02 Jan Sergio was required by

Question 1

Rick and Carol Ryan, married taxpayers, took out a mortgage of $160,000 when purchasing their home ten years ago. In October of the current year, when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage, the Ryans took out a home equity loan for $110,000. They used the funds to purchase a sailboat to be used for recreational purposes. The sailboat does not qualify as a residence. What is the maximum amount of debt on which the Ryans can deduct home equity interest?

1) $75,000

2) $90,000

3) $110,000

4) $125,000

5) None of the above

Question 2

Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2016, he files his state return for 2015, paying an additional $600 in state income taxes. During 2016, his withholdings for state income tax purposes amount to $3,550. On April 13, 2017, he files his state return for 2016 claiming a refund of $800. Brad receives the refund on June 3, 2017. 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 2016 (filed in April 2017)?

1) $3,350

2) $3,550

3) $4,150

4) $5,150

5) None of the above

Question 3

Ronaldo contributed stock worth $12,000 to the Children’s Protective Agency, a qualified charity. He acquired the stock 20 months ago for $7,000. He may deduct $7,000 as a charitable contribution deduction (subject to percentage limitations).

1) True

2) False

Question 4

Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization) in the current year. The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $120,000. She reported AGI of $300,000 for the year. In completing her current income tax return, how much is her current-year charitable contribution deduction?

1) $90,000

2) $120,000

3) $150,000

4) $180,000

5) None of the above

Question 5

Pedro’s child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro’s charitable contribution?

1) $0

2) $800

3) $1,000

4) $6,800

5) $7,000

Question 6

Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2016. He prepaid all $3,600 of the interest on the loan on December 1, 2016. Joe can deduct only $300 of the prepaid interest in 2016.

1) True

2) False

Question 7

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.

1) True

2) False

Question 8

Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed’s increase in utility bills due to the operation of the pool qualifies as a medical expense.

1) True

2) False

Question 9

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.

1) True

2) False

Question 10

Capital assets donated to a public charity that would result in long-term capital gain if sold, are subject to the 30%-of-AGI ceiling limitation on charitable contributions for individuals.

1) True

2) False

Question 11

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer’s filing status.

1) True

2) False

Question 12

Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for lodging. The cost of Maria’s airfare and lodging cannot be included in determining her medical expense deduction.

1) True

2) False

Question 13

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2016. 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 2016, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2017. Determine the maximum itemized deduction allowable for medical expenses in 2016.

1) $800

2) $3,400

3) $9,200

4) $12,800

5) None of the above

Question 14

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.

1) True

2) False

Question 15

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.

1) True

2) False