Saudi Electronic University

ACCT 422

CH7:

1)Van pays the following medical expenses this year:

• $1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse.
• $300 for Van's eyeglasses.
• $900 for Van's dental work.
• $3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes.

How much can Van include on his return as qualified medical expenses before limitation?

2. All of the following are deductible as medical expenses except

3. All of the following payments for medical items are deductible with the exception of the payment for

D) nonprescription medicine for treatment of a specific medical condition.

4. In 2013 Sela traveled from her home in Flagstaff to San Francisco to seek medical care. Because she was unable to travel alone, her mother accompanied her. Total expenses included:

The total medical expenses deductible before the 10% limitation are

5. Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)?

6. Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)?

7. Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures:

A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will be

8. Mitzi's medical expenses include the following:

Mitzi's AGI for the year is $33,000. She is single and age 49. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expense deduction is

9. Caleb's medical expenses before reimbursement for the year include the following:

Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will be

10. A review of the 2013 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2013 tax status:

In 2014, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory must

11. Mr. and Mrs. Thibodeaux, who are filing a joint return, have adjusted gross income of $75,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Thibodeaux's mother, Mrs. Watson (age 63). Mrs. Watson provided over one-half of her own support.

Mr. and Mrs. Thibodeaux received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?

12. Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The Gere's could claim Mrs. Williams as their dependent, but she has too much gross income.

Mr. and Mrs. Gere received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?

13. The following taxes are deductible as itemized deductions with the exception of

14. Matt paid the following taxes:

What amount can Matt deduct as an itemized deduction on his tax return?

15. In 2013, Carlos filed his 2012 state income tax return and paid taxes of $800. Also in 2013, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2014, Carlos filed his 2013 state income tax return and paid an additional $600 of state income tax due for 2013. How much state income tax can Carlos deduct on his 2013 federal income tax return for state income tax?

16. Doug pays a county personal property tax on his automobile of $1,500. The $1,500 includes $800 based on the weight of the car and $700 based on the value of the car. How much of the tax can Doug

deduct on his tax return?

17. During the year Jason and Kristi, cash basis taxpayers, paid the following taxes:

What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year?

18. In February of the current year (assume a non-leap year), Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600, which they paid to the taxing authority on March 1 of the current year. They had purchased their home on May 1 last year. What amount of property tax on this statement may they claim as an itemized deduction this year?

19. On September 1, of the current year, James, a cash-basis taxpayer, sells his farm to Bill, also a cash- basis taxpayer, for $100,000. James' basis in the farm is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable in November of the current year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Bill pays all of the real estate taxes in the current year. The effects of this sales structure will be:

20. On September 1, of the current year, Samuel, a cash-basis taxpayer, sells his farm to Edward, also a cash-basis taxpayer for $100,000. Samuel's basis in the farm is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable on April 1 of the following year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Samuel pays all of the real estate taxes prior to the sale. The effects of this sales structure will be:

21. Peter is assessed $630 for street improvements in front of his house. Which of the following statements is correct?

22. Which of the following is deductible as interest expense?

23. Riva borrows $10,000 that she intends to use for purchasing supplies for her business. She temporarily deposits the funds in her personal checking account. Prior to the deposit, the checking account held $40,000 of personal funds. Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account.  Later in the month, the business supplies bill arrives and Riva writes a check for $10,000 from the personal account. With respect to the interest expense on the

$10,000 loan,

24. When both borrowed and owned funds are mingled in the same account, for purposes of categorizing interest expense, a repayment of the debt is allocated first to

25. All of the following statements are true except

26. In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year?

27. Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is

28. Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible?

29. Teri pays the following interest expenses during the year:

What is the amount of interest expense that can be deducted as an itemized deduction?

30. On July 31 of the current year, Marjorie borrows $120,000 to purchase a new fishing boat. The loan is secured by her personal residence. On the date of the loan, the outstanding balance on the original debt incurred to purchase the residence is $300,000 and the FMV of the home is $450,000. What is the total amount of debt on which Marjorie can deduct interest in the current year?

31. Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home?

32. Claudia refinances her home mortgage on June 1 of the current year. She obtains a 30 year mortgage at 5%. As part of the refinancing, she pays points of $3,600 (a customary practice in her location). What amount, if any, of the points are deductible?

33. Leslie, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,800. What is the amount and classification of her student loan interest education deduction if her modified AGI is $40,000?

34. Marcia, who is single, finished graduate school this year and began repaying her student loan. The

proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $63,000?

35. Don's records contain the following information:

1. Donated stock having a fair market value of $3,600 to a qualified charitable organization. He acquired the stock five months previously at a cost of $2,400.
2. Paid $700 to a church school as a requirement for the enrollment of his daughter.
3. Paid $200 for annual homeowner's association dues.
4. Drove 400 miles in his personal auto at 14 cents per mile. The travel was directly related to volunteer services he performed for his church (actual costs were not available).

What is Don's charitable contribution deduction?

36. Erin's records reflect the following information:

1. Paid $200 dues to a fraternal organization (such as the Elks Club)
2. Donated stock having a fair market value of $3,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000.
3. Paid $1,600 cash to qualified public charitable organizations

Erin's adjusted gross income for this year was $50,000. What is the amount of her charitable contribution deduction for the year?

37. Sacha purchased land in 2010 for $35,000 that she held as a capital asset. This year, she contributed the land to the Boy Scouts of America (a charitable organization) for use as a site for a summer camp. The market value of the land at the date of contribution is $40,000. Sacha's adjusted gross income is $90,000. Assuming no special elections, Sacha's maximum deductible contribution this year is

38. Clayton contributes land to the American Red Cross for use as a future site for a new building. His AGI is $50,000. Clayton paid $20,000 for the land eight months ago but its market value at the date of contribution is $25,000. With no special elections, Clayton's deductible contribution this year is

39. Carl purchased a machine for use in his trade or business two years ago for $30,000. During the current year, Carl donates the machine to the local community college. At the time of the contribution, the machine's adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year is $48,000. What is the amount of his charitable contribution deduction?

40. During the current year, Jane spends approximately 90 hours of her time in developing computer software for a church. As a programmer and data analyst, Jane normally bills her clients at $130 per hour for her time. Jane also drives her car a total of 800 miles in performing her voluntary work. Jane's deductible contribution is

41. Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carol's deductible contribution this year is

42. Hugh contributes a painting to a local museum for display. His AGI is $35,000. Hugh paid $16,000 for the painting in 2000, but its market value at the date of the contribution is $22,000. If Hugh makes the election to maximize the current year deduction, his deductible contribution for this year will be

43. Patrick's records for the current year contain the following information. He donated stock having a fair market value of $5,000 to a qualified charitable organization. Patrick acquired the stock two years ago at a cost of $3,000. He paid $1,000 for membership in an athletic scholarship program maintained by the university. The only benefit of the membership is that Patrick is entitled to purchase a season