Unit 12 - Standard Deduction & Itemized Deductions

Question 1

“Peace limitation” on itemized deductions

Answer 1

Prevented higher income taxpayers from significantly reducing their taxable income by itemizing

Itemize deductions were subject to income limits and phased out

The TCJA (tax cuts and jobs act) Temporarily removed this through 2025

Question 2

The standard deduction – what is it?

Answer 2

A specific dollar amount that reduces the amount of income which taxpayer is taxed

Based on a taxpayers filing status

Adjusted every year for inflation

Question 3

MFS or Single standard deduction

Answer 3

$13,850

Question 4

HOH standard deduction

Answer 4

$20,800

Question 5

MFJ or QSS standard deduction

Answer 5

$27,700

Question 6

Dependent standard deduction

Answer 6

Limited to the greater of

$1250 or

Their earned income plus $400

But the total can’t be more than the basic standard deduction for their filing status

It can be higher if 65 or older and or blind

Question 7

Additional standard deduction

Answer 7

Available to taxpayers who, at the end of the year, are:

65 or older

And/or

Blind or partially blind

$1500 higher for MFJ, MFS, QSS

$1850 higher for single and HOH

Question 8

Determining if a taxpayer is 65 or blind

Answer 8

Need to turn 65 by January 1

If the taxpayer is considered blind on the last day of the year, they can take the deduction

Must obtain a statement from an eye doctor stating that their vision cannot be corrected to better than 20/200 with eyeglasses

Or that their peripheral vision is limited to 20°

Question 9

Calculating the standard deduction for a deceased taxpayer

Answer 9

If a taxpayer dies before their 65th birthday, the higher standard deduction for being 65 does not apply

Question 10

If a child cannot sign a tax return, how does the parent sign?

Answer 10

By (parents signature), parent for minor child

Question 11

Who is required to itemize deductions?

Answer 11

MFS filers, whose spouses itemize (only when both spouses are MFS)

Nonresident aliens

Short tax year – taxpayer files, a tax return for a period of less than 12 months due to a change in accounting methods

Question 12

Where are itemized deductions reported?

Answer 12

On schedule a – form 1040

Nonresident aliens can claim a limited amount of itemized deductions on schedule a

Question 13

Itemizing, medical and dental expenses

What types of expenses qualify?

Answer 13

This is NOT than self-employed health insurance premiums

The IRS defined qualifying cost as :

1. Medically, necessary, equipment, supplies, and diagnostic devices.
2. Dental and vision care.
3. Transportation to obtain medical care.
4. Qualified health insurance and long-term care insurance.

Question 14

Qualified medical expenses

Which expenses can you deduct?

Who qualifies

Answer 14

Fees, paid to doctors, inpatient hospital, care, or nursing home services

Treatment centers for alcohol and drug addiction or smoking cessation programs

Insulin and prescription drugs – but not ones shipped from a different country

Admission, transportation to a medical conference related to a chronic disease

Vet care when it relates to the care of animals trained to assist a person

Taxpayer can only deduct medical expenses they paid during the year, regardless of when the services were provided

For taxpayer, spouse, and their dependents

Including an adopted child, even before the adoption becomes final

Question 15

Itemizing, medical expenses, divorced, or separated, parents

Answer 15

It does not matter which parent claim the child – the medical expenses are deductible for the parent who pays them

Question 16

Medical expenses paid for a dependent parent

Answer 16

Taxpayer can deduct medical expenses paid for a dependent parent – does not have to live with a taxpayer to qualify

Question 17

Calculating the medical expense, itemized deduction

Answer 17

Taxpayers can deduct only the amount of unreimbursed medical expenses that exceed 7.5% of adjusted gross income

Question 18

Qualifying medical expenses – medical insurance

Answer 18

Only insurance premiums paid with after tax dollars for medical and long-term care. Insurance can be considered as qualifying medical expense.

Cannot deduct any insurance reimbursement amounts

Question 19

Qualifying medical expenses – long-term care premiums

What qualifies?

