Question

Gleim 6 Deductions from AGI

[1] Which one of the following expenses does not qualify as a deductible medical expense?

A. Cost of long-term care for a developmentally disabled person in a relative’s home.

B. Special school for a deaf child to learn lip reading.

C. Cost of elevator installed for individual who had heart bypass surgery (in excess of increase in value of individual’s home).

D. Cost and care of guide dogs used by a blind person in his business.

[2] Which of the following qualify as deductible medical expenses?

1. Payments to physician

2. Payments for elective cosmetic face-lifting operation

3. Medical portion of your auto insurance premium (although not separately stated) 4. Payments for acupuncture service

5. Domestic help

A. 1, 3, and 5. B. 1 and 5.

C. 1, 2, and 4. D. 1 and 4.

[3] Which one of the following expenditures qualifies as a deductible medical expense for tax purposes?

A. Vitamins for general health not prescribed by a physician.

B. Health club dues.

C. Transportation to physician’s office for required medical care.

D. Mandatory employment taxes for basic coverage under Medicare A. Taxpayer is covered by Social Security.

[4] Which of the following is deductible as medical insurance?

A. Medical portion of auto insurance policy that provides coverage for all persons injured in or by the taxpayer’s car.

B. Insurance policy that pays you $50 a day if you are unable to work due to illness or injury.

C. Medicare Part B.

D. None of the answers are correct.

© 2018 Gleim Publications Inc. Gleim 6 Deductions from AGI 1

[5] Gail and Jeff Payne are married and filed a joint return for the current year. During the year, they paid the following doctors’ bills:

For Gail’s mother, who received over half of her support from Gail

and Jeff but who does not live in the Payne household and who

earned $2,000 in the current year for baby-sitting $700

For their unmarried 26-year-old son, who earned $4,000 in the

current year but was fully supported by his parents. He is not a

full-time student 500

Disregarding the adjusted gross income percentage test, how much of these doctors’ bills may be included on the Paynes’ joint return in the current year as qualifying medical expenses?

A. $0

B. $500 C. $700 D. $1,200

[6] Ruth and Mark Cline are married and will file a joint income tax return this year. Among their expenditures during this year were the following discretionary costs that they incurred for the sole purpose of improving their physical appearance and self-esteem:

Face-lift for Ruth, performed by a licensed surgeon $5,000

Hair transplant for Mark, performed by a licensed

surgeon 3,600

Disregarding the adjusted gross income percentage threshold, what total amount of the aforementioned doctors’ bills may be claimed by the Clines in their current-year return as qualifying medical expenses?

A. $0

B. $3,600 C. $5,000 D. $8,600

[7] George Burke, a salaried taxpayer, paid the following taxes which were not incurred in connection with a trade or business during the current year:

Federal income tax (withheld by employer) $1,500 State income tax (withheld by employer) 1,000 FICA tax (withheld by employer) 700 State sales taxes 900 Federal auto gasoline taxes 200 Federal excise tax on telephone bills 50

What taxes are allowable deductions from Burke’s adjusted gross income for the current year?

A. $2,850 B. $2,550 C. $1,900 D. $1,000

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[8] During the current year, Paul and Mary Davis, cash-basis taxpayers, paid the following taxes:

State income taxes withheld Estimated federal income tax Estimated state income tax

Sales tax on new auto used 60% for business State gift tax

Property tax, including $50 for trash pickup Property tax on their vacation home in Canada

$ 300 250 1,500 1,400 1,000 2,600 1,000

What amount can Mary and Paul claim as an itemized deduction on their current-year federal income tax return?

A. $4,350 B. $5,350 C. $6,350 D. $6,400

[9] During the current year, Jack and Mary Bronson paid the following taxes:

Taxes on residence (for period January 1

to September 30 of the current year) $2,700 State motor vehicle tax on value of the car 360

The Bronsons sold their house on June 30 of the current year under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What amount should the Bronsons deduct as taxes in calculating itemized deductions for the current year?

A. $1,800 B. $2,160 C. $2,700 D. $3,060

[10] In the current year, Smith paid $6,000 to the tax collector of Big City for realty taxes on a two- family house owned by Smith’s mother. Of this amount, $2,800 covered back taxes for the previous year, and $3,200 covered the current-year taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith’s itemized deductions on his current- year return, what amount was Smith entitled to claim for realty taxes?

