Tax Chapter 10

Tax Chapter 10 - Chapter 10: Deductions and Losses: Certain...

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Chapter 10: Deductions and Losses: Certain Itemized Deductions General Classifications of Expenses: certain personal expenditures may be itemized as deductions, medical expenses, certain taxes, mortgage interest, investment interest, and charitable contributions – only those specifically allowed are deductible from AGI Medical Expenses: allowable to the extent not reimbursed in excess of 7.5% of AGI Medical Expenses Defined: expenses incurred for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body Cosmetic surgery not allowed if unnecessary Cost of nursing home including meals and lodges is deductible as medical expense if the primary reason for being in the care home is medical Cost of tuition at school for mentally or physically handicapped individual may qualify if principal reason for going to school is to alleviate infirmities -> also includes cost of meals and lodging as medical expense Capital Expenditures for medical purposes: swimming pools, air conditioners (window units), dust elimination systems, elevators, specially-designed vans; medical in nature if incurred as a medical necessity upon the advice of a physician, facility is used by patient alone, and the expense is reasonable Allowable cost deductible in year incurred Depreciation not req’d Capital improvement that normally would not qualify does qualify if it is directly related to prescribed medical care – deductible to the extent that the cost exceeds the increase in value of the related property Full cost of home expenditures deductible if incurred to allow physically handicapped person to live independently and productively Medical expenses incurred for spouse and dependents: Dependents not subject to gross income or joint return test for this purpose Noncustodial parents may claim any medical expenses they pay even though they cannot claim the child as a dependent Transportation, meal, and lodging expenses for medical treatment: Transport to and from medical care deductible (7.5% floor), 16.5 cents mileage allowance or actual out-of-pocket automobile expenses; related parking fees and tolls also deductible Lodging expenses may be included as medical expenses, not to exceed $50pp/night – no element of pleasure, cannot be lavish, must be care provided by doctor, lodging must be primarily for and essential to medical care, cost of meals not included unless part of the care and furnished at medical facility and then only 50% deductible Amounts paid for medical insurance premiums: included w/ other medical expenses subject to 7.5% floor, amounts paid by employer not included in GI and not included as a deductible expense If self-employed-> insurance premiums are a business expense for AGI as long as taxpayer can’t be participating in a subsidized health plan maintained by their employer or their spouse’s Premiums paid for employees are deductible as business expense
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Tax Chapter 10 - Chapter 10: Deductions and Losses: Certain...

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