Chapter 06. Itemized Deductions
LO 1 Identify the common deductions necessary for calculating adjusted gross income (AGI).
LO 2 Describe the different types of itemized deductions available to individuals
and compute itemized deductions.
LO 3 Explain the operation of the standard deduction, determine the deduction
for personal and dependency exemptions, and compute taxable income.
1. [§213] Patricia paid the following medical expenses in the current tax year (2014):
Surgeon's fees
$1,200
Medical insurance premiums
600
Hospital fees
800
Prescription drugs
310
Vitamins, not prescribed by doctor
200
Her adjusted gross income for the year is $20,000. She receives a $500 reimbursement from his
health insurance company. Determine the amount of her medical expense deduction for the current year.
a. $ - 0 b. $ 610
c. $910
d. $410
e. $1,110
D
2. [§165] Jim's home was totally destroyed by fire in 2014.
The structure had an adjusted basis of $150,000 and a FMV of $160,000 before the fire.
Jim received insurance reimbursement of $120,000 for the destruction of the home.
Jim's adjusted gross income was $100,000, before considering this loss.
Jim had no casualty gains during the year.
What amount of the fire loss was Jim entitled to claim on his tax return? (Ignore furniture etc. inside.)
a. $ 30,000
b. $ 19,900
c. $ 4,500
d. $24,900
e. Other
B
3. [§111] Juan (who is single, age 30, no dependent).
He had $1,000 of state income taxes withheld from his salary during 2014.
Juan properly deducted $1,000 for state income taxes on his Federal Form 1040 for 2014.
His total federal itemized deductions were $6,000 for 2014.
His state income tax return for 2014 showed a refund of $800, which he received on May 25, 2015.
Juan should:
a. Ignore the state income tax refund – do not report it to the IRS
b. Amend federal income return for 2014. Report corrected amount of state income tax for 2014
c. Include $1,000 in income (related to the state tax refund) on the 2015 federal income tax return
d. Include $800 in income (related to the state tax refund) on the 2015 federal income tax return
e. Include $200 in income (related to the state tax refund) on the 2015 federal income tax return
E
4. [§170(b)(1)(A), ( C)] David purchased investment realty in 2002 for $49,000.
During the current year (2014) he contributed it to the United Way to use as the site for its new local headquarters.
The realty has a value of $52,000 on the contribution date, and David's AGI is $100,000.
He will retire immediately and he expects to have dramatically less income in future years.
David's maximum current year contribution deduction is:
a. $50,000
b. $ 15,000
c. $ 30,000
d. $ 49,000 e. $ 52,000
D
5. [§213] Dan Daniels has AGI of $90,000 in 2014. This year he paid state income taxes of $10,000.
He incurred $14,000 of medical expenses and received a reimbursement of $3,000 from his health
insurance company for these medical expenses.
What is his allowable medical expense deduction for 2014 if he itemizes?
a. $2,000
b. $7,240
c. $11,000
d. $14,000
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A
6. [§164, 111] Sue Graduate provided this information about to her state income taxes:
State income taxes withheld in 2014
$3,500
Refund of 2013 state income tax, received in 2014
400
Deficiency paid in 2014 after audit of her 2012 state income tax return:
State income tax
600
Interest
100
A state income tax refund of $200 for 2014 will be claimed on the 2014 state income tax return filed
on April 15, 2015. What is her deduction for state income taxes on her 2014 federal tax return?
a. $3,500
b. $3,700
c. $4,100
d. $4,300
e. Other
C
7. [§164] What is Jeremy’s total itemized deduction for taxes on Form 1040-Schedule A for 2014?
