Chapter 5: Itemized Deductions and Other Incentives Key
1. Premiums paid for life insurance policies are deductible as medical expenses.
2. The amount of a special assessment charged to residents for the installation of sidewalks on their street is not
deductible on Schedule A as property taxes.
3. The cost of a fishing license is considered a personal property tax and is deductible as an itemized deduction.
5. Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.
6. Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a
deduction in the current year due to the adjusted gross income limitation.
7. A taxpayer may donate the free use of property to a charitable organization and deduct the value as an
itemized deduction.
8. Casualty and theft losses must be reduced by amounts recovered from insurance coverage.
9. If business property is fully destroyed as a result of a casualty, the loss is equal to the decrease in the fair
market value of the property.
10. If the taxpayer fails to locate a job, job hunting expenses are not deductible.
11. The cost of a chiropractor’s services qualifies as a medical deduction.
12. The cost of aspirin and decongestants is a deductible medical expense even though they are non-prescription
drugs.
13. To calculate the amount of state and local income taxes which may be deducted as an itemized deduction,
state income taxes paid during the year must be reduced by state income tax refunds received during the year.
14. To deduct interest paid with respect to indebtedness, the taxpayer must be legally liable for the debt.
15. The interest paid on a loan used to acquire municipal bonds is not deductible.
16. For 2011, the investment interest expense deduction is limited to the taxpayer’s net investment income.
17. If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may
not be allowed a deduction for the charitable contribution.
18. A theft loss is deductible in the year the theft is discovered, even if the theft occurred in a prior year.
19. If personal property is completely destroyed, the casualty loss deduction is still reduced by a floor amount.
20. All personal casualty losses incurred during the year are added together and only one $100 floor amount is
used to reduce the casualty deduction.
21. If a ballet dancer seeks work as a ditch digger, the expenses of job hunting may be deductible.
22. The cost of an appraisal of a painting may be deducted if the purpose of the appraisal is related to the
preparation of an income tax return.
23. If real property is sold during the year, the property taxes must be allocated between the buyer and seller
based on the number of days the property was held by each party.
25. The adjusted gross income limitation on medical expenses is 10 percent.
26. If a taxpayer’s adjusted gross income exceeded certain threshold amounts, he or she was required to reduce
the amount of the otherwise allowable deductions for itemized deductions and personal and dependency
exemptions in 2009.
27. The cost of safety glasses is deductible by an employee who must wear them on the job.
28. The expense of a review course for a state real estate agent’s exam is deductible as a miscellaneous itemized
deduction by a taxpayer attempting to become an agent.
29. Educational expenses are deductible as a miscellaneous itemized deduction even if the education is required
30. Expenses of education to improve or maintain existing skills are deductible as a miscellaneous itemized
deduction even if the education incidentally leads to qualification in a new job or business.
31. The cost of uniforms is deductible only by self-employed taxpayers.
32. Unreimbursed employee business expenses are miscellaneous itemized deductions, subject to the 2 percent
of adjusted gross income limitation.
33. If an employee receives a reimbursement for employee business expenses, the amount of the reimbursement
is always excluded from gross income and the expenses are deductible as deductions for adjusted gross income.
34. An employee may deduct the cost of welder’s safety goggles used at work as a miscellaneous itemized
deduction.
35. Which of the following is not deductible as an itemized deduction?
36. Which of the following is deductible as a miscellaneous itemized deduction?
37. Which of the following is not an itemized deduction?
38. Which of the following is not deductible as interest expense on Schedule A?
39. Damage resulting from which of the following would probably not give rise to a casualty loss deduction?
40. For 2011, Eugene and Linda had adjusted gross income of $30,000. Additional information for 2011 is as
follows:
Cash contribution to church
$1,500
Tuition paid to a parochial school
1,200
Contribution to a qualified charity
250
Cash contribution to a needy family
100
What is the maximum amount that they can use as a deduction for charitable contributions for 2011?
