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Exam 10: Deduction and Losses Certain Itemized Deductions

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Question 51

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Paul and Patty Black (both are age 66)are married and together have AGI of $140,000 in 2016.They have two dependents and file a joint return.During the year,they paid $8,000 for medical insurance,$15,000 in doctor bills and hospital expenses,and $1,000 for prescribed medicine and drugs. a.In December 2016,the Blacks received an insurance reimbursement of $3,500 for hospitalization expenses.Determine the deduction allowable for medical expenses paid during the year. b.Assume instead that the Blacks received the $3,500 insurance reimbursement in February 2017.Determine the deduction allowable for medical expenses incurred in 2016. c.Assume that the Blacks received the $3,500 insurance reimbursement in February 2017.Discuss whether the reimbursement will be included in their gross income for 2017.

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Question 52

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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.

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B) False

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Question 53

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Tom,whose MAGI is $40,000,paid $3,500 of interest on a qualified student loan in 2016.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

For the past several years,Jeanne and her two sisters have taken turns claiming a dependency exemption deduction for their mother under a multiple support agreement.This year Jeanne will be entitled to the exemption,and her mother needs money for surgery and new eyeglasses.Should Jeanne pay for the medical expenses as her share of her mother's expenses? How would this benefit Jeanne?

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.

In 2017,Rhonda received an insurance reimbursement for medical expenses incurred in 2016.She is not required to include the reimbursement in gross income in 2017 if she claimed the standard deduction in 2016.

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.

Aaron,age 45,had AGI of $40,000 for 2016.He was injured in a skiing accident and paid $3,600 for hospital expenses and $1,400 for doctor bills.Aaron also incurred medical expenses of $1,200 for his child,who lives with his former wife and is claimed as a dependent by her.In 2017,Aaron was reimbursed $1,300 by his insurance company for the medical expenses attributable to the skiing accident. a.Compute Aaron's deduction for medical expenses in 2016. b.Assume that Aaron would have elected to itemize his deductions even if he had no medical expenses in 2016.How much,if any,of the $1,300 reimbursement must be included in gross income in 2017? c.Assume that Aaron's other itemized deductions in 2016 were $8,000 and that he filed as a head of household.How much of the $1,300 reimbursement must he include in gross income in 2017?

Linda is planning to buy Vicki's home.They want to keep the transaction simple,so the sales agreement will not apportion the property taxes that Vicki has already paid on the home.Comment on the tax implications for Linda and Vicki.

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year.What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7,and the stock had a fair market value of $13,800 when he made the donation?

Dan contributed stock worth $16,000 to his college alma mater,a qualified charity.He acquired the stock 11 months ago for $4,000.He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).

Marilyn,age 38,is employed as an architect.For calendar year 2016,she had AGI of $204,000 and paid the following medical expenses: Medical insurance premiums $ 7,800 Doctor bills for Peter and Esther (Marilyn's parents) 7,300 Doctor and dentist bills for Marilyn 11,100 Prescription medicines for Marilyn 750 Nonprescription insulin for Marilyn 950 ​ Peter and Esther would qualify as Marilyn's dependents except that they file a joint return.Marilyn's medical insurance policy does not cover them.Marilyn filed a claim for reimbursement of $6,000 of her own expenses with her insurance company in December 2016 and received the reimbursement in January 2017.What is Marilyn's maximum allowable medical expense deduction for 2016?

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.

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 2016: 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%-of-AGI floor) .

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 10%-of-AGI floor,how much of the above expenditures qualify as medical expense deductions?

Samuel,a 36 year old individual who has been physically handicapped for a year,paid $15,000 for the installation of wheelchair ramps,support bars,railings,and widening doorways in his personal residence.These improvements increased the value of his personal residence by $4,000.How much of Samuel's expenditures qualify as a medical expense deduction (subject to the 10%-of-AGI floor)? Explain.

During the current year,Ralph made the following contributions to the University of Oregon (a qualified charitable organization) : Cash $63,000 Stock in Raptor,Inc.(a publicly traded corporation) 94,500 Ralph acquired the stock in Raptor,Inc. ,as an investment fourteen months ago at a cost of $42,000.Ralph's AGI for the year is $189,000.What is Ralph's charitable contribution deduction for the current year?

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 2016: 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:

Joseph and Sandra,married taxpayers,took out a mortgage on their home for $350,000 15 years ago.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?

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