State income tax
$3,000
Federal income tax
12,000
County real estate tax
2,000
Fee for his car inspection that he uses only personally
50
Homeowners’ association fees on his personal home
500
Gift Tax
2,000
Self-employment tax
1,000
a. $18,550
b. $6,000
c. $5,000
d. $5,500
C
8. [§213] Samantha (Sam) incurred the following medical expenses for the current year:
Face-lift for cosmetic purposes
$800
Dentist fees
500
Doctors' fees for Samantha's daughter
400
How much may Sam include as qualified medical expenses on her current tax return before any limit?
a. $ 400
b. $ 500
c. $ 900
d. $1,300
e. $1,700
C
9. [§213] Phil incurs the following medical expenses during the current tax year:
Surgeon's fees
$2,200
Medical insurance premiums
600
Hospital fees
800
Prescription drugs
310
Wheel chair
200
Phil's adjusted gross income for the year is $32,000. He receives a $500 reimbursement from his
insurance company. Determine the amount of his medical expense deduction for the current year.
a. $ - 0 b. $ 410
c. $2,360
d. $2,400
e. $2,610
B
10. [§163] What is Bobby Boston’s deductible interest for the current year?
Mortgage interest expense
$5,000
Interest on credit cards
1,000
Interest on a loan used to purchase municipal bonds
1,000
a. 0
b. $5,000
c. $6,000
d. $7,000
B
e. Other
11. [§163(h)] Wayne bought a home, borrowing $725,000 from National Bank to finance the purchase.
Mortgage interest expense
$71,000
Points paid
7,250
Loan origination fee
4,500
What is Wayne's allowable interest deduction?
a. $ - 0 b. $ 7,250
c. $71,000
d. $78,250 e. $82,750
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D
12. [§170] Jill (who is single) has AGI of $100,000. She made the following gifts:
(1) $10,000 to her church,
(2) $2,000 to United Way,
(3) $1,000 to the Republican Party and
(4) $400 to a needy family whose house had burned and they had no insurance on the house.
What is her charitable contribution deduction?
a. 0
b. $10,000
c. $12,000
d. $13,000
e. $13,400
13. [§67] Which one of these types of itemized deductions is included in the category of expenses
deductible only if the aggregate of such expenses exceeds 2% of the taxpayer's adjusted gross income?
a. Union dues
b. Interest expense
c. Employee moving expenses
d. Medical expenses
C
A
14. [§170] Alex has AGI of $41,500, and makes the following donations in the current year:
• $1,000 cash to the United Way.
• 100 hours contributed to Red Cross to help flood victims
(Alex's normal billing rate is $40 per hour in his consulting business).
• 15 old dress shirts to Good Will Industries Foundation, (original cost $300; FMV $45).
• $1,000 cash to an old friend, Sam, to help cover his medical bills
What is Alex's charitable contribution deduction for the current year?
a. $1,000
b. $1,045
c. $2,045
d. $6,045
e. $6,300
B
15. [§165] Jane's residence was totally destroyed by fire. The property had an adjusted basis of $150,000
and a FMV of $130,000 before the fire. Jane received insurance reimbursement of $120,000 for the
destruction of her home. Jane's adjusted gross income was $70,000. Jane had no casualty gains.
What amount of the fire loss was Jane entitled to claim as an itemized deduction on her tax return?
a. $ 2,900
b. $ 8,500
c. $ 8,600
d. $10,000
A
16. [§267(a)] Georgia sold stock she purchased for $20,000 to her brother Billy for $12,000. Two years later,
Billy sold the stock to Allie, an unrelated individual, for $22,000. What is Billy's recognized gain or loss?
a. $ 0
b. $ 2,000 gain
c. $10,000 gain
d. $ 8,000 loss
e. $ 6,000 loss
B
17. [§165( c)] This year, Daniel sold both of his personal vehicles. On January 10, he realizes a $9,000
loss on the sale of the first car. On April 5, he realized a $1,000 gain on the sale of the second car.