A. $6,000 B. $3,200 C. $3,000 D. $0

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[11] Ms. L, a cash-basis taxpayer, lives in a county where the real estate tax year runs from July 1 to June 30. The tax bills are due in two installments--July 1 and January 1. Ms. L purchased her first house on September 1 of the current year. As part of her purchase price, she reimbursed the sellers $700 for her share of the current-year real estate taxes. At the date of purchase, she also paid her mortgage company $450, which was credited to her tax escrow account. From her monthly mortgage payments in the current year, a total of $600 was credited to her tax escrow account. On January 4 of the following year, the bank paid the escrow balance to the county tax office. L’s real estate tax deduction for the current year is

A. $450 B. $700 C. $1,150 D. $1,750

[12] Mr. and Mrs. Smith’s real property tax year is the calendar year. Real estate taxes for the previous year are assessed in their state on January 2 and become due on May 1 and October 1. The tax becomes a lien on May 1. The Smiths bought a home on July 1 of the current year. The real estate taxes on the home for the previous year, which became due in the current year, were $1,000. The Smiths agreed to pay the $1,000 after the sale. They paid $500 in late taxes on August 1 and $500 on October 1. How should the Smiths treat the tax payments for federal income tax purposes for the current year?

A. The entire $1,000 is deductible.

B. They may deduct only the $500 payment made on October 1.

C. They may not deduct any amount but must add the $1,000 to the cost of their home.

D. They may deduct only the $500 payment made on August 1 as a settlement fee or closing cost.

[13] In the current year, Mr. A, a sole proprietor, made interest payments of $800 on his personal credit cards, $650 on his business truck loan, $3,000 to the bank for a loan origination fee (charge for services) for his Veterans Administration mortgage, and $8,000 on his home mortgage. What is the total allowable interest deduction on Schedule A, Form 1040?

A. $12,450 B. $11,800 C. $9,450 D. $8,000

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[14] Earl took out a mortgage on his home for $250,000 in Year 1. He filed as single for Year 10. In April Year 10, when the home had a fair market value of $430,000, Earl took out a home equity loan for $140,000. He used the proceeds as follows:

1. $90,000 for home improvements

2. $30,000forpaymentofcreditcarddebt

3. $20,000 for purchase of securities that produce tax-free income

How much of the $140,000 loan would produce deductible mortgage interest in Year 10?

A. $0

B. $90,000 C. $120,000 D. $140,000

[15] Which of the following types of interest payments, not allowed because of one of the limitations, may be carried over to the next year?

A. Interest on a personal car loan.

B. Interest on credit cards.

C. Interest on a personal residence mortgage. D. Interest on money borrowed to buy stocks.

[16] On July 1 of Year 1, Correy refinanced his mortgage and obtained a new 30-year loan. He paid $3,600 (1% of the loan value) to obtain an 8% rate. On January 1 of Year 4, Correy sold his home and purchased a new house, with a down payment of $10,000. He paid an additional 1% of the loan value ($3,600) to obtain a 30-year loan with an 8% interest rate. Points are normal business practice and were reasonable in the area in which Correy lived. Assuming mortgage payments were made at the end of the month, how much can Correy deduct as points on his Year 4 tax return?

A. $0

B. $3,300 C. $3,600 D. $6,900

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[17] Which of the following payments may be deducted in full in the current year as interest expense on Form 1040, Schedule A?

1. Mortgageprepaymentpenalty

2. Interestrelatingtotax-exemptinterestincome 3. Installmentplaninterestforclothespurchases 4. Mortgage interest

5. Creditinvestigationfees

A. 1, 3, and 5. B. 1 and 4.

C. 2, 4, and 5. D. 3 and 4.

[18] For the year ending December 31, David Roth, a married taxpayer filing a joint return, reported the following:

Investment income from dividends and interest Long-term capital gains on stock held for investment

(Roth elects to treat the gain as ordinary income) Investment expenses

Interest expense on funds borrowed in the current

year to purchase investment property

What amount can Roth deduct this year as investment interest expense?

A. $22,000 B. $45,000 C. $49,000 D. $70,000

[19] During the current year, William Clark, an employee of Helton Corporation, was assessed a deficiency on his federal income tax return from the previous year. As a result of this assessment, he was required to pay $1,120, determined as follows:

Additional tax $900 Late filing penalty 60 Negligence penalty 90 Interest 70

The additional assessment is the result of a deduction claimed with respect to Clark’s personal residence. What portion of the $1,120 outlay qualifies as itemized deductions for the current year?

