Exam 10: Deductions and Losses: Certain Itemized Deductions

Aaron, age 45, had AGI of $70,000 for 2018. He was injured in a skiing accident and paid $3,600 for hospital expenses and $2,400 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 2019, 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 2018. b. Assume that Aaron would have elected to itemize his deductions even if he had no medical expenses in 2018. How much, if any, of the $1,300 reimbursement must be included in gross income in 2019? c. Assume that Aaron's other itemized deductions in 2018 were $16,900 and that he filed as a head of household. How much of the $1,300 reimbursement must he include in gross income in 2019?

Your friend Scotty informs you that he received a "tax-free" reimbursement in 2018 of some medical expenses he paid in 2017. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?

Trent sells his personal residence to Chester on July 1, 2018. He had paid $7,000 in real property taxes on March 1, 2018, the due date for property taxes for 2018. Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Linda, who has AGI of $120,000 in the current year, contributes stock in Mauve Corporation (a publicly traded corporation) to the Salvation Army, a qualified charitable organization. The stock is worth $65,000, and Linda acquired it as an investment four years ago at a cost of $50,000. a. What is the total amount that Linda can deduct as a charitable contribution, assuming she carries over any disallowed contribution from the current year to future years? b. Describe the restrictions that apply when calculating the deduction in the carryover years.

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.

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).

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 AGI floor for medical expenses, how much of the above expenditures qualify as medical expense deductions?

Manny, age 57, developed a severe heart condition, and his physician advised him to install an elevator in his home. The cost of installing the elevator was $15,000, and the increase in the value of the residence was determined to be $5,800. Manny's AGI for the year was $52,000. a. How much of the expenditure can Manny deduct as a medical expense? a., except that Manny was paralyzed in an automobile accident and the expenditures were incurred to build entrance and exit ramps and widen the hallways in his home to accommodate his wheelchair. How much of the expenditure can Manny deduct as a medical expense? b. Assume the same facts as in part

Zeke made the following donations to qualified charitable organizations during the year: The used clothing was donated to the Salvation Army? the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for the year is:

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2018. 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 2018, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2019. Determine the maximum itemized deduction allowable for medical expenses in 2018.

Georgia had AGI of $100,000 in 2018. She donated Heron Corporation stock with a basis of $8,500 to a qualified charitable organization on July 5, 2018. a. What is the amount of Georgia's deduction, assuming that she purchased the stock on December 4, 2017, and the stock had a fair market value of $15,000 when she made the donation? b. Assume the same facts as in a., except that Georgia purchased the stock on July 1, 2010. c. Assume the same facts as in a., except that the stock had a fair market value of $6,000 (rather than $15,000) when Georgia donated it to the charity.

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.

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: Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra?

In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. Assuming that Reggie itemizes his deductions and the $10,000 limit on state and local taxes does not apply, how much of the property taxes may Reggie deduct?

Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2018, he files his state return for 2017, paying an additional $600 in state income taxes. During 2018, his withholdings for state income tax purposes amount to $3,550. On April 13, 2019, he files his state return for 2018 claiming a refund of $800. Brad receives the refund on June 3, 2019. If he itemizes deductions, how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2018 (filed in April 2019)?

Employee business expenses for travel may be deducted as itemized deductions if they are not reimbursed.

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

Brian, a self-employed individual, pays state income tax payments of: $900 on January 17, 2018 (4th estimated tax payment for 2017) $1,000 on April 17, 2018 (1st estimated tax payment in 2018) $1,000 on June 15, 2018 (2nd estimated tax payment in 2018) $1,000 on September 15, 2018 (3rd estimated tax payment in 2018) $800 on January 16, 2019 (4th estimated tax payment of 2018) Brian had a tax overpayment of $500 on his 2017 state income tax return and applied this to his 2018 state income taxes. What is the amount of Brian's state income tax itemized deduction for his 2018 Federal income tax return?

Georgia contributed $2,000 to a qualifying Health Savings Account in the current year. The entire amount qualifies as an expense deductible for AGI.

In April 2018, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2017. Even though it relates to 2017, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2018.