Assume Daniel's salary for the year is $50,000, and he has no other income. What is Daniel's AGI?
a. $ 1,000
b. $41,000
c. $42,000
d. $50,000
e. $51,000
E
18. [§62] Which of the following is a true statement?
a. All business expenses are deducted for AGI.
b. Investment expenses are typically deducted for AGI.
c. Tax preparation fees are deducted for AGI.
d. Rental and royalty expenses are deducted for AGI.
e. All of the above
19. [§217] Which of the following is a true statement?
a. Individuals qualify for the moving expense deduction only if they change employers
b. To satisfy the distance test, the distance from the taxpayer's old residence to the new place of work
must be at least 50 miles more than the distance from the old residence to the old place of work.
c. To satisfy the business test, the taxpayer must be employed full-time for 50 of the
first 52 weeks after the move.
d. The moving expense deduction is restricted to expenses associated with moving personal
possessions to the new residence.
e. All of the above are true.
Reasonable moving expenses include travel to the new residence.
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D
B
20. [§221] Which of the following is a true statement?
a. The deduction for interest on educational loans is subject to a phase-out limitation.
b. The deduction for moving expenses is subject to a phase-out limitation.
c. Self-employed taxpayers are allowed to deduct health care premiums even if the
taxpayer is eligible to participate in an employer-provided health plan.
d. Taxpayers are not allowed to receive a moving allowance from their employers.
e. All of the above are false.
A
Self-employed taxpayers are not allowed to deduct health care premiums
if they are eligible to participate in an employer-provided health plan.
21. [§221]In 2013, Jong paid $3,000 of interest on a qualified education loan. Jong files married joint
and reports modified AGI of $132,000. What is Jong's deduction for interest expense on an educational loan?
a. $2,500
b. $3,000
c. $1,500
d. $1,000
e. Other
C
22. [§221] In 2013, Mason paid $4,100 of interest on a loan that paid tuition for him to attend a private
university this year. How much of this payment can Mason deduct as a qualifying education expense
if he files single and reports modified AGI of $90,000?
a. $4,100
b. $4,000 c. $2,667 d. $2,000
e. No deduction is allowed.
E
23. [§62] Han is a self-employed carpenter and his wife, Christine, works full-time as a grade school teacher.
Han paid $525 for carpentry tools supplies, and Christine paid $3,600 as her share of health insurance premiums
for Han and herself in a qualified plan provided by the school district. Which of the following is a true statement?
A
a. The supplies are deductible for AGI while the health insurance is an itemized deduction.
b. Both expenditures are deductible for AGI.
c. The tools and supplies are an itemized deduction but the health insurance is deductible for AGI.
d. Both expenditures are itemized deductions.
e. Neither of the expenditures is deductible.
Business expenses for self employed are Schedule C deductions but health insurance premiums
are itemized deductions if the taxpayers are eligible to participate in an employer-provided health plan.
24. [§62] Bruce is employed as an executive and his wife, Marie, is a self-employed realtor.
Besides Bruce's salary, Bruce and Marie own a warehouse that they rent to a local business for storage.
This year they paid $1,250 for electric service in the warehouse. Marie also paid self-employment tax of $6,200
and Bruce had $7,000 of Social Security taxes withheld from his pay. Marie paid $45 fee to rent a safe
deposit box to store records associated with her realty operation. Which of the following is a true statement?
D
a. One-half of the social security tax is deductible for AGI.
b. Only the electric bill is deductible for AGI.
c. The self-employment tax is not deductible.
d. The safe deposit fee and the electric bill are deductible for AGI.
e. None of the above is true.
The safe deposit fee and electric bill are rental expenses. One-half of self-employment tax is deductible for AGI.
25. [§162(a)(2)] Casey currently commutes 35 miles to work in the city. He is considering a new
assignment in the suburbs on the other side of the city that would increase his commute considerably.
He would like to accept the assignment, but it might require that he move to the other side of the city.
Which of the following is a true statement?
a. Casey can deduct moving expenses if the distance between his current residence
and his new assignment is at least 50 miles.
b. If Casey's move qualifies for the moving expense deduction, he can deduct
the cost of meals while in route to his new residence.
c. To qualify for a moving expense deduction the new commute from Casey's
current residence would need to be a minimum of 85 miles.
d. If Casey's move qualifies for the moving expense deduction, he can deduct half
the cost of meals while en route to his new residence.
The new assignment needs to lengthen the existing commute (35 miles) by at least 50 miles.
