Ch.7 Individual From Agi Deductions Test Questions & Answers

Essentials of Federal Taxation, 11e (Spilker)

Chapter 7 Individual From AGI Deductions

1) The medical expense deduction is designed to provide relief for doctors and medical practitioners.

2) Deductible medical expenses include payments to medical care providers such as doctors, dentists, and nurses and medical care facilities such as hospitals.

3) Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct the cost of travel.

4) The deduction for medical expenses is limited to the amount of unreimbursed qualifying medical expenses paid during the year reduced by 2 percent of the taxpayer's AGI.

5) The itemized deduction for taxes includes all types of state, local, and foreign taxes.

6) Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.

7) Taxpayers are allowed to deduct mortgage interest on up to $1,000,000 of acquisition debt for their qualified residence for acquisition debt incurred after December 15, 2017.

8) The deduction for investment interest in excess of net investment income carries forward to the subsequent year.

9) To qualify as a charitable deduction the donation must be made by cash or by check.

10) In general, taxpayers are allowed to deduct the fair market value of long-term capital gain property on the date of the donation to a qualified charitable organization.

11) The deduction to individual taxpayers for charitable contributions paid in cash to public charities is limited to 10 percent of the taxpayer's AGI.

12) Unreimbursed employee business expenses and hobby expenses are not deductible.

13) Taxpayers are not allowed to deduct tax preparation fees as an itemized deduction.

14) Bunching itemized deductions is one form of tax evasion.

15) Taxpayers generally deduct the lesser of their standard deduction or their itemized deductions.

16) Taxpayers filing single and taxpayers filing married filing separately have the same basic standard deduction amount.

17) An individual who is eligible to be claimed as a dependent on another's return and has $1,000 of earned income may claim a standard deduction of $1,350.

18) Generally, service businesses are considered qualified trade or businesses for purposes of the deduction for qualified business income.

19) Ned is a head of household with a dependent son, Todd, who is a full-time student. This year Ned made the following expenditures related to Todd's support:

What amount can Ned include in his itemized deductions?

A) $1,700 included in Ned's miscellaneous itemized deductions.

B) $2,050 included in Ned's miscellaneous itemized deductions.

C) $950 included in Ned's miscellaneous itemized deductions.

D) $600 included in Ned's medical expenses.

E) None of the choices are correct.

20) Which of the following is a true statement?

A) A taxpayer can deduct medical expenses incurred for members of his family who are dependents.

B) A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative does not meet the gross income test.

C) A divorced taxpayer can deduct medical expenses incurred for a child even if the child is claimed as a dependent by the former spouse.

D) Deductible medical expenses include long-term care services for disabled spouses and dependents.

E) All of these choices are true.

21) Which of the following costs is deductible as an itemized medical expense?

A) The cost of prescription medicine and over-the-counter drugs.

B) Medical expenses incurred to prevent disease.

C) The cost of elective cosmetic surgery.

D) Medical expenses reimbursed by health insurance.

E) None of the costs are deductible.

22) Which of the following costs is NOT deductible as an itemized medical expense?

A) The cost of eyeglasses.

B) Payments to a hospital.

C) Transportation for medical purposes.

D) The cost of insurance for long-term care services.

E) All of the choices are deductible as medical expenses.

23) Opal fell on the ice and injured her hip this winter. As a result she paid $3,000 for a visit to the hospital emergency room and $750 for follow-up visits with her doctor. While she recuperated, Opal paid $500 for prescription medicine and $600 to a therapist for rehabilitation. Insurance reimbursed Opal $1,200 for these expenses. What is the amount of Opal's deductible medical expense before considering any AGI limitations?

A) $3,000.

B) $3,750.

C) $3,650.

D) $4,850.

E) All of the choices are correct.

24) Which of the following taxes will not qualify as an itemized deduction?

A) Personal property taxes assessed on the value of specific property.

B) State, local, and foreign income taxes.

C) Real estate taxes on a residence.

D) Gasoline taxes on personal travel.

E) None of the choices qualify as an itemized deduction.

25) This year Amanda paid $749 in federal gift taxes on a gratuitous transfer to her nephew. Amanda lives in Texas and does not pay any state or local income taxes. Which of the following is a true statement?

A) Amanda cannot deduct federal gift taxes.

B) Amanda can deduct federal gift taxes for AGI.

C) Amanda can deduct federal gift taxes paid as an itemized deduction.

D) Amanda must include federal gift taxes with other miscellaneous itemized deductions.