Deduction limits

Answer 19

Taxpayer may include a amount paid for qualified, long-term care, services, and insurance premiums in his medical expense deductions

The expenses generally cannot include cost that would be reimbursed under Medicare

The deductibility of premiums is limited by the age of the taxpayer

The limits are per person, not per tax return

40 or less – $480

41 to 50– $890

51 to 60– $1790

61 to 70– $4770

71 or more – $5960

Question 20

Medical expenses of deceased taxpayers

Answer 20

Taxpayers executor can elect to treat medical expenses paid by the estate within one year after the death, as if the taxpayer had paid when the medical services were provided

Instead of when they were paid

Question 21

Medical expenses – cosmetic surgery

Answer 21

Only deductible if it is used to correct a defect or disease

Question 22

Qualified medical expenses – transportation, meals, and lodging

Answer 22

Standard mileage rate for medical expenses is $.22 per mile

Can deduct the cost of taxis, buses, trains, planes, or ambulances, as well as tolls and parking fees

Can deduct the cost of meals and lodging at or similar institution. If the principal reason for being there is to receive medical care.

For lodging more than $50 for each person can include lodging for a person traveling with – up to $100

Meals outside of the hospital are not deductible

Question 23

Capital improvements for medical reasons

Answer 23

Home improvements with a main purpose to provide medical care to a taxpayer or family member

Qualifying expenses include wheelchair, ramps, lowering of kitchen cabinets, railings, and Support bars, elevators, special lift equipment

Tenants/renters can deduct the entire cost of disability related improvements – even if they are not the owners of the property

The amount that can be deducted is limited to the difference between the cost of the improvements and the corresponding rise in the homes FMV

Question 24

SALT

Answer 24

State and local income taxes

Question 25

SALT deductible taxes

Answer 25

In order to be deductible, a tax must have been imposed and paid by the taxpayer during the tax year

Deductible taxes include

1. State, local, and foreign income taxes.
2. State and local sales taxes.
3. Real estate taxes – but not for foreign real estate.
4. Personal property taxes – such as the portion of DMV fees based on the value of the car.

Question 26

SALT deduction limits

Answer 26

The tax cuts and jobs act put a temporary cap on state and local taxes

This deduction is capped at $10,000 or $5000 for MFS files until 2025

The cap amount applies to the total of all state and local income, taxes, real estate, taxes, personal property, taxes, and foreign income taxes

Question 27

State and local taxes – what qualifies

Answer 27

Taxpayers can deduct either sales/use taxes or state and local income taxes – depending on which provides the larger deduction

Cannot deduct both

Income taxes, paid include taxes, withheld from salaries and wages, amounts paid for prior years, and estimated tax payments

Question 28

Real estate taxes

What is deductible?

What is not deductible?

Answer 28

Property taxes are deductible

Taxes paid from a mortgage escrow account – the taxpayer can deduct only the amount actually paid out of the escrow during the year

Cannot deduct taxes imposed to finance improvements of property – such as assessments for streets, sidewalks, and sewer lines

Cannot deduct homeowners association fees

Cannot deduct real estate taxes paid on foreign real property

Question 29

Personal property taxes are deductible if they are

Answer 29

1. Charged on personal property, including cars, motorcycles, and boats.
2. Based on the value of the property, and.
3. Charged on a yearly basis – even if collected more than once a year.

Question 30

Foreign income taxes

Answer 30

Not subject to the SALT cap

Listed online six of schedule a, under other taxes

Example – US citizen works overseas and has wages and pays foreign income tax

Generally, taxpayer can choose between claiming the foreign tax credit or claiming an itemized deduction on schedule a for income taxes paid to a foreign country

Question 31

Deductible interest

Answer 31

Taxpayers can deduct certain types of interest, including

Home mortgage interest

Late fees on a mortgage loan

Points on a mortgage loan

Investment interest expense

Question 32

Home mortgage interest

What’s deductible?

Any limits?

Answer 32

Taxpayer can deduct mortgage interest related to a primary residence and a second home

Loan must be secured by the taxpayers home

Can be a mortgage, second mortgage, home equity loan, or a line of credit

Interest paid is only tax deductible. If the proceeds from the the loan were used to acquire, build, or significantly enhance the home.