Hence, the distance must be 85 miles.
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C
26. [§162] Jill currently lives in the suburbs and commutes 25 miles to her office in downtown Freeport.
She is considering quitting her current job to look for new employment in the downtown.
Which of the following statements best describes how Jill can satisfy the distance test for deducting
moving expenses if she accepts a new job in downtown Freeport?
a. Jill must move at least 25 miles further away from downtown Freeport.
b. Jill must move 25 miles east from downtown Freeport.
c. Jill must move 50 miles further away from downtown Freeport.
d. Jill need not move her residence because she is starting a new job
e. Jill cannot satisfy the distance test if she accepts a job in downtown Freeport
E
To qualify for the distance test Jill's new assignment must lengthen her commute by 50 miles.
This is impossible if she accepts another assignment in the same downtown area.
27. [§162(l)] Hector is a married self-employed taxpayer. This year he paid $3,000 for his health insurance
premiums. Under which of these alternative conditions can Hector deduct the cost of the premiums for AGI?
a. Hector chose not to participate in the employer-sponsored plan of his spouse.
b. Hector's spouse participates in an employer-sponsored plan but Hector is not eligible to
participate in this plan.
c. Neither Hector nor his spouse participates in an employer-sponsored plan although
both are eligible to participate in a plan.
d. Hector can deduct the health insurance premiums regardless of the insurance status of his spouse.
e. None of the above- Health insurance premiums can only be deducted as an itemized deduction.
B
Health insurance premiums for the self employed are deductible for AGI
if the taxpayer is not eligible to participate in an employer-provided plan.
28. [§221] Lewis is an unmarried law student at State University, a qualified educational institution.
Last year Lewis borrowed $30,000 and used the proceeds to pay his university tuition.
This year Lewis paid $1,500 of interest on the loan. Which of the following is a true statement
if Lewis reports $40,000 of salary and no other items of income or expense?
a. Deduct all the interest on his student loan for AGI.
d. Deduct $1,000 of the interest for AGI.
b. Deduct all student loan interest as itemized deduction.
e. All of the above are false.
c. Deduct $1,000 of the interest as itemized deduction.
A
Up to $2,500 of interest on student loans is deductible for AGI.
The interest deduction is phased-out for single taxpayers with AGI exceeding $60,000.
29. [§222] Grace is a single medical student at State University, a qualified educational institution.
This year Grace paid university tuition of $12,000. Grace works part-time at the University library, and this year
she reported $15,000 of salary and no other items of income or expense. Which of these is a true statement?
E
a. Grace can deduct all of her tuition for AGI as a business expense.
Grace
can
deduct
all
of
her
tuition
as
a
miscellaneous
itemized
deduction.
b.
c. Grace can only deduct half of her tuition for AGI as a business expense.
d. Grace can only deduct half of her tuition as a miscellaneous itemized deduction.
e. All of the above are false.
Educational expenses cannot be deducted as a business expense
if they qualify the taxpayer for a new profession.
30. [§222, 1.162-5] This fall (2013) Manfred enrolled in the law school at State University (a qualified educational
institution) and paid $6,200 in tuition. Until his enrollment Manfred worked as a stock broker and this year he
reports $70,000 in wages. If Manfred files single and reports no other items of income or expense how much of the
tuition can he deduct as a business expense?
E
a. Manfred can deduct half of his tuition for AGI.
b. Manfred can deduct half of his tuition as a miscellaneous itemized deduction.
c. Manfred can deduct $6,200 for AGI.
d. Manfred can deduct $6,200 as a miscellaneous itemized deduction.
e. None - the tuition is not deductible as a business expense.
The deduction for business educational expenses is limited to education that maintains or improves the
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taxpayer's skill in their existing trade or business. A deduction is not allowed for education that qualifies the
taxpayer for a new profession (e.g., law school).
31. [§221] This fall (2013) Millie finally repaid her student loan. She originally borrowed the money to
pay tuition several years ago when she attended at State University (a qualified educational institution).
