Exam 10: Deductions and Losses: Certain Itemized Deductions

A taxpayer pays points to obtain financing to purchase a second residence. At the election of the taxpayer, the points can be deducted as interest expense for the year paid.

Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 10%-of-AGI floor)?

Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.

Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early. The $1,600 is deductible as interest expense.

Phyllis, who is single, has itemized deductions totaling $20,000. She overpaid her 2017 state income tax and is entitled to a refund of $400 in 2018. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2018. She is required to recognize that amount as income in 2018.

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

A physician recommends a private school for Ellen's dependent child. Because of the physician's recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).

Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds. The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.

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.

Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2018. He prepaid all $3,600 of the interest on the loan on December 1, 2018. Joe can deduct only $300 of the prepaid interest in 2018.

On December 31, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January of the following year. If Lynette itemizes, she can deduct the $500 in the year she used the card.

Marilyn, age 38, is employed as an architect. For calendar year 2018, she had AGI of $204,000 and paid the following medical expenses: 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 2018 and received the reimbursement in January 2019. What is Marilyn's maximum allowable medical expense deduction for 2018?

Which of the following is not allowed as an itemized deduction?

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.

For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.

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?

In January 2019, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2018. The payment is deductible in 2018.

In order to dissuade his pastor from resigning and taking a position with a larger church, Michael, an ardent leader of the congregation, gives the pastor a new car. The cost of the car is deductible by Michael as a charitable contribution.

Al contributed a painting to the Metropolitan Art Museum of St. Louis, Missouri. The painting, purchased six years ago, was worth $40,000 when donated, and Al's basis was $25,000. If this painting is immediately sold by the museum and the proceeds are placed in the general fund, Al's charitable contribution deduction is $25,000 (subject to percentage limitations).

Chad pays the medical expenses of his son, James. James would qualify as Chad's dependent except that he earns $7,500 during the year. Chad may claim James' medical expenses even if he is not a dependent.