R1-2 Wrong Problem lesson Record
Itemized Deduction
Individual preferential Income Tax Rates : Long-term capital gains
TAX rate focused taxpayers Taxable Income (Include Ordinary income)
2025 Individual preferential Income Tax Rates
| Tax Rate | Single/MFS | HoH | MFJ |
|---|---|---|---|
| 0% | $48,350 or less | $64,750 or less | $96,700 or less |
| 15% | $48,351-$533,400 | $65,751-$566,700 | $96,701-$600,050 |
| 20% | $533,401 or more | $566,701 or more | $600,051 or more |
- Interest Expense :Home Mortgage Interest and Investment Interest Expense
- Home Mortgage Interest : $375,000 / $750,000
- Investment Interest Expense : dedctution limited investment income
- State,Local and Foreign Taxes Max. $10,000
Real estate taxes(State and local), Personal Property taxes(State and local), Income taxes (State,local and foreign),Sales Tax.
Sch A Itemized deduction include W-2 state and local income tax
Sch C Sales tax : as a business expense or include of COGS
- Diaster Lossess
The net casualty loss after insurance recovery is first reduced by a $100 per-casualty floor.
Note: that this floor is per casualty, not per item. Because the losses all resulted from the same federally declared disaster, the hurricane, there is only one $100 floor.
- Charitable Deduction :
No deduction is allowed for the FMV of services contributed to a qualifying charitable organization [A charitable contribution is not allowed for the value of services rendered to a charity]. Out-of-Pocket incurred as a result of providing services to a charity. 2025 $0.14 per mile gas and oil . May also include parking and tolls fee.
e.g. While performing the legal services for the church, Carlin incurred $50 of expenses for software utilized in performing the services. deductible $50x 60%= $30 .
LTCG(Long-Term Captial Gian) property is limited to the lesser of :
1) 30% of AGI
2) 50% of AGI reduced by deduction allowed for cash and ordinary contributions value.
- Medical Decdutable
Nondeductible :
Over-the-conuter cold remedies, life insurance premiums for taxpayers, Homeowner's insurance, Personal disability insurance.
Deductible :
Medical, Health and accident insurance premiums (include qualified long-term care premiums )
Elevator install and operation, by Doctor (e.g. cardiologist), Note minus home value improvement.
Drug-addition treatment : All of lodging, meals and medical care fee etc.
Vision correction surgery can deductable
Image source from the website: www.flyfin.tax
1.
Which one of the following expenditures qualifies as a deductible medical expense for tax purposes?
| A. | ||
| B. | ||
| C. | ||
| D. |
Premiums paid for insurance are deductible as medical expenses, including Medicare Part B premium payments. However, Social Security taxes that entitle a taxpayer to basic Medicare Part A coverage do not qualify as deductible medical insurance premiums.
2.
An individual taxpayer had the following expenses paid in the current year:
| Description | Amount |
|---|---|
| Prescription drugs for the taxpayer's dependent | $1,500 |
| Burial expenses for the taxpayer's spouse | $8,000 |
| Elective cosmetic surgery for the taxpayer | $2,500 |
| Contributions to the taxpayer's health savings account | $3,000 |
Disregarding the adjusted gross income limitation, what amount is deductible as medical expenses and included in the taxpayer's itemized deductions?
Explaination: $1,500 , Burial expenses and Elective cosmetic are not deductible medical expenses. Contibutions health saving account as adjusted for AGI("Above the line" deduction.)
3.
In Year 10, Farb, a cash basis individual taxpayer, received an $8,000 invoice for personal property taxes. Believing the amount to be overstated by $5,000, Farb paid the invoiced amount under protest and immediately started legal action to recover the overstatement. In November, Year 11, the matter was resolved in Farb's favor, and he received a $5,000 refund. Farb itemizes his deductions on his tax returns.
Which of the following statements is correct regarding the deductibility of the property taxes?
| A. |
4.
