Phillip developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was
$32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500
to widen the hallways to accommodate his wheelchair. Phillip's AGI for the year was $100,000. How much of these expenditures can Phillip deduct as a medical expense?
e. None of the above.
Your friend Scotty informs you that he received a "tax-free" reimbursement in 2007 of some medical expenses he paid in 2006. Which of the following statements best explains why Scotty is not required to
report the reimbursement in gross income?
a. Scotty itemized deductions in 2006.
b. Scotty did not itemize deductions in 2006.
c. Scotty itemized deductions in 2007.
d. Scotty did not itemize deductions in 2007.
e. Scotty itemized deductions in 2007 but not in 2006.
In 2007, Boris pays a $4,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,000 to a Health Savings Account. Which of the following statements is true?
a. If Boris is self-employed, he may deduct $7,800 as a deduction for AGI.
b. If Boris is self-employed, he may deduct $3,000 as a deduction for AGI and may include
the $4,800 premium when calculating his medical expense deduction.
c. If Boris is an employee, he may deduct $7,800 as a deduction for AGI.
d. If Boris is an employee, he may include $7,800 when calculating his medical expense deduction.
e. None of the above.
During the current year, Hugh, a self-employed individual, paid the following amounts:
Real estate tax on Iowa residence $3,800
State income tax 1,700
Real estate taxes on land in Puerto Rico (held as an investment) 1,100
Gift tax paid on gift to daughter 1,200
State sales taxes 1,750
State occupational license fee 300
Property tax on value of his automobile (used 100% for business) 475
What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?
e. None of the above.
During 2007, Nancy paid the following taxes:
Taxes on residence (for the period from March 1 through August 31, 2007) $5,250
State motor vehicle tax (based on the value of the personal use automobile) 430
State sales tax 3,500
State income tax 3,050
Nancy sold her personal residence on June 30, 2007, under an agreement in which the real estate taxes were not prorated between the buyer and the seller.
What amount qualifies as a deduction from AGI for 2007 for
e. None of the above.
The first hurdle to jump over is the 7.5% of AGI. $100,000 * .075 = $7,500
Medical expenditures must be directly related to the medical condition. The addition of the room, the ramp construction and the widening of the hallways for the wheelchair are deductible expenditures.
Room addition is calculated as follows the cost of $32,000 - increase in value of $17,000 leaves $15,000 to be deductible. Then add in the ramp construction of $5,500 and the widening of the halls of $8,500 for total medical expenditures of $29,000 subtracting the $7,500 leaves deductible medical expenses of $21,500 which is answer c.
The best answer here is B that Scotty did ...
This solution contains questions and answers concerning medical expenditures for use on Schedule A of Form 1040 and self-employed health insurance deduction on the front of 1040.
True or False:
1. In order for a taxpayer to deduct a medical expense, the amount must be paid to a certified medical doctor (M.D.).
2. Generally, tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.
3. Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.
4. Jeffrey, a T.V. news anchor, is concerned about the wrinkles around his eyes. Because it is job-related, the cost of a face lift to eliminate these wrinkles is a deductible medical expense.
5. Section 1231 property includes real or depreciable property used in a trade or business and held for one year or more.
6. Alvin gave his daughter Martha section 1244 stock which he had purchased from the corporation. Martha's basis in the stock was $15,000. If she subsequently sells the stock for $10,000, the $5,000 loss is ordinary.
7. Losses from passive activities that cannot be deducted currently are carried over for 5 subsequent years.
8. When business property involved in a casualty is totally destroyed, the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.
9. In the case of casualty losses of personal-use property, the losses sustained in each separate casualty are reduced by $100, and the amount of each casualty loss for personal-use property is reduced by 10 percent of the taxpayer s AGI for the year.
10. Lisa loans her friend, Grace, $10,000 to finance a new business. If Grace defaults on the loan, Lisa may take a deduction for a business bad debt in the year of total worthlessness.
11. A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.
12. Expenditures incurred in removing structural barriers in the home of a physically handicapped individual are deductible only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.
13. Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.
14. If a medical expense reimbursement is received in a year after a deduction has been taken on a previous year's return, the previous year's return must be amended to eliminate the reimbursed expense.
15. Net Sec. 1231 gains and losses are treated as capital gains and losses.
16. Neither foreign real property taxes nor foreign income taxes are deductible as itemized deductions.
17. All or part of a refund this year of state income taxes paid last year must be included as income this year even if the taxpayer took the standard deduction last year.
18. A personal property tax that is based partly on value and partly on some other basis is not deductible at all.
19. The annual service charge on personal credit cards is considered interest and is, therefore, deductible.
20. A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization.View Full Posting Details