When donating property for charity, what amount may be used for the deduction?
If the property was held >1 yr: Its FMV
If the property was held <1 yr: the lesser of the cost or FMV
True / False: Being 65 or older and/or blind entitles the taxpayer to an additional exemption
It entitles the taxpayer to an additional deduction but not an additional exemption
How is the deduction for medical and dental expenses calculated?
Total amount of medical expenses
(10% of AGI) =
amount to be deducted
Which itemized deductions are not limited by the phase out?
Medical and dental expenses
Investment interest expense
Casualty and theft losses
True / False: A dependent’s taxable income is considered when determining if their medical expenses can be included in the taxpayer’s itemized deductions?
All dependency rules apply except no taxable income or precludes joint return requirements
When are medical expenses deductible (timing of deduction)?
In the year PAID even if it is different from the year incurred.
Describe what “legally obligated” to pay a real estate tax means?
The one who is required to pay the tax and would suffer the consequences if not paid. Unless you are legally obligated, you can’t take the deduction even though you have paid the tax. So, if you pay Mom’s real estate taxes, Mom is actually the one who is obligated and she can take the deduction – you can’t
True / False: Real estate taxes include assessment taxes.
Assessments are special taxes where the government pre-pays for your obligation for a special item, such as a sidewalk. It’s more like a loan.
Personal property taxes must be based on the item’s ______ in order to be an itemized deduction.
What is the maximum home mortgage acquisition loan amount that may be used for the mortgage interest deduction. When are points deducted?
$1M MFJ, or $500K MFS
Points for the initial acquisition are deducted immediately
Point for a refi must be amortized over the period of the loan
What is the maximum home equity loan amount that may be used for the mortgage interest deduction?
$100,000 MFJ, $50,000 MFS OR
FMV of the property reduced by the amount of outstanding acquisition indebtedness
What is investment interest expense? How much may be deducted?
Interest paid on funds borrowed to make an investment
Deduct interest paid to a maximum of investment income earned. No negative amounts may be deducted but may be carried over indefinitely EXCEPT
If used to buy tax-free bonds, the interest expense is not deductible.
True / False: A taxpayer borrows money to make an investment. Dividends earned on this investment qualify for the 15% reduced rate.
The dividend is no longer considered to be a qualified dividend.
Where are investment expenses deducted (not investment interest expense)?
In the Miscellaneous Deductions subject to the 2% floor.
Where is education loan interest deducted? How much is deductible?
It’s not deducted. It’s an above-the-line adjustment up to $2,500/year and the rest is lost as personal interest.
What are the charitable deduction limits? Is carryover allowed?
Carryover for up to 5 years
ALL deductions up to a total of 50% AGI
Cash or equivalents up to 50% of AGI
Property using the lesser of adjusted basis or FMV up to 30% of AGI
Thus, if 20% of all charity given as property, only 30% of charity may be in cash & equivalents for a total of 50% AGI. If only property given then the max is 30% AGI.
A taxpayer offers services to a charitable organization. What amount may be deducted for these services?
Only out-of-pocket expenses. The value of the service is not deductible.
What is the deduction allowed for a foreign exchange student and where is it deducted?
As a charitable contribution, up to $50/month for each month the student is in the home 15+ days.
How does one calculate a casualty and theft loss
THE LESSER OF
Change in FMV before and immediately after the loss OR
Adjusted basis of the property
(any insurance reimbursements)
($100 PER EVENT) =
(10% of AGI) =
True / False: Termite damage is considered a deductible loss
Because termites cause damage over a long period of time, this violates the “sudden and unexpected” rule
What items fall into the Miscellaneous Business Expenses category (don’t need to know all)
Overnight Travel, Meals and Lodging
Transportation expenses (lots of rules)
Meals/Entertainment (up to 50% of the cost)
Education expenses to keep a current job
Uniforms (special rules)
Employment agency fees
Expenses of investors (not interest)
Subscriptions to professional journals
Tax preparation fee
Activities not engaged in for profit (hobby)
Where are gambling losses deducted?
Losses are only deductible up to the amount won. This is an Other Miscellaneous Deduction not subject to the 2% floor.
What is the amount of the extra deduction for over 65 or blind?
$1,250 per person
True / False: Medicare premiums are deductible as a medical expense on Schedule A
When a person engages in a hobby. Where are income and expenses placed on a tax return? Are there any limitations?
Income is entered as gross income.
Expenses are deductible only to the extent of income, as a Misc Expense subject to the 2% of AGI limitation.