South Western Federal Taxation 2014 Comprehensive 37th Edition By William H. Hoffman – Test Bank

South Western Federal Taxation 2014 Comprehensive 37th Edition By William H. Hoffman – Test Bank

 

COMPREHENSIVE VOLUME–CHAPTER 10–DEDUCTIONS AND LOSSES: CERTAIN ITEMIZED DEDUCTIONS

Student: ___________________________________________________________________________

1. Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.
   True False

2. The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer’s filing status.
   True False

3. Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance, Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
   True False

4. A physician recommends a private school for Ellen’s dependent child. Because of the physician’s recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).
   True False

5. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.
   True False

6. Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed’s increase in utility bills due to the operation of the pool qualifies as a medical expense.
   True False

7. Mason, age 70, a physically handicapped individual, pays $10,000 in 2013 for the installation of wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical deduction (subject to the AGI floor).
   True False

8. Chad pays the medical expenses of his son, James. James would qualify as Chad’s dependent except that he earns $7,500 during the year. Chad may claim James’ medical expenses even if he is not a dependent.
   True False

9. Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
   True False

10. In 2013, Dena traveled 600 miles for specialized medical treatment that was not available in her hometown. She paid $90 for meals during the trip, $145 for a hotel room on Tuesday night, and $15 in parking fees. She did not keep records of other out-of-pocket costs for transportation. Dena can include $209 in computing her medical expenses.
    True False

11. 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.
    True False

12. In 2013, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the $3,000 in computing his medical expense deduction for the year.
    True False

13. Jim’s employer pays half of the premiums on a group medical insurance plan covering all employees, and employees pay the other half. Jim can exclude the half of the premium paid by his employer from his gross income and may include the half he pays in determining his medical expense deduction.
    True False

14. Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2013. He expects $5,000 of these expenses to be reimbursed by an insurance company in 2014. In determining his medical expense deduction for 2013, Matt must reduce his 2013 medical expenses by the amount of the reimbursement he expects in 2014.
    True False

15. In 2014, Rhonda received an insurance reimbursement for medical expenses incurred in 2013. She is not required to include the reimbursement in gross income in 2014 if she claimed the standard deduction in 2013.
    True False

16. Georgia contributed $2,000 to a qualifying Health Savings Account in 2013. The entire amount qualifies as an expense deductible for AGI.
    True False

17. Shirley pays FICA (employer’s share) on the wages she pays her maid to clean and maintain Shirley’s personal residence. The FICA payment is not deductible as an itemized deduction.
    True False

18. Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.
    True False

19. A taxpayer may not deduct the cost of new curbing (relative to a personal residence), even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.
    True False

20. Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence. The new curbing was installed throughout Sergio’s neighborhood as part of a street upgrade project. Sergio may not deduct $2,000 as a tax, but he may add the $2,000 to the basis of his property.
    True False

21. Trent sells his personal residence to Chester on July 1, 2013. He had paid $7,000 in real property taxes on March 1, 2013, the due date for property taxes for 2013. Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.
    True False

22. Herbert is the sole proprietor of a furniture store. He can deduct real property taxes on his store building but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.
    True False

23. Grace’s sole source of income is from a restaurant that she owns and operates as a proprietorship. Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.
    True False

24. In April 2013, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2012. Even though it relates to 2012, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2013.
    True False

25. In January 2014, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2013. The payment is deductible in 2013.
    True False

26. Phyllis, a calendar year cash basis taxpayer who itemized deductions, overpaid her 2012 state income tax and is entitled to a refund of $400. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2013. She is required to recognize that amount as income in 2013.
    True False

27. Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2013. Tom is single. He may deduct the $3,500 interest as an itemized deduction.
    True False

28. For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer’s principal residence.
    True False

29. For purposes of computing the deduction for qualified residence interest, a qualified residence includes the taxpayer’s principal residence and two other residences of the taxpayer or spouse.
    True False

30. Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns) is deductible as qualified residence interest.
    True False

31. A taxpayer pays points to obtain financing to purchase a second residence. At the election of the taxpayer, the points can be deducted as interest expense for the year paid.
    True False

32. Points paid by the owner of a personal residence to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage.
    True False

33. Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase. Jack can deduct the points as interest.
    True False

34. Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early. The $1,600 is deductible as interest expense.
    True False

35. Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds. The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.
    True False

36. Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2013. He prepaid all $3,600 of the interest on the loan on December 1, 2013. Joe can deduct only $300 of the prepaid interest in 2013.
    True False

37. Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2013. The $2,200 contribution is deductible on Sadie’s 2013 tax return.
    True False

38. On December 31, 2013, 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 2014. If Lynette itemizes, she can deduct the $500 in 2013.
    True False

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

40. For all of the current year, Randy (a calendar year taxpayer) allowed the Salvation Army to use a building he owns rent-free. The building normally rents for $24,000 a year. Randy will be allowed a charitable contribution deduction this year of $24,000.
    True False

41. Al contributed a painting to the Metropolitan Art Museum of St. Louis, Missouri. The painting, purchased six years ago, was worth $40,000 when donated, and Al’s basis was $20,000. If this painting is immediately sold by the museum and the proceeds are placed in the general fund, Al’s charitable contribution deduction is $20,000 (subject to percentage limitations).
    True False

42. During the year, Victor spent $300 on bingo games sponsored by his church. If all profits went to the church, Victor has a charitable contribution deduction of $300.
    True False

43. In 2013, Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah. In addition, she spent $250 for meals while away from home. In total, Allison may take a charitable contribution deduction of $112 (800 miles ´ $.14).
    True False

44. During the year, Eve (a resident of Billings, Montana) spends three consecutive weeks in Louisville, Kentucky. One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relatives. One third of Eve’s travel expenses will qualify as a charitable deduction.
    True False

45. In order to dissuade his pastor from resigning and taking a position with a larger church, Michael, an ardent leader of the congregation, gives the pastor a new car. The cost of the car is deductible by Michael as a charitable contribution.
    True False

46. Dan contributed stock worth $16,000 to his college alma mater, a qualified charity. He acquired the stock eleven months ago for $4,000. He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).
    True False

47. Ronaldo contributed stock worth $12,000 to the Children’s Protective Agency, a qualified charity. He acquired the stock twenty months ago for $6,000. He may deduct $6,000 as a charitable contribution deduction (subject to percentage limitations).
    True False

48. Any capital asset donated to a public charity that would result in long-term capital gain if sold, is subject to the 30%-of-AGI ceiling limitation on charitable contributions for individuals.
    True False

49. John gave $1,000 to a family whose house was destroyed by fire. John may claim a charitable deduction of $1,000 on his tax return for the current year.
    True False

50. In the year of her death, Maria made significant charitable contributions of capital gain property. In fact, the amount of the contributions exceeds 30% of her AGI. Maria’s executor can elect to deduct charitable contributions of up to 50% of Maria’s AGI on Maria’s final income tax return.
    True False

51. The reduced deduction election enables a taxpayer to move from the 30%-of-AGI limitation to the 50%-of-AGI limitation.
    True False

52. Excess charitable contributions that come under the 30%-of-AGI ceiling are always subject to the 30%-of-AGI ceiling in the carryover year.
    True False

53. Contributions to public charities in excess of 50% of AGI may be carried back 3 years or forward for up to 5 years.
    True False

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

55. Gambling losses may be deducted to the extent of the taxpayer’s gambling winnings. Such losses are subject to the 2% floor for miscellaneous itemized deductions.
    True False

56. The phaseout of certain itemized deductions has been reinstated for years beginning in 2013.
    True False

57. Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna’s surgical fees will qualify as a deductible medical expense (before application of the AGI limitation)?
    A. $0.
    B. $6,000.
    C. $9,000.
    D. $15,000.
    E. None of the above.

58. Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2013. They have four dependents and file a joint return. They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs. In October 2013, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2014. Determine the maximum deduction allowable for medical expenses in 2013.
    A. $800.
    B. $3,400.
    C. $9,200.
    D. $12,800.
    E. None of the above.

