Chapter 5 Itemized Deductions and Other Incentives

CHAPTER 5 ITEMIZED DEDUCTIONS AND OTHER INCENTIVES Group 1 - Multiple Choice Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. C B D E A D E C B (LO 5.1) (LO 5.1) (LO 5.1) (LO 5.2) (LO 5.2) (LO 5.2) (LO 5.2, 5.4) (LO 5.3) (LO 5.3) 10. 11. 12. 13. 14. 15. 16. 17. C D B D D A C E (LO 5.3) (LO 5.4) (LO 5.4) ($5,000 + 30% of $35,000) (LO 5.4) (LO 5.4) (LO 5.5) (LO 5.6) (LO 5.6) 18. 19. 20. 21. 22. 23. 24. 25. 26. D E D B B D D C C (LO 5.7) (LO 5.7) (LO 5.8) (LO 5.8) (LO 5.8) (LO 5.8) (LO 5.8) (LO 5.8) (LO 5.8)

Group 2 - Problems 1. $8,000 = $20,000 – 5,000 – 7,000. Since the pool was prescribed, it qualifies as a medical expense. The increase in value of $7,000 on the house and the reimbursement of $5,000 from the insurance company must be deducted from total expenditures. Although the expenditure is for a capital asset, it can be deducted in full in the year paid for, subject to the deduction of 7.5% of adjusted gross income. (LO 5.1)

Caution. Do not include expenses reimbursed or paid by others. Medical and dental expenses (see instructions) . . . . . 1 Enter amount from Form 1040, line 38 2 Multiply line 2 by 7.5% (.075) . . . . . . . . . . . 3 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . .

2.

Medical and Dental Expenses

1 2 3 4

(LO 5.1) 3.

The medical deduction for the elevator is the amount by which the $10,000 expenditure exceeds the increase in value of the property. Therefore, $10,000 is deductible in the current year as an expense before the 7.5% AGI limitation. For medical purposes such capital expenses are not required to be depreciated. (LO 5.1) $1,800. The $200 refund is picked up in gross income on the tax return. (LO 5.2) Regular years Mike: $623 = $2,500 x 91/365 Jane: $1,877 = $2,500 x 274/365 (LO 5.2) Leap years (2008, 2012, etc.) $628 = $2,500 x 92/366 $1,872 = $2,500 x 274/366

f o s 1 ta 1

25,000 4,098 1,875

. . . . . .

*

4

2,223

4. 5.

6.

Taxes You Paid

5 State and local (check only one box): a...