Full deduction allowed if the total mortgage debt does not exceed $750,000 or $375,000 for MFS

Question 33

Home mortgage interest – vacant land

Answer 33

A vacant piece of land is not eligible for the mortgage interest deduction

If taxpayer construct a house that meets the requirements – can deduct mortgage interest for a period of up to 24 months from when construction begins

Can treat the home under construction as a qualified home once the construction has started

Question 34

Mortgage late fees, and prepayment penalties

Answer 34

Deductible as mortgage interest on schedule a

Question 35

Mortgage insurance premiums – PMI

Answer 35

The itemized deduction for mortgage insurance premiums has expired – can no longer claim the deduction for 2023 and going forward

Question 36

Form 1098

Answer 36

Mortgage interest statement

Received by the bank or financial institution showing

Mortgage interest

Property taxes paid

Points paid

PMI

Principal balance

Question 37

Points and prepaid mortgage interest

Requirements to deduct

Answer 37

Points are interest charges. A borrower pays upfront to obtain a loan.

Basically pay at closing to obtain a lower interest rate

In order to deduct points, the following requirements must be met:

1. The mortgage must be secured by the taxpayers main home and the mortgage must’ve been used to buy build or improve the home
2. The points must not be an excessive or unusual amount.
3. The points paid must not be more than the amount of un borrowed funds.
4. The points must be computed as a percentage of the loan principle – and they must be listed on the settlement statement (the HUD-1)

Question 38

How are mortgage points deducted?

Answer 38

Taxpayer can deduct points either in the year paid or over the life of the loan

Points paid to refinance. A mortgage are not fully deductible in the year paid – must be deducted over the life of the loan

unless the proceeds are used to improve a main home. Second vacation home would not qualify.

Question 39

Investment interest expense

Answer 39

Any interest paid on loans used to purchase taxable investments?

Example – margin interest – investors borrow funds from brokerage houses to purchase stocks and bonds without needing to fully invest the cash amount

Deduction amount is limited to the net investment income earned in a given year

The deductible amount and any disallowed amount that will carry forward is calculated on form 4952, investment interest expense, deduction

Unused portion can be carried over to the following year

Cannot deduct interest related to passive activities or tax exempt interest income

Question 40

Charity / Donations
Contribution limits

Answer 40

Cash contributions up to 60% of AGI

A property contribution (any non-cash donation) maybe limited to 50%, 30%, or 20% of AGI

Depending on the type of property donated in the type of organization, the donor gives it to

Charitable contributions cannot generate a net operating loss – excess maybe carried over and deducted over a five year. Period.

Carryovers are subject to the same percentage limits

Question 41

Charitable contributions - 60% limit

What types of organizations?

Answer 41

Limit applies to cash contributions to a public charity - 501(c)3 organizations

These are called “qualified cash contributions”

Includes …

Churches, mosques, synagogues and similar religious organizations

Hospitals and most schools and colleges

State or federal government entities

Nonprofits organized, solely for charitable, religious, educational, scientific, or literary purposes or for the prevention of cruelty to children or animals

Organizations that foster youth sports or national or international amateur sports competitions

Question 42

Charitable contributions - 50% limit

Answer 42

Applies to most non-cash contributions to public charities

Includes furniture, clothing, and housewares

Applies to gifts of inventory and depreciable property, such as machinery and vehicles

& conservation easements

Question 43

Charitable contributions - 30% limit

Answer 43

Applies to donations of most appreciated capital gain property

Property would have resulted in a long-term gain if sold instead of donated

Can claim as a deduction

Examples include stock cryptocurrency, land, or other real estate that has appreciated and value

The 30% limit applies to organizations that include the following :

certain private non-operating foundations

Veterans organizations and fraternal benefits societies

Nonprofit cemeteries

Gifts for use by the charitable organization – donation of a vehicle

Gifts of appreciated capital gain property

Question 44

Charitable contributions - 20% limit

Answer 44

Apply specifically to gifts of appreciated capital gain property to most private non-operating foundations and certain other non-public charities

Applies to contributions of capital gain property to organizations subject to the 30% limit

Question 45

Qualified charitable gifts – deductible contributions may include these expenses

Answer 45

Unreimbursed expenses that relate directly to the services, the taxpayer provided for the organization

The amount of a contribution in excess of the FMV items received

Transportation expenses or a standard mileage deduction of $.14 per mile

Question 46

Charitable gifts – volunteer expenses

Answer 46

Volunteer hours cannot be assigned and monetary value – cannot be deducted

Can deduct out-of-pocket expenses

Can deduct expenses incurred while traveling to perform services

Question 47

QCD’s

Answer 47

Qualified charitable distributions

Donors age 70 1/2 or older made donate up to $100,000 per tax year directly from a traditional IRA

Taxpayer can choose to make a QCD in lieu of taking an annual required minimum distribution (RMD) from their IRA