41. Stewart had adjusted gross income of $22,000 in 2011. During the year, he made the following
contributions to recognized public charities:
$5,000 cash
1,000 shares of Able Corporation common stock, acquired in 1979 (cost and fair market value of $7,000)
Considering the charitable contribution deduction limitation, what amount can Stewart claim as a deduction for
charitable contributions in 2011?
42. Jon had adjusted gross income of $25,000 in 2011. During the year, he incurred and paid the following
medical expenses:
Drugs and medicines prescribed by doctors
$ 300
Health insurance premiums
750
Doctors’ fees
2,250
Eyeglasses
75
Jon received $900 in 2011 as a reimbursement for a portion of the doctors’ fees. If Jon were to itemize his deductions, what would be his allowable
medical expense deduction after the adjusted gross income limitation is taken into account?
43. During 2011, Mary paid the following expenses:
Prescription drugs
$470
Aspirin and over the counter cold capsules
130
Hospital and doctors
700
Health insurance
250
What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation
of itemized deductions on Mary’s 2011 income tax return?
44. In 2011, David had adjusted gross income of $30,000. During the year he paid the following medical
expenses:
Prescription medicines
$ 200
Doctors
2,100
Medical care insurance
400
Crutches for a broken leg
100
What amount can David deduct as medical expenses (after the adjusted gross income limitation) in calculating his itemized deductions for 2011?
45. Harris had adjusted gross income in 2011 of $130,000. During the year his personal summer home was
almost completely destroyed by a cyclone. Pertinent data with respect to the home follows:
Cost basis
$139,000
Value before casualty
145,000
Value after casualty
13,000
Harris was partially insured for his loss and in 2011 he received a $115,000 insurance settlement. What is Harris’ allowable casualty loss deduction
for 2011?
46. During 2011, Seth, a self-employed individual, paid the following taxes:
Federal income tax
$5,000
State income tax
2,000
Real estate taxes on land in South America (held as an investment)
900
Personal property taxes
500
Federal self-employment tax
800
What amount can Seth claim as an itemized deduction for taxes paid during 2011, assuming he elects to deduct state and local income taxes?
47. During 2011, George, a salaried taxpayer, paid the following taxes which were not incurred in connection
with a trade or business:
Federal income tax (withheld by employer)
$1,500
State income tax (withheld by employer)
1,000
FICA tax (withheld by employer)
700
Real property taxes
900
Federal auto gasoline taxes
200
Federal excise tax on telephone bills
50
What amount can George claim for 2011 as an itemized deduction for the taxes paid, assuming he elects to deduct state and local income taxes?
48. Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank’s
state income taxes is available:
State income taxes withheld in 2011
$3,500
Refund of 2010 tax received in 2011
400
Deficiency assessed and paid in 2011 for 2009:
Tax
600
Interest
100
What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2011 Federal tax return, assuming he elects
49. Weber resides in a state that imposes a tax on income. The following information relating to Weber’s state
income taxes is available:
State income taxes withheld in 2011
$3,000
Refund received in 2011 of 2010 tax
300
Assessment paid in 2011 of 2009 tax
800
Assuming he elects to deduct state and local income taxes, what amount should Weber use as state and local income taxes in calculating itemized
deductions for his 2011 Federal income tax return?
50. Randy is advised by his physician to install an elevator in his residence, since he is afflicted with heart
disease. The cost of installing the elevator is $8,000 and it has an estimated useful life of 10 years. He installs
51. Harvey itemized deductions on his 2010 income tax return. Harvey plans to itemize deductions again in
2011 and the following information is available regarding state and local income taxes:
Taxes withheld in 2011
Refund received in 2011 of 2010 tax
Assessment paid in 2011 of 2009 tax
Assuming he elects to deduct state and local income taxes, the above information should be reported by Harvey in his 2011 tax return as:
A. Itemized deduction for state and local income taxes of $2,500, and income from state and local tax refund of
$200
52. During 2011, Mr. and Mrs. West paid the following taxes:
Property taxes on residence
$1,800
Special assessment for installation of a sewer system in their neighborhood
1,000
State personal property tax on their automobile (based on value)
600
Property taxes on land held for long-term appreciation
300
What amount can the Wests deduct as property taxes in calculating itemized deductions for 2011?