This year Millie paid a total of $2,400 of interest on the loan. If Millie files single and reports $65,000
of income and no other items of income or expense how much of the interest can she deduct?
a. Deduct $2,400 for AGI.
d. Deduct $2,000 as an itemized deduction.
b. Deduct $1,667 for AGI.
e. None - the tuition is not deductible.
c. Deduct $2,400 as an itemized deduction.
B
32. [§222(b)(2)(B)] This fall Marsha and Jeff paid $5,000 for their son Josh's tuition and fees at State University
(a qualified education institution). They also paid $1,000 for Josh's books. How much of these two payments can
Marsha and Jeff deduct this year, assuming Josh is their dependent and their modified AGI is $135,000?
D
a. Marsha and Jeff can deduct $5,000 for AGI.
d. Marsha and Jeff can deduct $2,000 for AGI.
b. Marsha and Jeff can deduct $4,000 for AGI.
e. None - the tuition is not deductible.
c. Marsha and Jeff can deduct $2,500 for AGI
Since they paid Josh's tuition and fees to a qualifying institution and their modified AGI exceeds
$130,000 is less than or equal to $160,000, Marsha and Jeff can deduct the tuition and fees up to $2,000.
33. [§222] Ned is a head of household with a dependent son, Todd, who is a full-time student.
This year Ned made the following expenditures related to Todd's support:
Auto insurance premiums
$1,700
Room and board at Todd’s school
2,200
Health insurance premiums
600
Travel (to and from school)
350
What amount can Ned include in his itemized deductions?
a. $1,700 - Ned's miscellaneous itemized deductions
d. $600 - Ned's medical expenses
b. $2,050 - Ned's miscellaneous itemized deductions
e. None of the above.
c. $950 - Ned's miscellaneous itemized deductions
D
The premiums paid for health and medical insurance for dependents is included
in the taxpayer's medical expenses when determining itemized deductions.
34. [§213] Which of the following is a true statement?
a. A taxpayer can deduct medical expenses incurred for members of his family who are dependents.
b. A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative
does not meet the gross income test.
c. A divorced taxpayer can deduct medical expenses incurred for a child even if the
child is claimed as a dependent by the former spouse.
d. Deductible medical expenses include long-term care services for disabled spouses and dependents.
e. All of the above are true.
E
All are true.
35. [§213] Which of the following costs are deductible as an itemized medical expense?
a. The cost of prescription medicine and over-the-counter drugs.
b. Medical expenses incurred to prevent disease.
c. The cost of elective cosmetic surgery.
d. Medical expenses reimbursed by health insurance.
e. None of the above costs is deductible.
Medical expenses include any payments for the care, prevention, diagnosis, or cure
of injury, disease, or bodily function that are not reimbursed by health insurance.
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B
36. [§213] Which of the following costs are NOT deductible as an itemized medical expense?
a. The cost of eyeglasses.
b. Payments to a hospital.
c. Transportation for medical purposes.
d. The cost of insurance for long-term care services.
e. All of the above are deductible as medical expenses.
E
All of the above are deductible.
37. [§213] Opal fell on the ice and injured her hip this winter.
She paid $3,000 for a visit to the hospital emergency room and $750 for follow-up visits with her doctor.
While she recuperated, Opal paid $500 for prescription medicine and $600 to a therapist for rehabilitation.
The insurance company reimbursed Opal $1,200 for these expenses.
What is the amount of Opal's deductible medical expense before considering the floor based on AGI?
a. $3,000
b. $3,750
c. $3,650
d. $4,850
e. All of the above
The deductible expenses are calculated as follows:
Emergency room and doctor visits
Prescription medication
Physical therapy
Total qualifying medical expenses
Less: Insurance reimbursement
Qualifying medical expenses from the accident
C
$3,750
500
600
$4,850
-1,200
$3,650
38. [§164] Which of the following taxes will not qualify as an itemized deduction?
a. Personal property taxes assessed on the value of specific property.
b. State, local, and foreign income taxes.
c. Real estate taxes on a residence.
d. Gasoline taxes on personal travel.
e. None of the above qualifies as an itemized deduction.