E) None of the choices are true.

26) This year Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal residence and $9,500 of state income taxes. Which of the following is true?

A) Norma can deduct $11,200 of real estate taxes as an itemized deduction.

B) Norma can deduct $9,500 of state income taxes as a for AGI deduction.

C) Norma can deduct $10,000 of taxes as an itemized deduction.

D) Even if Norma has no other itemized deductions, she should claim the standard deduction.

E) None of the choices are correct.

27) Madeoff donated stock (capital gain property) to a public charity. He purchased the stock three years ago for $100,000, and on the date of the gift, it had a fair market value of $200,000. What is his maximum charitable contribution deduction for the year related to this stock if his AGI is $500,000?

A) $100,000

B) $200,000

C) $150,000

D) $250,000

E) None of the choices are correct

28) Carly donated inventory (ordinary income property) to a church. She purchased the inventory last month for $100,000, and on the date of the gift, it had a fair market value of $92,000. What is her maximum charitable contribution deduction for the year related to this inventory if her AGI is $200,000?

A) $100,000.

B) $92,000.

C) $60,000.

D) $46,000 if the church sells the inventory.

E) None of the choices are correct.

29) Simone donated a landscape painting (tangible capital gain property) to a library, a public charity. She purchased the painting five years ago for $50,000, and on the date of the gift, it had a fair market value of $200,000. What is her maximum charitable contribution deduction for the year if her AGI is $300,000?

A) $100,000.

B) $200,000.

C) $90,000 if the library uses the painting in its charitable purpose.

D) $150,000.

E) None of the choices are correct.

30) Larry recorded the following donations this year:

$500 cash to a family in need

$2,400 to a church

$500 cash to a political campaign

To the Salvation Army household items that originally cost $1,200 but are worth $300.

What is Larry's maximum allowable charitable contribution if his AGI is $60,000?

A) $2,900.

B) $1,000.

C) $2,700.

D) $4,600.

E) None of the choices are correct.

31) Which of the following is a true statement?

A) The deduction of cash contributions to public charities is limited to 30 percent of AGI.

B) The deduction of capital gain property to private nonoperating foundations is limited to 50 percent of AGI.

C) The deduction of capital gain property to public charities is limited to 20 percent of AGI.

D) The deduction of cash contributions to private nonoperating foundations is limited to 30 percent of AGI.

E) None of the choices are true.

32) When taxpayers donate cash and capital gain property to a public charity, the AGI percentage limitation is applied in the following order:

A) a 30 percent of AGI limitation is applied to the aggregate donation.

B) a 60 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation.

C) a 30 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation.

D) a 60 percent of AGI limitation is applied to the cash donation and the fair market value of the capital gain donation is subject to the lesser of a 30 percent of AGI limitation or a 50 percent of AGI limitation after subtracting the cash contributions.

E) donations to public charities are not subject to AGI limitations.

33) Which of the following is a true statement?

A) Taxpayers may only deduct interest on up to $1,500,000 of home acquisition indebtedness.

B) Taxpayers may deduct interest on up to $1,000,000 of home-equity debt.

C) The deduction for investment interest expense is not subject to limitation.

D) A taxpayer who incurs acquisition indebtedness in 2018 may only deduct interest on up to $750,000 of home acquisition indebtedness.

E) None of the choices are true.

34) Margaret Lindley paid $15,000 of interest on her $300,000 acquisition debt for her home (fair market value of $500,000), $4,000 of interest on her $30,000 home-equity loan, $1,000 of credit card interest, and $3,000 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,000 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

A) $23,000.

B) $22,000.

C) $19,000.

D) $18,000.

E) None of the choices are correct.

35) Which of the following is a true statement?

A) A casualty loss on personal-use assets is generally not deductible.

B) A casualty loss on investment property is generally not deductible.

C) All casualty losses are deductible.

D) A casualty loss on personal-use assets is deductible for AGI.

E) All of the choices are true.

36) Which of the following is a true statement?

A) Fees for investment advice are not deductible.

B) Unreimbursed employee business expenses are not deductible.

C) Fees for tax preparation are not deductible.

D) Hobby expenses are not deductible.

E) All of the choices are true.

37) Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $80,000 from his employer and won $2,000 in various races. What is the effect of the racing activities on Glenn's taxable income if Glenn has also incurred $4,200 of hobby expenses this year? Assume that Glenn itemizes his deductions but has no other miscellaneous itemized deductions.