53. Jerry and Ann paid the following amounts during 2011:
Interest on automobile loan
$1,500
Interest on bank loan (proceeds were used to purchase municipal bonds)
5,000
Qualified home mortgage interest
3,000
What is the maximum amount they can use as interest expense in calculating itemized deductions for 2011?
54. Peter is a plumber employed by a major contracting firm. During 2011, he paid the following miscellaneous
expenses:
Unreimbursed employee business expenses
Union dues
Tax return preparation fee
Safe deposit box rental fee (used only for personal effects)
If Peter were to itemize his deductions for 2011, what amount could he claim as miscellaneous itemized deductions (before applying the 2 percent of
adjusted gross income limitation)?
A. $700
55. For the year ended December 31, 2011, David, a married taxpayer filing a joint return, reported the
following:
Investment income from interest
$24,000
Investment expenses other than interest
4,000
Interest expense on funds borrowed in 2005 to purchase investment property
70,000
What is the maximum amount that David can deduct in 2011 as investment interest expense?
56. Which of the following miscellaneous deductions are subject to the 2 percent of adjusted gross income
limitation?
57. Which of the following miscellaneous deductions are not subject to the 2 percent of adjusted gross income
limitation?
58. Amy paid the following interest expense during 2011:
Qualified home mortgage interest
$11,000
Credit card interest
1,000
Personal bank loan interest
3,000
What is the amount of Amy’s interest deduction for 2011?
59. During the current year, Cary and Bill incurred acquisition debt on their residence of $1,300,000 and a home
equity loan of $200,000. On a joint tax return, what is the amount of their qualified acquisition debt and
qualified home equity debt, respectively?
60. What is the maximum amount of home equity debt (not acquisition debt) on which interest is fully
deductible?
61. Margo has $2,100 withheld from her wages for state income taxes during 2011. In March of 2011, she paid
$300 in additional taxes for her 2010 state tax return. Her state income tax liability for 2011 is $2,500 and she
pays the additional $400 when she files her 2011 state tax return in April of 2012. What amount should Margo
deduct as an itemized deduction for state income taxes on her 2011 federal income tax return, assuming she
elects to deduct state and local income taxes?
62. Which of the following types of interest is not deductible in 2011?
63. Which of the following is not deductible as a medical expense on Schedule A?
64. Matthew purchases a new principal residence in 2011 and pays points of $2,000 to obtain a mortgage loan.
What is the proper tax treatment for the points paid?
65. Mary Lou took a $7,000 distribution from her educational savings account and used $6,500 to pay for
qualified higher education expenses. On the date of the distribution, her educational savings account had a
$28,000 balance including the $21,000 she had contributed. How much of the $7,000 distribution is tax free?
66. Charlie is a single taxpayer with income of $107,000 which includes $22,500 of interest income.
Contributions to educational savings accounts are phased out between $95,000 and $110,000. What is the
maximum contribution Charlie can make to an educational savings account?
67. Shellie, a single individual, received her Bachelor’s degree in 2010, and took a job with a salary of $45,000
per year. In 2011, she began paying interest on qualified education loans. She was able to pay $1,500 in 2011.
Which of the following statements is not correct?
68. Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and
decided to donate her old car. Which of the following statements is correct?
69. Which of the following is correct for Qualified Tuition Programs for 2011?
70. In 2011, Jennie receives $12,000 (of which $3,000 is earnings) from a Qualified Tuition Program. She uses
the funds to pay for new furniture for her apartment. What amount is taxable to Jennie?
71. For married taxpayers filing a joint return in 2011, at what AGI level does the phase-out limit for
contributions to Qualified Tuition Programs (Section 529 plans) start?
72. Which of the following is not considered a deductible medical expense?
73. Which of the following taxes is not potentially deductible as an itemized deduction?
74. Which of the following interest expense amounts is not deductible in the current year?