D
Gasoline taxes on personal travel are not deductible.
39. [§164] This year Amanda paid $749 in Federal gift taxes on a gratuitous transfer to her nephew.
Amanda lives in Texas and does not pay any state or local income taxes. Which of these is a true statement?
a. Amanda cannot deduct Federal gift taxes.
b. Amanda can deduct Federal gift taxes for AGI.
c. Amanda can deduct Federal gift taxes paid as an itemized deduction.
d. Amanda must include Federal gift taxes with other miscellaneous itemized deductions.
e. None of the above is true.
A
Federal gift and estate taxes are not deductible.
40. [§63( c)] This year Norma paid $1,200 of real estate taxes on her personal residence in 2014.
Norma's other itemized deductions only amount to $5,100. Which of the following is a true
statement if Norma files single with one personal exemption?
a. Norma can deduct 4,300 for AGI.
b. Norma should deduct $1,200 for taxes, even if her standard deduction is $6,200.
c. Norma should deduct $4,300 even if her standard deduction is $6,200.
d. Norma can deduct $3,100 even if her standard deduction is $6,200.
e. Norma must itemize her deductions in order to claim the deduction for $6,300.
E
To claim the entire deduction Norma must itemize her deductions.
41. [§170(b)(1)(C)(i)] Madeoff donated stock (capital gain property) to a public charity.
He bought the stock 3 years ago for $100,000. On the date of the gift, it had a fair market value
of $200,000. What is his maximum charitable contribution deduction for the year if his AGI is $500,000?
a. $100,000
b. $200,000 c. $150,000
d. $250,000
e. None of the above
The stock is appreciated capital gain property limited to 30% of AGI.
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C
42.[§1.170A-1( c)] Carly donated inventory (ordinary income property) to a church.
She bought the inventory last month for $100,000. On the date of gift, it had a fair market value of $92,000.
What is her maximum charitable contribution deduction for the year if her AGI is $200,000?
a. $100,000
c. $46,000 if the church sells the inventory
b. $92,000
d. $60,000
B
The charitable deduction for ordinary income property is the lesser of FMV or basis limited to 50% of AGI.
43.[§170(b)(1)( C)(i)] Simone donated a landscape painting (tangible capital gain property) to a library, a public
charity. She purchased the painting 5 years ago for $50,000. On the date of gift, it had a fair market value of
$200,000. What is her maximum charitable contribution deduction for the year if her AGI is $300,000?
$150,000
C
a. $100,000
d.
None of the above
b. $200,000
e.
c. $90,000 if the library uses the painting for its charitable purpose
The painting is appreciated capital gain property given to a public charity. However, because it is also
tangible personal property the donation is FMV only if it is related to the charitable use or purpose.
If so, the deduction at FMV is limited to 30% of AGI. If not, the deduction is basis limited to 50% of AGI.
44.[§170] Larry recorded the following donations this year:
Cash to family in need
$500
Cash to church
$2,400
Cash to political campaign
$500
Household items to Salvation Army
Original cost
$1,200
Current value
$300
What is Larry's maximum allowable charitable contribution if his AGI is $60,000?
a. $2,900
b. $1,000
c. $2,700
d. $4,600
e. Other
C
$2,400 to church + $300 FMV of clothing.
45.[§170] Which of the following is a true statement?
a. The deduction of cash contributions to public charities is limited to 30% of AGI.
b. The deduction of capital gain property to private nonoperating foundations is limited to 50% of AGI.
c. The deduction of capital gain property to public charities is limited to 20% of AGI.
d. The deduction of cash contributions to private nonoperating foundations is limited to 30% of AGI.
D
The deduction of cash contributions to public charities is limited to 50 percent of AGI, the deduction
of capital gain property to private nonoperating foundations is limited to 20 percent of AGI, and
the deduction of capital gain property to public charities is limited to 30 percent of AGI.
