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Exam 10: Individuals: Income, Deductions, and Credits

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Question 51

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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.

A) True
B) False

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Question 52

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Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.

A) True
B) False

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Question 53

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Interest paid or accrued during 2019 on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns) is deductible as qualified residence interest.

Trent sells his personal residence to Chester on July 1, 2019.He had paid $7,000 in real property taxes on March 1, 2019, the due date for property taxes for 2019.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

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

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Gambling losses may be deducted to the extent of the taxpayer's gambling winnings.

The education tax credits (i.e., the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Richard, age 50, is employed as an actuary.For calendar year 2019, he had AGI of $130,000 and paid the following medical expenses: 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 2019 and received the reimbursement in January 2020.What is Richard's maximum allowable medical expense deduction for 2019?

In 2019, George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents.Assuming their AGI is $119,650, George and Martha's child tax credit is:

Under the alimony rules:

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.

Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2019.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2020.In determining his medical expense deduction for 2019, Matt must reduce his 2019 medical expenses by the amount of the reimbursement he expects in 2020.

Tommy, a senior at State College, receives free room and board as full compensation for working as a resident adviser at the university dormitory.The regular housing contract is $2,000 a year in total, $1,200 for lodging, and $800 for meals in the dormitory.He had the option of receiving the meals or $800 in cash and accepted the meals.What must Tommy include in gross income from working as a resident adviser?

Jena is a full-time undergraduate student at State University and qualifies as a dependent of her parents.Her only source of income is a $10,000 athletic scholarship ($1,000, books; $5,500, tuition; $500, student activity fee; and $3,000, room and board) .Jena's gross income for the year is:

Paul, a calendar year single taxpayer, has the following information for 2019: Paul's allowable itemized deductions for 2019 are:

The taxpayer is a Ph.D.student in accounting at City University.The student is paid $1,500 per month for teaching two classes.The total amount received for the year is $13,500.

In 2019, Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2020, Theresa collected from his insurance company.She received $15,000 for loss of income, $10,000 for pain and suffering, $50,000 for punitive damages, and $6,000 for medical expenses that she had deducted on her 2019 tax return (the amount in excess of 10% of adjusted gross income).As a result of this, Theresa's 2020 gross income is increased by $56,000.

During the current year, Ralph made the following contributions to the University of Oregon (a qualified charitable organization) : Ralph acquired the stock in Raptor as an investment 14 months ago at a cost of $42,000.Ralph's AGI for the year is $189,000.What is his charitable contribution deduction for the current year?

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19) of the taxpayer.