
Deductible Interest
Investment Interest

Answer 6

Deductible Interest
Investment Interest
- limited to net investment income (income-expense)
- includes: interest, dividends, rents, royalties, if not derived from trade/business, passive activity, or real estate activity with active participation
- net capital gain attributable to sale of investment property and qualified dividend income not included if elected
- investment expense: expense related to production of investment income to expense > 2% AGI
- carried forward only

Question 7

Taxes:
Itemized - Medical, Taxes, Interest
Deductible Interest
Other Rules

Answer 7

Deductible Interest
Personal Interest
- i.e. credit card, car loan, etc. not deductible
Other
- prepaid interest deducted in year paid
- accrual basis taxpayers deduct ratably over life of loan
- mortgage prepayment penalties are deductible as interest
- interest not deductible if produces tax-exempt income