46.[§170] Omit
47.[§163(h)] Which of the following is a true statement?
a. Taxpayers may only deduct interest on up to $1,500,000 of acquisition indebtedness.
b. Taxpayers may deduct interest on up to $1,0000,000 of home-equity debt.
c. The deduction for investment interest expense is not subject to limitation.
d. Interest on home-equity debt up to $100,000 is deductible, even if the loan proceeds
are used to buy a new car.
D
The qualified residence interest deduction rules do not restrict the use of home-equity debt proceeds.
48. [§163] Margaret Lindley paid interest of $15,000 on her $300,000 acquisition debt for her home (fair market
value of $500,000), $4,000 of interest on her $30,000 home-equity loan, $1,000 of credit card interest, and $3,000
of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,000 of interest income this year
and no investment expenses. How much of the interest expense may she deduct this year?
a. $23,000.
b. $22,000. c. $19,000.
d. $18,000.
e. Other
B
The credit card interest is nondeductible personal interest. The remaining interest is deductible
as qualified residence interest ($15,000 + $4,000) and investment interest ($3,000).
The $3,000 investment interest is not restricted by her net investment income ($10,000).
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49.[§165] Which of the following is a true statement?
a. A casualty loss can only occur from storm damage.
b. Personal casualty losses can only be deducted to the extent that aggregate
casualty losses exceed 10% of AGI.
c. Individual casualty losses are only deductible if each individual loss exceeds $5,000.
d. Uninsured thefts of personal assets are not included with casualty losses.
e. All of the above are true.
B
Casualties are thefts and any sudden unexpected events such as storms, fires, or shipwrecks
and individual casualty losses are subject to a per casualty floor in addition to an aggregate
floor limitation of 10 percent of AGI.
50. [§164] Jim was in an auto accident this year. Jim paid $2,450 to repair his car after the accident and
his insurance only reimbursed him $400. Jim bought his car several years ago for $1,500. What is
the amount of casualty loss from this accident before Jim applies any casualty loss floor limitations?
a. $2,450
b. $2,050
c. $1,500
d. $1,100
e. Other
D
The loss is the lesser of the adjusted basis of the asset ($1,500) or the decline in value (here the
amount of repairs - $2,450). Before the loss is compared to the per casualty floor limit, the
amount of the loss ($1,500) must be reduced by insurance reimbursements ($400).
51.[§62, 67] Which of the following is a true statement?
a. Employees cannot claim business expense deductions.
b. Employees can claim business expense deductions for AGI.
c. Employees can claim business expense deductions as miscellaneous itemized deductions not subject
to the 2 percent of AGI limitation.
d. Employees can claim business expense deductions as miscellaneous itemized deductions subject to
the 2 percent of AGI limitation.
D
Employee business expense deductions are miscellaneous
itemized deductions subject to the 2 percent of AGI limitation.
52.[§217] Which of the following is a true statement?
a. Traveling from a personal residence to a place of business is deducted for AGI as a moving expense.
b. Traveling from a personal residence to a place of business is a miscellaneous
itemized deduction subject to the 2 percent of AGI limitation.
c. The standard mileage rate can be used to calculate the deduction for traveling from
a personal residence to a place of business.
d. Traveling from a personal residence to a place of business is deductible if
reimbursed by an employer.
e. Traveling from a personal residence to a place of business is nondeductible.
E
Traveling from a personal residence to a place of business is
a personal nondeductible expense even if reimbursed by an employer.
53. [§62] Which of the following is a true statement?
a. Fees for investment advice are included in miscellaneous itemized deductions
subject to the 2 percent of AGI limitation.
b. Unreimbursed employee business expenses are included in miscellaneous
itemized deductions subject to the 2 percent of AGI limitation.
c. Fees for tax preparation are included in miscellaneous itemized
deductions subject to the 2 percent of AGI limitation.
d. Reimbursed employee business expenses are included in miscellaneous
itemized deductions subject to the 2 percent of AGI limitation unless the
employer's reimbursement plan qualifies as
an accountable plan.
e. All of the above are true.
Employee business expenses reimbursed via an accountable plan
are not deducted and the reimbursement is excluded from gross income.