59. Richard, age 50, is employed as an actuary. For calendar year 2013, he had AGI of $130,000 and paid the following medical expenses:

Medical insurance premiums

$5,300

Doctor and dentist bills for Derrick and Jane (Richard’s parents)

7,900

Doctor and dentist bills for Richard

5,100

Prescribed medicines for Richard

830

Nonprescribed insulin for Richard

960

Derrick and Jane would qualify as Richard’s dependents except that they file a joint return. Richard’s medical insurance policy does not cover them. Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2013 and received the reimbursement in January 2014. What is Richard’s maximum allowable medical expense deduction for 2013?
A. $0.
B. $7,090.
C. $13,000.
D. $20,090.
E. None of the above.

60. Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra’s 80-year old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur:

Room at Twilight

$4,500

Meals for Arthur at Twilight

850

Doctor and nurse fees

700

Cable TV service for Arthur’s room

107

Total

$6,157

Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra?
A. $6,157.
B. $6,050.
C. $5,200.
D. $1,550.
E. None of the above.

61. Phillip, age 66, 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 2013 was $100,000. How much of these expenditures can Phillip deduct as a medical expense in 2013?
    A. $14,000.
    B. $15,000.
    C. $21,500.
    D. $29,000.
    E. None of the above.

62. Quinn, 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 $30,000. 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. Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after. As a result of the operation of the stairway lift, Quinn experienced an increase of $680 in his utility bills for the current year. Disregarding the percentage of AGI limitation, how much of the above expenditures qualify as medical expense deductions?
    A. $11,680.
    B. $30,680.
    C. $30,880.
    D. $34,880.
    E. None of the above.

63. Brad, who would otherwise qualify as Faye’s dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2013:

Cataract operation for Brad

$ 5,400

Brad’s prescribed contact lenses

1,800

Faye’s doctor and dentist bills

12,600

Prescribed drugs for Faye

2,550

Total

$22,350

Assuming Faye is age 45, she has a medical expense deduction of:
A. $3,150.
B. $4,950.
C. $10,350.
D. $13,350.
E. None of the above.

64. Tom, age 48, is advised by his family physician that he needs back surgery to correct a problem from his last back surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to Rochester, Minnesota, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery. Tom incurred the following costs in 2013:

Round-trip airfare ($350 each)

$ 700

Jean’s hotel in Rochester for four nights ($95 per night)

380

Jean’s meals while in Rochester

105

Tom’s medical treatment

3,500

Tom’s prescription medicine

600

Compute Tom’s medical expenses for the trip (subject to the 10% floor).
A. $4,000.
B. $5,000.
C. $5,180.
D. $5,285.
E. None of the above.

65. Your friend Scotty informs you that he received a “tax-free” reimbursement in 2013 of some medical expenses he paid in 2012. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
    A. Scotty itemized deductions in 2012.
    B. Scotty did not itemize deductions in 2012.
    C. Scotty itemized deductions in 2013.
    D. Scotty did not itemize deductions in 2013.
    E. Scotty itemized deductions in 2013 but not in 2012.

66. In 2013, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true?
    A. If Boris is self-employed, he may deduct $7,200 as a deduction for AGI.
    B. If Boris is self-employed, he may deduct $3,400 as a deduction for AGI and may include the $3,800 premium when calculating his itemized medical expense deduction.
    C. If Boris is an employee, he may deduct $7,200 as a deduction for AGI.
    D. If Boris is an employee, he may include $7,200 when calculating his itemized medical expense deduction.
    E. None of the above.

67. During 2013, Hugh, a self-employed individual, paid the following amounts:

Real estate tax on Iowa residence

$3,800

State income tax

1,700

Real estate taxes on land in Puerto Rico (held as an investment)

1,100

Gift tax paid on gift to daughter

1,200

State sales taxes

1,750

State occupational license fee

300

Property tax on value of his automobile (used 100% for business)

475

What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?
A. $6,600.
B. $6,650.
C. $7,850.
D. $8,625.
E. None of the above.

68. During 2013, Nancy paid the following taxes:

Tax on residence (for the period from March 1 through August 31, 2013)

$5,250

State motor vehicle tax (based on the value of the personal use automobile)

430

State sales tax

3,500

State income tax

3,050

Nancy sold her personal residence on June 30, 2013, under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for 2013 for Nancy?
A. $9,180.
B. $9,130.
C. $7,382.
D. $5,382.
E. None of the above.