A) Increase in taxable income of $2,000.

B) Increase in taxable income of $1,640.

C) No change in taxable income.

D) Decrease in taxable income of $560.

E) Decrease in taxable income of $2,200.

38) Which of the following is a deductible miscellaneous itemized deduction?

A) gambling losses to the extent of gambling winnings.

B) fees for investment advice.

C) employee business expenses.

D) tax preparation fees.

E) All of the choices are true.

39) Frieda is 67 years old and deaf. If Frieda files as a head of household, what amount of standard deduction can she claim in 2019? Standard deduction

A) $12,200.

B) $13,850.

C) $18,350.

D) $19,650.

E) $20,000.

40) Andres and Lakeisha are married and file jointly. Andres is 72 years old and in good health. Lakeisha is 62 years old and blind. What amount of standard deduction can Andres and Lakeisha claim in 2019? Standard deduction

A) $27,000.

B) $27,700.

C) $25,850.

D) $25,700.

E) None of the choices are correct.

41) Which of the following is a true statement?

A) The standard deduction is increased for taxpayers who are blind or deaf at year-end.

B) A married couple is only entitled to one addition to their standard deduction even if both spouses are over age 65.

C) Bunching itemized deductions is a legal method of tax avoidance.

D) The standard deduction is subject to a phase-out based on AGI.

E) All of the choices are true.

42) Campbell, a single taxpayer, has $95,000 of profits from her general store, which she operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and $50,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income?

A) $95,000.

B) $19,000.

C) $10,000.

D) $8,000.

E) $0.

43) Campbell, a single taxpayer, has $400,000 of profits from her general store, which she operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and $500,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income?

A) $100,000.

B) $80,000.

C) $20,000.

D) $1,000.

E) $0.

44) Campbell, a single taxpayer, has $400,000 of profits from her general store, which she operates as a sole proprietorship. She has $100,000 of employee wages, $40,000 of qualified property, and $500,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income?

A) $100,000.

B) $80,000.

C) $50,000.

D) $26,000.

E) $0.

45) Detmer is a successful doctor who earned $204,800 in fees this year, but he also competes in weekend golf tournaments. Detmer reported the following expenses associated with competing in almost a dozen tournaments:

This year Detmer won $5,200 from competing in various golf tournaments. Assuming that Detmer itemizes his deductions and that he did not have any other miscellaneous itemized deductions, what amount of the golfing expenses is deductible after considering all limitations if the tournament golfing is treated as a hobby activity?

46) Jenna (age 50) files single and reports AGI of $40,000. This year she has incurred the following medical expenses:

Calculate the amount of medical expenses that will be included with Jenna's other itemized deductions.

47) Chuck has AGI of $70,000 and has made the following payments this tax year:

Calculate the amount of taxes that Chuck can include with his itemized deductions.

48) Homer is an executive who is paid a salary of $80,000. Homer also paints landscapes as a hobby. This year Homer expects to sell paintings for a total of $750 and incur the following expenses associated with his painting activities:

What is the effect of Homer's hobby on his taxable income?

49) This year, Benjamin Hassell paid $20,000 of interest on a mortgage on his home (Benjamin borrowed $600,000 in 2015 to buy the residence and it is currently worth $1,000,000), $6,000 on a $75,000 home-equity loan on his home (proceeds used to buy a car and pay off consumer debt), and $10,000 of interest on a mortgage on his vacation home (loan of $300,000; home purchased for $400,000 in 2016). How much interest expense can Benjamin deduct as an itemized deduction?

50) This year Darcy made the following charitable contributions:

Determine the maximum amount of charitable deduction for Darcy's contribution of the painting if her AGI is $80,000 this year. You may assume that both the stock and painting have been owned for 10 years and the painting is used in the State Art Museum's charitable purpose.

51) Claire donated 200 publicly traded shares of stock (held for five years) to her father's nonoperating private foundation this year. The stock was worth $15,000 but Claire's basis was only $4,000. Determine the maximum amount of charitable deduction for the donation if Claire's AGI is $60,000 this year.

52) This year Latrell made the following charitable contributions:

Determine the maximum amount of Latrell's charitable deduction assuming the Jones Foundation is a private nonoperating foundation and Latrell's AGI is $100,000 this year. You may assume that the stock has been owned for 10 years. 

53) Erika (age 62) was hospitalized with injuries from an auto accident this year. She incurred the following expenses from the accident:

In addition, Erika's auto was completely destroyed in the accident. She bought the car several years ago for $18,000 and it was worth $4,700 at the time of the accident. What are Erika's itemized deductions this year if she was uninsured and her AGI is $40,000?