106756073. Page 9 of 11
E
54. Fred's employer dispatched him on a business trip from the Dallas headquarters to New
York this year. During the trip Fred incurred the following expenses:
Air fare
$1,300
Lodging
$750
Meals
$600
Cab fare
$220
What is the amount of Fred's deduction before the application of any AGI limitations?
a. $2,870
b. $$2,570
c. $2,050
d. $1,300
$0
the
expenses
cannot
be
deducted
unless
Fred
is
reimbursed.
e.
B
The meals are limited to 50% of the cost.
55. Which of the following is a true statement?
a. Expenses associated with a "hobby" are never deductible.
b. The deductibility of an activity's expenses in excess of revenues depends upon whether
the activity is primarily profit-motivated or a hobby as determined by facts and circumstances.
c. Taxpayers engaged in a "hobby" are always presumed to be motivated by profit.
d. The regulations do not provide any guidance for determining whether an activity is profit motivated.
e. All of the above are true.
B
The regulations provide a list of factors for determining whether an activity is profit motivated.
The presumption that a hobby is profit motivated depends upon whether the activity generates
a profit in three of five consecutive years.
56. Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $80,000
from his employer and won $2,000 in various races. What is the effect of the racing activities on
Glenn's taxable income if Glenn has also incurred $4,200 of hobby expenses this year?
Assume that Glenn itemizes his deductions but has no other miscellaneous itemized deductions.
decrease in taxable income of $560
a. increase in taxable income of $2,000
d.
decrease in taxable income of $2,200
b. increase in taxable income of $1,640
e.
c. no change in taxable income
B
Hobby expenses are deductible to the extent of hobby revenues. Hence, Glenn will include
$2,000 in gross income and deduct $2,000 as miscellaneous itemized deductions.
After application of the 2% floor, this will result in a net increase of $1,640 in taxable
income [$2,000 - ($2,000 - (2%*$82,000))] = $2,000 - ($2,000-$1,640) = $1,640.
57. Grace is employed as the manager of a sandwich shop. This year she earned a
salary of $45,000 and incurred the following expenses associated with her employment:
Subscriptions to food publications
$300
Cooking class (How to make better burgers)
$250
Transportation between Grace’s home and the shop
$500
What amount of miscellaneous itemized deductions can Grace include with her
other allowable itemized deductions?
$1,050
a. $150
b.
c. $550
d. $200 if Grace was reimbursed $50 for her cooking class
e. None of the above.
E
The subscriptions and cooking class ($550) are deductible but this
sum is reduced to zero by the 2 percent of AGI limitation ($900).
58. Which of the following is a miscellaneous itemized deduction that is not subject to the 2 percent of AGI floor?
Fees for investment advice.
A
a. Gambling losses to the extent of gambling winnings.
b.
Employee
business
expenses.
Tax
preparation
fees.
c.
d.
e. All of the above are subject to the 2 percent of AGI floor limit.
All of the other alternatives are subject to the 2 percent of AGI floor.
106756073. Page 10 of 11
59. Andres and Lakeisha are married and file joint. Andres is 72 years old and in good health. Lakeisha is 62 years
old and blind. What amount of standard deduction can Andres and Lakeisha claim this year?
a. $14,800
b. $8,100
c. $8,700
d. $11,600
e. Other
A
60. Which of the following is a true statement for 2014?
a. The standard deduction is increased for taxpayers who are blind or deaf at year end.
b. A married couple is only entitled to one addition to their standard deduction even if
both spouses are both over age 65.
c. Bunching itemized deductions is an illegal method of tax avoidance.
d. The deduction for personal and dependency exemptions
is $3,950 times the number of exemptions.
e. All of the above are true.
D
For 2014, each exemption is worth $3,950.
61. Frieda is 67 years old and deaf. Frieda files as a head of household.
What amount of standard deduction can she claim in 2014?
a. $10,650.
b. $8,500.
c. $3,700.
d. $11,500.
106756073. Page 11 of 11
e. $1,450.
A