l MODULE 33 TAXES: INDIVIDUAL
property's basis. Here, the stock worth $3,000 was pur-
chased for $1,500 just four months earlier. Since its holding
period did not exceed twelve months, a sale of the stock
would result in a short-term capital gain, and the amount of
allowable contribution deduction is limited to the stock's
basis of $1,500. Additionally, to be deductible, a contribu-
tion must be made to a qualifying organization. As a result,
the $2,000 cash given directly to a needy family is not de-
ductible.
141. (a) The requirement is to determine the maximum
amount of charitable contribution deductible as an itemized
deduction on Taylor's tax return for 2009. The donation of
appreciated land purchased for investment and held for more
than twelve months is a contribution of real capital gain
property (property that would result in long-term capital
gain if sold). The amount of contribution is the land's FMV
of $25,000, limited in deductibility for the current year to
30% of AGI. In this case, since 30% of AGI would be 30%
x $90,000 = $27,000, the full amount of the land contribu-
tion ($25,000) is deductible for 2009.
III.E. Personal Casualty and Theft Gains and Losses
142. (a) The requirement is to determine the amount of
the fire loss to her personal residence that Frazer can claim
as an.itemized deduction. The amount of a personal casualty
loss is computed as the lesser of (1) the adjusted basis of the
property ($130,000), or (2) the decline in the property's fair
market value resulting from the casualty ($130,000 - $0 =
$130,000); reduced by any insurance recovery ($120,000),
and a $100 floor. Since Frazer had no casualty gains during
the year, the net casualty loss is then deductible as an item-
ized deduction to the extent that it exceeds 10% of adjusted
gross income.
Fire loss $ 130,000
Insurance proceeds (120,000)
$100 floor (100)
10% of $70,000 AGI (7.000)
Casualty loss itemized deduction
$~
143. (a) The requirement is to determine the amount the
Burgs should deduct for the casualty loss (repair of glass
vase accidentally broken by their dog) in their itemized de-
ductions. A casualty is the damage, destruction, or loss of
property resulting from an identifiable event that is sudden,
unexpected, or unusual. Deductible casualty losses may
result from earthquakes, tornadoes, floods, fires, vandalism,
auto accidents, etc. However, a loss due to the accidental
breakage of household articles such as glassware or china
under normal conditions is not a casualty loss. Neither is a
loss due to damage caused by a family pet.
144. (d) The requirement is to determine the proper treat-
ment of the $490 casualty insurance premium. Casualty
insurance premiums on an individual's personal residence
are considered nondeductible personal expenses. Even
though a casualty is actually incurred during the year, no
deduction is available for personal casualty insurance pre-
miums.
145. (d) The requirement is to determine the amount of
the fire loss damage to their personal residence that the
Hoyts can deduct as an itemized deduction. The amount of
a nonbusiness casualty loss is computed as the lesser of
(1) the adjusted basis of the property, or (2) the property's
decline in FMV; reduced by any insurance recovery, and a
$100 floor. If an individual has a net casualty loss for the
46
9
year, it is then deductible as an itemized deduction to the
extent that it exceeds 10% of adjusted gross income.
Lesser of: \
Adjusted basis = $50,000
Decline in FMV
($60,000 - $55,000) = $ 5,000 $ 5,000
Reduce by:
Insurance recovery (0)
$100 floor (100)
10% of $34,000 AGI 0.400)
Casualty loss itemized deduction $...L500
Note that the $2,500 spent for repairs is not included in the
computation of the loss.
146. (b) The requirement is to determine the proper treat-
ment for the $800 appraisal fee that was incurred to deter-
mine the amount of the Hoyts' fire loss. The appraisal fee is
considered an expense of determining the Hoyts' tax liabil-
ity; it is not a part of the casualty loss itself. Thus, the ap-
praisal fee is deductible as a miscellaneous itemized deduc-
tion subject to a 2% of adjusted gross income floor.
III.F. Miscellaneous Deductions
147. (d) The requirement is to determine which item is
not a miscellaneous itemized deduction. A legal fee for tax
advice related to a divorce, IRA trustee's fees that are sepa-
rately billed and paid, and an appraisal fee (or valuing a
charitable contribution qualify as miscellaneous itemized
deductions subject to the 2% of AGI floor. 'On the other
hand, the check writing fees for a personal checking account
are a personal expense and not deductible.
148. (b) The requirement is to determine the proper treat-
ment of the $2,000 legal fee that was incurred by Hall in a
suit to collect the alimony owed her. The $2,000 legal fee is
. considered an expenditure incurred in the production of in-
come. Expenses incurred in the production of income are
deductible as miscellaneous itemized deductions subject to
the 2% of adjusted gross income floor.
149 .. (b) The requirement is to determine the proper re-
porting of Hall's lottery transactions. Hall's lottery win-
nings of $200 must be reported as other income on page 1 of
Hall's Form 1040. Hall's $1,000 expenditure for state lot-
tery tickets is deductible as a miscellaneous itemized deduc-
tion not subject to the 2% of AGI floor, but is limited in
amount to the $200 of lottery winnings included in Hall's
gross income.
150. (d) The requirement is to determine how expenses
pertaining to business activities should be deducted by an
outside salesman. An outside salesman is an employee who
principally solicits business for his employer while away
from the employer's place of business. All unreimbursed
business expenses of an outside salesman are deducted as
miscellaneous itemized deductions, subject to a 2% of AGI
floor. Deductible expenses, include business travel, secre-
tarial help, and telephone expenses.
. 151. (a) The requirement is to determine the amount that
can be claimed as miscellaneous itemized deductions. Both
the initiation fee and the union dues are fully deductible.
The voluntary benefit fund contribution is not deductible.
Miscellaneous itemized deductions are generally deductible