During the current year, Wood's residence had an adjusted basis of $150,000 and it was destroyed by a tornado. The location was a federally declared disaster area. An appraiser valued the decline in market value at $175,000. Later in the current year, Wood received $130,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Wood's current year adjusted gross income was $60,000 and he did not have any casualty gains.
What total amount can Wood deduct as a current year itemized deduction for casualty loss, after the application of the threshold limitations?
Explaination: $13,900Casualty losses are deductible as an itemized deduction if located in a presidentially declared disaster area. Casualty losses are generally computed as the decline in fair market value, except that the fair market value is limited to the property's basis, here $150,000. Casualty losses are reduced by the amount of any insurance recovery, reducing this loss to $20,000. Next, each individual loss is reduced by $100, bringing this loss to $19,900. Finally, the remaining total amount of all casualty losses (here there is only one) are deductible only to the extent that the amount exceeds 10% of AGI, or $6,000 here. ($150,000 - $130,000 = $20,000; $20,000 - $100 - $6,000 = $13,900.) minus-$ 100 -10% AGI
5.
Jim had gambling losses totaling $2,500 for the year. He is including a lottery prize of $5,000 in his gross income this year. The gambling losses are: A deduction from adjusted gross income.
6.
For regular tax purposes, with regard to the itemized deduction for qualified residence interest, home equity indebtedness incurred during a year:
| A. | ||
| B. | ||
| C. | ||
| D. |
7.
Jimet, an unmarried taxpayer, qualified to itemize deductions. Jimet's adjusted gross income was $30,000 and he made a $2,000 cash donation directly to a needy family. During the year, Jimet also donated stock, valued at $3,000, to his church. Jimet had purchased the stock four months earlier for $1,500. What was the maximum amount of the charitable contribution allowable as an itemized deduction of Jimet's current year income tax return?
Explanation: $1,500, Short-term asserts or depreciated assect , the amount of the deduction the lesser of : Adjusted basis or FMV
8.
Smith, a single individual, made the following charitable contributions during the current year. Smith's adjusted gross income is $60,000.
Cash donation to Smith's church | $5,000 |
Art work donated to the local art museum (Purchased four months ago for $2,000, currently appraised for $3,000) | 3,000 |
Cash contribution to a needy family | 1,000 |
What amount should Smith deduct as a charitable contribution if Smith itemizes deductions? Answer : $7,000
9.
The deduction by an individual taxpayer for interest on investment indebtedness is:
| A. | ||
| B. | ||
| C. | ||
| D. |
Choice "C" is correct. The deduction for interest expense on investment indebtedness is limited to net investment income (investment income less investment expenses).
10.
An individual taxpayer earned $10,000 in investment income, $8,000 in noninterest investment expenses, and $5,000 in investment interest expense. How much is the taxpayer allowed to deduct on the current-year's tax return for investment interest expenses?
| A. | ||
| B. | ||
| C. | ||
| D. |
Explaination : The deduction for investment interest expense is limited to net taxable investment income. The noninterest investment expenses are not deductible; therefore, net investment income is equal to $10,000. All $5,000 of the investment interest expense is deductible because it is less than $10,000.
Taxable investment income includes: (i) interest and dividends (if taxed at ordinary income tax rates), (ii) rents (if the activity is not a passive activity), (iii) royalties (in excess of related expenses), (iv) net short-term capital gains, and (v) net long-term capital gains if the taxpayer elects not to claim the net capital gains reduced tax rate.
11.
An individual taxpayer reports the following information:
U.S. Treasury bond income | $100 |
Municipal bond income | $200 |
Rental income from apartment building | $500 |
Investment interest expense | $1,000 |
What amount of investment interest can the taxpayer deduct in the current year?
| A. | ||
| B. | ||
| C. | ||
| D. |
Explaination: Investment interest expense deduction is an itemized deduction limited to net investment income. Taxable interest is included in net investment income. Rental income(passive activity) and tax exempt interest are not. Therefore, the limitation is the $100 U.S. Treasury bond interest.
12.
Homeowner's insurance of $540 paid on the family home. Nondeductible
Life insurance premiums of $750 for individual taxpayers . Nondeductible
13.