54) Don's personal auto was damaged in a windstorm this year. Don purchased the auto several years ago for $32,000 and it was worth $18,000 at the time of the storm. The damage was superficial, so Don decided not to repair the car. Although Don collected $750 from his insurance company, the value of the car dropped after the storm to $15,000. What is Don's tax deduction related to the damage?

55) Colby is employed full time as a food technician for a local restaurant chain. This year he has incurred the following expenses associated with his employment:

Colby was reimbursed $125 of the expenses from his employer's accountable plan. How much of the expenses are deductible by Colby?

56) Karin and Chad (ages 30 and 31, respectively) are married and together have $110,000 of AGI. This year they have recorded the following expenses:

Karin and Chad will file married filing jointly. Calculate their taxable income.

57) Rochelle, a single taxpayer (age 47), has an AGI of $300,000. This year, she paid medical expenses of $37,500, state income taxes of $4,000, mortgage interest of $10,600 on $250,000 acquisition debt for her home, and charitable contributions of $6,000. What would be the amount of her total itemized deductions she may claim on her tax return?

58) Bryan is 67 years old and lives alone. This year he has received $25,000 in taxable interest and pension payments, and he has paid the following expenses: Use Standard deduction.

If Bryan files single, calculate his taxable income.

59) Misti purchased a residence this year. Misti, age 32, is a single parent and lives with her one-year-old daughter. This year, Misti received a salary of $160,000 and made the following payments: Use Standard deduction.

Misti files as a head of household. Calculate her taxable income this year.

60) Jon and Holly are married and live in a retirement community. This year Jon celebrated his 65th birthday and Holly turned 68 years old. For their ages, both Jon and Holly are in good health. This year the only significant expense that they incurred was an unreimbursed medical expense of $3,200. If Jon and Holly together have AGI of $42,000, what is the amount of their standard deduction this year?

61) This year Kelly bought a new auto for $20,000 plus $1,650 in state and local sales taxes. Besides this sales tax, Kelly also paid $8,260 in state income taxes and had mortgage interest of $5,500 ($400,000 acquisition indebtedness on her residence). If Kelly files single with AGI of $56,000, what amount of itemized deductions will she be eligible to claim?

62) Toshiomi works as a sales representative and travels extensively for his employer's business. This year Toshiomi was paid $75,000 in salary and made the following expenditures:

Toshiomi also made a number of trips to Las Vegas for gambling. This year Toshiomi won $12,000 in a poker tournament and this amount was almost enough to offset his other gambling losses ($13,420). Calculate Toshiomi's 2019 taxable income if he files single.

63) Cesare is 16 years old and works throughout the year at a local coffee shop. This year, he made $9,200 at the coffee shop and earned $2,000 in interest income from his savings account. Assume that Cesare is claimed as a dependent on his parent's tax return. What is Cesare's standard deduction for the year?

64) Rachel is an accountant who practices as a sole proprietor. This year, Rachel had net business income of $270,000 from her practice. Assume that Rachel pays $50,000 wages to her employees, she has $20,000 of property (unadjusted basis of equipment she purchased last year), has no capital gains, and her taxable income before the deduction for qualified business income is $225,000. Calculate Rachel's deduction for qualified business income.

65) Rachel is an accountant who practices as a sole proprietor. This year, Rachel had net business income of $200,000 from her practice. Assume that Rachel pays $50,000 wages to her employees, she has $20,000 of property (unadjusted basis of equipment she purchased last year), has no capital gains, and her taxable income before the deduction for qualified business income is $140,000. Calculate Rachel's deduction for qualified business income.

66) Rachel is an engineer who practices as a sole proprietor. This year, Rachel had net business income of $400,000 from her business. Assume that Rachel pays $150,000 wages to her employees, she has $20,000 of property (unadjusted basis of equipment he purchased last year), has no capital gains, and her taxable income before the deduction for qualified business income is $380,000. Calculate Rachel's deduction for qualified business income.

67) Rachel is an engineer who practices as a sole proprietor. This year, Rachel had net business income of $500,000 from her business. Assume that Rachel pays $20,000 wages to her employees, she has $500,000 of property (unadjusted basis of equipment she purchased last year), has no capital gains, and her taxable income before the deduction for qualified business income is $380,000. Calculate Rachel's deduction for qualified business income.