A. $0 B. $10 C. $220 D. $970

$24,000

25,000 4,000

70,000

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[20] Charles Wolfe purchased the following long-term investments at par during the year:

$20,000 general obligation bonds of Burlington County (wholly tax-exempt)

$10,000 debentures of Arrow Corporation

Wolfe financed these purchases by obtaining a $30,000 loan from Union National Bank. For the year, Wolfe made the following interest payments:

Union National Bank Qualified residence interest on home mortgage

Interest on credit card charges

$3,600

3,000 500

Wolfe’s net investment income for the year was $10,000. What amount can Wolfe utilize as interest expense in calculating itemized deductions for the year?

A. $3,000 B. $4,200 C. $4,700 D. $7,100

[21] Phil and Joan Crawley made the following payments during the current year:

Interest on bank loan (loan proceeds used to

purchase U.S. Series EE savings bonds) $4,000

Interest on installment charge accounts 500 Interest on home mortgage for period April 1 to

December 31 2,700 Points paid to obtain conventional mortgage loan

on April 1 900

The Crawleys had net investment income of $3,000 for the year. What is the maximum amount that the Crawleys can deduct as interest expense in calculating itemized deductions for the current year?

A. $3,600 B. $6,600 C. $7,600 D. $8,100

[22] During the current year, Ms. Cheung used corporate stock that she held for investment as collateral to borrow funds. The funds were used to purchase personal property for sale in her business. Which of the following statements concerning the interest expense paid or incurred by Ms. Cheung is true?

A. The expense is limited by the personal interest limitation. B. The expense is fully deductible in the year paid or incurred. C. The expense is limited by the investment interest limitation. D. The expense has to be capitalized.

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[23] Money or property given to the following is deductible as charitable contributions except

A. Nonprofit schools or hospitals.

B. Civic leagues and chambers of commerce.

C. Churches, synagogues, temples, mosques, and other religious organizations. D. War veterans’ groups.

[24] During the current year, Mr. K, who is single and 45 years of age, made cash contributions of $500 to his church. Mr. K is taking the standard deduction on his current-year return. What is the amount of Mr. K’s deduction for charitable contributions?

A. $500 B. $300 C. $75 D. $0

[25] Mr. U is actively involved in church activities in his community. During the current year, he incurred the following church-related expenses:

Cash contributed to the church $2,000 Round-trip mileage to attend church services (400 miles × $.14) 56 Round-trip mileage to do church volunteer work (500 miles × $.14) 70 Fair market value of used clothing given to church mission 500

Raffle tickets purchased from the church 200 Value of time and services contributed to the church 400

Mr. U’s adjusted gross income is $25,000, and he itemizes his deductions on his tax return. What is his charitable contribution deduction?

A. $2,500 B. $2,570 C. $2,770 D. $3,226

[26] All of the following statements relating to a contribution of $500 or more of charitable deduction property (property other than money or publicly traded securities) are true except

A. An organization that received such property in July of the current year and sells it in December of the following year must file a special return Form 8282, Donee Information Return, within 90 days after the disposition.

B. An organization selling such property must provide the donor with a copy of Form 8282 or be subject to a penalty.

C. The donor of such property is required to get a qualified appraisal if the claimed value of the property exceeds $1,000.

D. The organization receiving such property is not a qualified appraiser for the purpose of making a qualified appraisal.

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[27] A flood completely destroyed Mr. and Mrs. Washington’s home on November 30 of 2018. The home was located in a federally declared disaster area. They claimed the loss on their current-year tax return. Based on the following facts, what is the amount of loss Mr. and

Mrs. Washington can deduct for 2018?

Basis (contents not considered for this purpose) Fair market value before flood

Fair market value after flood

Insurance reimbursement received

February 15 of the following year Replacement February 1 of the following year (property provided under disaster relief programs of government agencies) Adjusted gross income for the current year

A. $0

B. $17,900 C. $27,900 D. $35,900

$110,000 150,000 30,000

80,000

8,000 40,000

[28] The following information pertains to Cole’s personal residence, which sustained fire damage in a federally declared disaster area during the current year:

Adjusted basis

Fair market value immediately before the fire

Fair market value immediately after the fire

Fire damage repairs paid for by Cole in the current year

$150,000 200,000 180,000

10,000

The house was uninsured. Before consideration of any “floor” or other limitation on tax deductibility, the amount of the casualty loss was

A. $30,000 B. $20,000 C. $10,000 D. $0

[29] Which one of the following statements is true with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?

A. The amortization is treated as an itemized deduction.

B. The amortization is not treated as a reduction of taxable income. C. The bond’s basis is reduced by the amortization.

D. The bond’s basis is increased by the amortization.

Answer 1