Samson and Delilah, married filing jointly taxpayers, currently reside in Farmers Branch, Texas. They have considerable income from owning and operating a chain of hair treatment salons throughout the southwestern United States and are in a position to be very generous to others. Their current year AGI is $5,000,000.
Samson had contributed $2,500,000 in cash to the American Diabetes Association in addition to the Claude Monet painting worth $12,000,000 to his local church. Samson had bought the painting several years ago when it was worth only $2,000,000 above. If Samson and Delilah made no other charitable contributions for the year, what is the amount of their charitable contributions deduction?
Explaination: $2,500,000 . Cash contribution limited 60%AGI = $3,000,000 so cash contribution full deduction.
Painting contribution liminted lesser of : is zero , so painting contributions full nonduductble.
1) 30%AGI = $1,500,000
2) 50% of AGI reduced by deduction allowed for cash contribution: 50%AGI -2,500,00(cash contribution deduction) = "0"
14.
What item qualified Medical Expense:
| Amount paid to medical doctors | $ 5,000 |
| Amount paid for prescription drugs | $ 1,500 |
| Premiums paid for life insurance | $ 2,000 |
| Amount paid for elective cosmetic surgery | $ 1,600 |
| Amount paid for required surgery | $ 2,700 |
| Amount paid for prescription eyeglasses | $ 200 |
| Amount paid for vitamins | $ 400 |
| Premiums paid for health insurance | $ 2,400 |
| Transportation costs to and from the doctor's office | $ 150 |
| Travel costs to Florida for a vacation to improve overall health | $ 800 |
| Fitness club membership for general health care | $ 600 |
| Amounts charged for medical doctor visit co-payments | $ 370 |
| Amount paid for over-the-counter medications | $ 450 |
| Health insurance reimbursement received | $ 1,800 |
15.
Which of the following personal tax credits can offset tax liability but cannot result in a refund to the taxpayer if the amount of the credit exceeds the taxpayerʹs tax liability?
| A. | ||
| B. | ||
| C. | ||
| D. |
16.
Max, a 19-year-old single taxpayer, works part time and goes to school part time. Maxʹs adjusted gross income (AGI) for the current year is below the AGI threshold phase-out. He made a $3,000 contribution to a Roth individual retirement account (IRA). Which of the following is a true statement about Maxʹs retirement savings contribution credit for the current year?
| A. | ||
| B. | ||
| C. | ||
| D. |
Choice "A" is correct. Only $2,000 of Maxʹs $3,000 Roth IRA contribution is eligible for the credit. The retirement savings contribution credit is a nonrefundable credit for contributions of up to $2,000 to either a traditional or Roth IRA by an eligible taxpayer.
Max is an eligible taxpayer because he is at least 18 years old by the end of the year, he is not a full-time student, and he is not a dependent of another taxpayer.
17.
For the current year, Seth and Sheila intend to file a joint return. Seth expects to earn $35,000 in wages from his teaching job. He is covered by the university's pension plan. Sheila is a volunteer at their son, Stephen's, school. In addition to Seth's income, they received $500 in interest income and $50 in prize winnings from a local radio contest. Each would like to make a deductible contribution to a traditional individual retirement account (IRA) for the current year. They also believe they will be eligible to claim a tax credit for these contributions. Which of the following would Seth and Sheila be eligible to do?
Make a Deductible | Claim a Tax Credit | ||
|---|---|---|---|
| A. | |||
| B. | |||
| C. | |||
| D. |
Choice "A" is correct. Both Seth and Sheila are eligible to make a deductible contribution to a traditional IRA and claim a retirement savings contributions credit. Their adjusted gross income (AGI) is below the MFJ income limitations for both the deduction ($126,000 in 2025) and the credit ($79,000 in 2025).
18.
Which of the following statements is true regarding the net investment income (NII) tax?
| A. | ||
| B. | ||
| C. | ||
| D. |
Net investment Income Tax 3.8%
[Net investment Income - AGI the threshold amount (MFJ $250,000/other 200,000)]x 3.8%
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