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Exam 10: Income, Deductions and Credits

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Question 1

True/False

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Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance, Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.

A) True
B) False

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Question 2

Multiple Choice

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Bob and Sally are married, file a joint tax return, report AGI of $116,000, and have two children.Del is beginning her freshman year at State College during Fall 2017, and Owen is beginning his senior year at Southwest University during Fall 2017.Owen completed his junior year during the Spring semester of 2016 (i.e., he took a "leave of absence" during the 2016-2017 school year) .Both Del and Owen are claimed as dependents on their parents' tax return. ​ Del's qualifying tuition expenses and fees total $5,000 for the Fall semester, while Owen's qualifying tuition expenses were $6,100 for the Fall 2017 semester.Del's room and board costs were $3,200 for the Fall semester.Owen did not incur room and board costs, as he lived with his aunt and uncle during the year. ​ Full payment is made for the tuition and related expenses for both children at the beginning of each semester.In addition to the children's college expenses, Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist.Bob attended the seminars during July and August 2017.Compute the available education tax credits for Bob and Sally for 2017.

A) $3,100
B) $5,000
C) $5,480
D) $5,600

E) None of the above
F) B) and C)

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C

Question 3

Multiple Choice

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Richard, age 50, is employed as an actuary.For calendar year 2017, he had AGI of $130,000 and paid the following medical expenses: $\begin{array} { l r } \text { Medical insurance premiums } & \$ 5,300 \\\text { Doctor and dentist bills for Derrick and Jane (Richard's parents) } & 7,900 \\\text { Doctor and dentist bills for Richard } & 5,100 \\\text { Prescribed medicines for Richard } & 830 \\\text { Nonprescribed insulin for Richard } & 960\end{array}$ Derrick and Jane would qualify as Richard's dependents except that they file a joint return.Richard's medical insurance policy does not cover them.Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2017 and received the reimbursement in January 2018.What is Richard's maximum allowable medical expense deduction for 2017?

Nancy paid the following taxes during the year: $\begin{array}{lr}\text { Tax on residence (for the period from March 1 through August 31) } & \$ 5,250 \\\text { State motor vehicle tax (based on the value of the personal use automobile) } & 430 \\\text { State sales tax } & 3,500 \\\text { State income tax } & 3,050\end{array}$ ? Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller.What amount qualifies as a deduction from AGI for Nancy?

Harry and Wilma are married and file a joint income tax return.On their tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wilma) and claim two exemptions for their dependent children.During the year, they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work. $\begin{array}{lr}\text { ABC Day Care Center } & \$ 3,200 \\\text { Blue Ridge Housekeeping Services } & 2,000 \\\text { Mrs. Mason (Harry's mother) } & 1,000\end{array}$ ? Harry and Wilma may claim a credit for child and dependent care expenses of:

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year.What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation?

Betty received a graduate teaching assistantship that was awarded on the basis of academic achievement.The payments must be included in her gross income.

Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions.

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2017.They have four dependents and file a joint return.They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account.During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs.In October 2017, they received an insurance reimbursement of $4,400 for the hospitalization.They expect to receive an additional reimbursement of $1,000 in January 2018.Determine the maximum itemized deduction allowable for medical expenses in 2017.

For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.

Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic.Her son stayed at the clinic for the duration of his treatment.She paid airfare of $300 and $50 per night for lodging.The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase.Jack can deduct the points as interest.

During the year, Victor spent $300 on bingo games sponsored by his church.If all profits went to the church, Victor has a charitable contribution deduction of $300.

In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council.The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games.Also this year, Jerry pays $2,200 (the regular retail price) for season tickets for himself and his wife.For these items, how much qualifies as a charitable contribution?

Under the terms of a divorce agreement, Ron is to pay his former wife Jill $10,000 per month.The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18.During the current year, Ron paid $120,000 under the agreement.Assuming all of the other conditions for alimony are satisfied, Ron can deduct from gross income (and Jill must include in gross income) as alimony:

The credit for child and dependent care expenses is an example of a refundable credit.

Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early.The $1,600 is deductible as interest expense.

Points paid by the owner of a personal residence to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage.

In 2017, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family.In addition, he contributes $3,400 to a Health Savings Account.Which of the following statements is true?