The amount of the distribution will not be included in taxable income – taxpayer will not be able to claim a charitable deduction for the amounts given via the QCD

Question 48

Charitable contributions – non-qualifying organizations and gifts

Answer 48

1. Civic leagues, social and sports clubs, and chambers of commerce
2. Political groups, candidates, or political organizations.
3. Homeowners associations.
4. Donations made directly to individuals.
5. The cost of raffle, bingo, or lottery tickets.
6. Dues paid to country clubs or similar groups.
7. Dues to labor unions.
8. Blood donated to a blood bank – but mileage incurred to donate may be deductible
9. Any part of a contribution that benefits the taxpayer, such as the FMV of a meal Eaton at a charity dinner.

Question 49

Charity deduction – charity auction

Answer 49

Items purchased at a charity auction – amount deductible is the price paid over its fair market value

Question 50

Recordkeeping rules for charitable gifts

Answer 50

1. At a minimum, must have at least a bank record or a written receipt from a charity for any cash contribution before the donor can claim a charitable deduction.
2. For single contributions of $250 or more, the donor must obtain a written receipt from the charity before claiming a charitable deduction.

Question 51

Cash contributions include those paid by

Answer 51

Cash
Check
Debit card
Credit card
Payroll deduction

Question 52

Cash donations of less than $250 – record requirement

Answer 52

Must keep a reliable written record of

1. a bank or credit card statement that shows the name of the qualified organization, the date, and the amount
2. A receipt from the qualified organization, showing its name, the date, and the amount.
3. For payroll deductions – a paystub or form W – 2+ a pledge card or other document showing the name of the qualified organization.
4. Text donations, a telephone bill, as long as it shows the name of the qualified organization, the date, and the amount given.

Nothing is attached to the tax return, but must retain copies to substantiate the contributions if ever audited

Question 53

Cash donations of $250 or more – record requirements

Answer 53

Donor must have a receipt or a written acknowledgment from the organization that includes:

1. Amount of cash contributed.
2. Date of the contribution.
3. Whether the qualified organization gave any goods or services as a result of the contribution. (other than certain token items, and membership benefits.)
4. If applicable, a description and a good faith estimate of the value of goods or services provided by the organization as a result of the contribution.

Single annual statement from the charitable organization works. Commonly called donor acknowledgment letters.

No specific IRS form for the acknowledgment

Question 54

Rules for non-cash contributions of less than $250

Answer 54

For each non-contribution of less than $250…

Taxpayer must obtain a receipt from the receiving organization

And keep a list of the items donated

Question 55

Rules for non-cash donations between $250 and $500

Answer 55

1. Obtain a receipt from the receiving organization and keep a list of items donated.
2. Organizations written acknowledgment must definitively state whether the taxpayer received any goods or services and return.
3. The statement must also include a description and a good faith estimate of the fair market value of any such items.

Question 56

Rules for non-cash donations over $500

Answer 56

1. Obtain a receipt from the receiving organization and keep a list of items donated.
2. Organizations written acknowledgment must definitively state whether the taxpayer received any goods or services and return.
3. The statement must also include a description and a good faith estimate of the fair market value of any such items.

Also need to keep records like other Noncash contributions less than $500

Question 57

Rules for non-cash donations over $5000

Answer 57

A qualified appraiser is required to make a written appraisal of the donated property

Must complete form 8283, section B, and attached the form to the tax return

Don’t need to submit the appraisal, but must retain a copy for records unless…

Donating artwork valued at more than $20,000 or other property valued at more than $500,000 – the appraisal must be submitted along with the tax return

Must also comply with other record-keeping requirements and attached form 8283

Question 58

Special rules for donated vehicles

What amount is deductible?

Form provided by the charitable organization

Answer 58

If the donor claims a deduction over $500 they can only deduct the smaller of…

Total earnings from the charities sale of the vehicle

Or

The FMV of the vehicle on the donation date

The charitable organization should provide for 1098 – C, contributions of motor vehicles, boats, and airplanes

The form shows the proceeds from the sale of the vehicle donated

If taxpayer does not attach form 1098 – C to the tax return, the maximum deduction that can be taken for the donation is $500

Question 59

Donated vehicles – exceptions to the rules

Answer 59

If Charity keeps the vehicle for its own use

Or if charity gives the vehicle directly to a needy person

Donor can deduct FMV of the vehicle

Requires taxpayer to receive written acknowledgment that the charity kept the vehicle for its own use or gave to someone needy

Deduction is subject to a 30% of AGI limit

Still required to attach form 8283 to the return

Question 60

Charitable gifts – special rules for conservation easements

Answer 60

Conservation easements are used for land conservation purposes by restricting the future use of the land in order to protect its conservation values

Charitable deduction limited to 50% of AGI – not 30%

Can be as high as 100% for qualified farmers or ranchers

Carry forward. For a conservation agreement is 15 years rather than the usual five years.

