Are not allowed deductions the state income taxes as

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are not allowed deductions. The state income taxes, as well as the real estate taxes, are deductible. e. There is no interest deduction allowed for the year because interest deducted from the loan proceeds is 50. not considered prepaid interest. The cash basis taxpayer must pay interest to be allowed the deduction. c. The interest deduction is:51. Income tax interest$400Bank loan on machinery700Interest on 60-day note ($500 × 30/60 = $250)250Deductible interest$1,350c. Only interest on $1,000,000 of acquisition indebtedness is deductible, but an additional $100,000 52. of the initial mortgage can be treated as home equity debt). The deductible interest is $75,000 × ($1,100,000/$1,500,000) = $55,000.b. Home mortgage interest is deductible only on the interest on the lesser of (a) the amount of equity in 53. the home (fair market value minus acquisition indebtedness) or (b) $100,000. The equity in the home is $150,000. The deductible home equity loan interest is therefore $9,000 × ($100,000/$120,000) = $7,500.b. Only the home mortgage interest is deductible. 54. b. Personal credit card interest is not deductible. 55. d. Except for home-mortgage “points”, prepaid interest can only be deducted over the period of the loan. 56. b. 57. d. 58. a. An ordinary income property charitable deduction is limited to basis. There is no income recognition 59. when making a charitable donation. b. In general, long-term capital gain assets are deductible at fair market value. 60.
514CCH Federal Taxation—Basic PrinciplesChapter 8 ©2010 CCH. All Rights Reserved.d. The overall 50% limitation considers the contribution amounts, not just the deduction amounts from the 61. percent limit deductions. The carryover would be $11,000.Contribution Amount% Limit Amounts% Limit Deductions50%$ 5,000$5,000$5,00030% Public12,0009,0009,00020%8,000--0----0--c. Inventory is ordinary income property and limited to basis in the charitable contribution computation. 62. b. Charitable contributions must be made to charities that are incorporated in the United States. 63. b. Private foundations are organizations which normally do not receive donations from the general public. 64. d. The reduction in fair market value is less than the basis; thus, that amount must be reduced by the 65. insurance proceeds, $100 and 10 percent of adjusted gross income because of the nonbusiness casualty loss.Fair market value before fire$80,000Less: Fair market value after fire40,000Decline in fair market value$40,000Less: Insurance proceeds15,000Less: Reduction100Less: 10% of AGI2,000Casualty loss deduction$22,900b. The deduction is $10,000 - $100 - $5,000 - $2,000 = $2,900.66. b. The deduction is computed as follows:67. Car wreck ($2,000 - $1,000 - $100)$900Theft of boat (deducted in year when theft discovered)$0Storm damage to lake house ($200,000 - $150,000 - $20,000 -$100)$29,900Total$30,80010% of AGI$6,000Net deduction$24,800d. Gambling winnings are reported as gross income and gambling losses are deductible to the extent of 68. winnings as itemized deductions. b. Unreimbursed expenses of employees are deductible from AGI.69.

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