SM05 - CHAPTER 5 ITEMIZED DEDUCTIONS AND OTHER INCENTIVES...

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107 CHAPTER 5 ITEMIZED DEDUCTIONS AND OTHER INCENTIVES Group 1 - Multiple Choice Questions 1. C (Section 5.1) 10. E (Section 5.3) 2. B (Section 5.1) 11. D ($5,000 + 30% of $35,000) (Section 5.4) 3. E (Section 5.2) 12. B (Section 5.3) 4. A (Section 5.2) 13. C (Section 5.9) 5. C (Section 5.3) 14. C (Section 5.9) 6. E (Section 5.7) 15. D (Section 5.9) 7. D (Section 5.4) 16. B (Section 5.9) 8. B (Section 5.4) 17. B (Section 5.9) 9. A (Section 5.5) 18. D (Section 5.9) 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 deduct- ed in full in the year paid for, subject to the deduction of 7.5% of adjusted gross income. (Section 5.1) 2. (Section 5.1) 3. $1,800. The $200 refund is picked up in gross income on the tax return. (Section 5.2) Regular years Leap years (2004, 2008, etc.) 4. Mike: $623 = $2,500 x 91/365 $628 = $2,500 x 92/366 Jane: $1,877 = $2,500 x 274/365 $1,872 = $2,500 x 274/366 (Section 5.2) 5. (Section 5.2) 6. a. $0 b. Mary is not entitled to deduct the interest since she is not legally liable for the obligation. (Section 5.3) D r a f t / 0 8 2 5 State and local income taxes 5 Taxes You Paid 6 Real estate taxes (see page A-5) 6 Other taxes. List type and amount ± 8 (See page A-2.) 8 Add lines 5 through 8 9 9 7 Personal property taxes 7 s o 6 Caution. Do not include expenses reimbursed or paid by others. Medical and Dental Expenses 1 Medical and dental expenses (see page A-2) 1 2 2 3 Multiply line 2 by 7.5% (.075) 3 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4 4 Enter amount from Form 1040, line 38 4,242 25,000 1,875 2,367 4,150 1,600 380 6,130
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7. a. $10,000 , limited to Matthew’s net investment income. b. Yes. The unused deduction of $20,000 ($30,000 – 10,000) may be carried forward as an investment interest deduction in future years, subject to the investment interest expense limitation. (Section 5.3) 8. (Section 5.3) 9. a. Qualified residence acquisition debt interest $5,600 b. Qualified home equity debt interest (Section 5.3) $8,000 ($12,000/$150,000) x $100,000 10. a. $5,000 = $7,000 – 2,000. The $2,000 is the amount of the long-term capital gain that would have resulted from sale of the property. b. Since the painting was not put to a use directly related to the organization’s primary purpose, the deduction is reduced by the amount of the potential long-term capital gain. (Section 5.4) 11. (Section 5.4) 12. Maureen may take the deduction on her 2005 or her 2006 tax return. For disaster area losses, taxpayers may elect to treat the losses as a deduction in the year prior to the year of occurrence. (Section 5.5) 13. $2,700 = $8,000 – 100 (floor) – 5,200 (10% of $52,000, adjusted gross income). (Section 5.5) 14. See Form 4684 on the page 111. (Section 5.5) 15. Yes. Jim is seeking employment in the same trade or business in which he was most recently employed. The lack of continuity between jobs is not great enough to cause the job hunting expenses to be nonde- ductible. (Section 5.6) Gifts to Charity 15 15 Gifts by cash or check. If you made any gift of $250 or more, see page A-7 16 Other than by cash or check. If any gift of $250 or more, see page A-7. You must attach Form 8283 if over $500 16 17 Carryover from prior year 17 18 Add lines 15 through 17 18 If you made a
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This note was uploaded on 09/13/2010 for the course ACCOUNTING 45089 taught by Professor Kenn during the Spring '10 term at University of Phoenix.

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SM05 - CHAPTER 5 ITEMIZED DEDUCTIONS AND OTHER INCENTIVES...

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