Question 61

Personal casualty and theft losses

What is deductible and how do you claim the deduction?

Answer 61

The TC JA, suspended itemized deductions for most non-business casualty and theft losses through tax year 2025

Only personal losses from federally declared disaster areas are deductible

Taxpayer can deduct their losses for the year in which the losses occurred or if elected in the year prior to the year of the loss – allowing them to recoup cost immediately and not have to wait for tax year to be up

IRS deems the disaster year to be the year when certain the reimbursement amount of insurance company

Question 62

Calculating the casualty loss deduction

Answer 62

The lesser of

The decrease in the fair market value of the property – before and after the casualty event

Or

The taxpayers adjusted basis in the property at the time of the casualty event

Casualty losses of investment property are treated differently

Question 63

The amortizable premium on taxable bonds

Answer 63

If the amount of taxpayer pays for a bond is greater than its stated principle amount – the excess is called a bond premium

Annual amortization of the premium is treated as a miscellaneous itemized deduction

Question 64

Casualty or theft losses from investment property or income producing property

Answer 64

Taxpayer can deduct the loss as a miscellaneous itemized deduction if the damaged or stolen property was income producing property

Meaning property held for investment such as gold coins, silver coins, artwork, and vacant lots

Taxpayer must report the loss on 4684, casualties and theft, section B

Question 65

Losses from Ponzi investment schemes

Answer 65

Victims of fraudulent investment schemes can claim a theft loss deduction if certain conditions apply

Can deduct Ponzi losses as a theft loss, instead of a capital loss from an investment

Not limited to the $3000 annual limit that applies to other capital losses

Ponzi scheme losses may be offset against ordinary income with no limit

Losses are deducted, section, theft, loss, deduction for Ponzi type investment scheme

Question 66

Federal estate tax on income in respect of a decedent (IRD)

Answer 66

Income in respect of a decedent (IRD) - is money owed to a decedent at the time of death

If a decedents estate paid federal estate taxes on IRD assets – beneficiary may be able to claim an IRD tax deduction

Question 67

Gambling losses

Answer 67

Gambling losses are deducted on schedule a – up to the total amount of gambling winnings

Must keep a written record of losses

Gambling losses in excess of winnings are not deductible and cannot carry forward

Question 68

Impairment related work expenses for disabled workers

Answer 68

Expenses that enable a disabled person to work

Disabled taxpayer would be able to deduct these expenses either as

1. Medical expenses.

Or

2. Miscellaneous itemized deductions.

Taxpayer can choose the method that will give them the best tax result

Fully deductible without income limitations as a miscellaneous itemized deduction

Question 69

Repayments of more than $3000 under a claim of right

Answer 69

Claim of right occurs when a taxpayer reports income in one year, but then must repay that income back in a future tax year

Example – taxpayer has to repay unemployment, benefits, or wages. They received an a prior year.

If amount of repayment is more than $3000 – taxpayer can elect to take a deduction or credit in the year the amounts are repaid

If less than $3000 - does not apply

Question 70

Excess deductions of an estate or trust

Answer 70

If, and it’s final tax year, and estate or trust has more deductions than gross income – the beneficiary can claim the excess deductions on their individual tax return

Depending on the type of deduction

The excess deductions are listed on the schedule K-1 form used to report the deductions on their personal form 1040

The character of the deductions remains unchanged, and they are reported as adjustments to gross income on schedule, one or itemized deductions on schedule a

Question 71

Non-resident aliens, itemized deductions

Answer 71

Nonresident aliens cannot take the standard deduction and they are limited on what they can itemize

The following itemized deductions are allowed:

State and local income taxes

Qualifying charitable contributions to US nonprofit organizations

Casualty and theft losses in a presidentially declared disaster area

Some miscellaneous itemized deductions