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Exam 10: Deductions and Losses: Certain Itemized Deductions

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Question 1

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Phillip developed hip problems and was unable to climb the stairs to reach his second-floor bedroom.His physician advised him to add a first-floor bedroom to his home.The cost of constructing the room was $32,000.The increase in the value of the residence as a result of the room addition was determined to be $17,000.In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair.Phillip's AGI for the year was $100,000.How much of these expenditures can Phillip deduct as a medical expense?

A) $14,000.
B) $15,000.
C) $21,500.
D) $29,000.
E) None of the above.

F) B) and C)
G) D) and E)

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Question 2

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Joe, who is in the 33% tax bracket in 2012, expects to retire in 2013 and be in the 25% tax bracket. He plans to donate $50,000 to his church. Because he will not have the cash available until 2013, Joe donates land (long-term capital gain property) with a basis of $10,000 and fair market value of $50,000 to the church in December 2012. He reacquires the land for $50,000 in February 2013. Discuss Joe's tax objectives and all tax issues related to his actions.

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Question 3

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Linda, who has AGI of $120,000 in 2012, contributes stock in Mauve Corporation (a publicly traded corporation) to the Salvation Army, a qualified charitable organization.The stock is worth $65,000, and Linda acquired it as an investment four years ago at a cost of $50,000.

In 2005, Ross, who is single, purchased a personal residence for $170,000 and took out a mortgage of $100,000 on the property. In May of the current year, when the residence had a fair market value of $220,000 and Ross owed $70,000 on the mortgage, he took out a home equity loan for $110,000. He used the funds to purchase a BMW for himself and a Lexus SUV for his wife. For both vehicles, 100% of the use is for personal activities. What is the maximum amount on which Ross can deduct home equity interest?

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations in 2012: The land had been held as an investment and was acquired 4 years ago.Shortly after receipt, the City of Terre Haute sold the land for $210,000.Karen's AGI is $450,000.The allowable charitable contribution deduction is:

Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.

Maria traveled to Rochester, Minnesota, with her son, who was operated on at the Mayo Clinic.Her son stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for lodging.The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.

Employee business expenses for travel qualify as itemized deductions subject to the 2% floor if they are not reimbursed.

On December 31, 2012, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2013. If Lynette itemizes, she can deduct the $500 in 2012.

For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.

Diego, who is single and lives alone, is physically handicapped as a result of a diving accident. In order to live independently, he modifies his personal residence at a cost of $20,000. The modifications included widening halls and doorways for a wheelchair, installing support bars in the bathroom and kitchen, installing a stairway lift, and rewiring so he could reach electrical outlets and appliances. Diego pays $200 for an appraisal that places the value of the residence at $124,000 before the improvements and $129,000 after. As a result of the operation of the stairway lift, Diego experienced an increase of $475 in his utility bills for the current year. Disregarding percentage limitations, how much of the above expenditures qualify as medical expense deductions?

During 2012, Kathy, who is self-employed, paid $650 per month for an HSA contract that provides medical insurance coverage with a $3,000 deductible.The plan covers Kathy, her husband, and their three children.Of the $650 monthly fee, $300 was for the high-deductible policy, and $350 was deposited into an HSA.How much of the amount paid for the high-deductible policy can Kathy deduct as a deduction for AGI?

Pat died this year.Before she died, Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization) .The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000.In the year of her death, Pat had AGI of $300,000.In completing her final income tax return, how much of the charitable contribution should Pat's executor deduct?

In January 2013, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2012. The payment is deductible in 2012.

Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 in 1990.In May of this year, when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage, they took out a home equity loan for $220,000.They used the funds to purchase a single engine airplane to be used for recreational travel purposes.What is the maximum amount of debt on which they can deduct home equity interest?

Charles, who is single, had AGI of $400,000 during 2012. He incurred the following expenses and losses during the year. Compute Charles's total itemized deductions for the year.

In 2012, Shirley sold her personal residence to Mike for $400,000.Before the sale, Shirley paid the real estate taxes of $7,030 for the calendar year.For income tax purposes, the deduction is apportioned as follows: $4,000 to Shirley and $3,030 to Mike. a. What is Mike's basis in the residence? b. What is Shirley's amount realized from the sale of the residence? c. What amount of real estate taxes can Mike deduct? d. What amount of real estate taxes can Shirley deduct?

For calendar year 2012, Jon and Betty Hansen file a joint return reflecting AGI of $280,000.They incur the following expenditures: What is the amount of itemized deductions the Hansens may claim?

In 2013, Rhonda received an insurance reimbursement for medical expenses incurred in 2012.She is not required to include the reimbursement in gross income in 2013 if she claimed the standard deduction in 2012.

Zeke made the following donations to qualified charitable organizations during 2012: The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for 2012 is: