Test Bank For Mcgraw Hills Essentials of Federal Taxation 2020 Edition 11th by Spilker

Test Bank for McGraw-Hillâ€™s Essentials of Federal Taxation 2020 Edition, 11th by Spilker
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Essentials of Federal Taxation, 11e (Spilker)
Chapter 7 Individual From AGI Deductions
1) The medical expense deduction is designed to provide relief for doctors and medical
practitioners.
Answer: FALSE
Difficulty: 1 Easy
Topic: Itemized deductions
Learning Objective: 07-01 Describe the different types of itemized deductions available to
individuals and compute itemized deductions.
Bloom's: Understand
Accessibility: Keyboard Navigation; Screen Reader Compatible
AICPA/AACSB: BB Critical Thinking / Reflective Thinking
2) Deductible medical expenses include payments to medical care providers such as doctors,
dentists, and nurses and medical care facilities such as hospitals.
Answer: TRUE
Difficulty: 2 Medium
Bloom's: Understand
3) Taxpayers traveling for the primary purpose of receiving essential and deductible medical care
may deduct the cost of travel.
Answer: TRUE
Bloom's: Understand
1
Copyright 2020 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
4) The deduction for medical expenses is limited to the amount of unreimbursed qualifying
medical expenses paid during the year reduced by 2 percent of the taxpayer's AGI.
Answer: FALSE
Explanation: Ten percent of AGI is the floor limit.
Difficulty: 1 Easy
Bloom's: Remember
5) The itemized deduction for taxes includes all types of state, local, and foreign taxes.
Answer: FALSE
Explanation: The deduction is limited to state, local, and foreign income (or sales taxes); state
and local property taxes; and state and local personal property taxes, based on value.
Difficulty: 3 Hard
Bloom's: Analyze
6) Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local
income taxes.
Answer: TRUE
Explanation: Taxpayers may elect to deduct state and local sales taxes in lieu of deducting state
and local income taxes.
Bloom's: Understand
2
7) Taxpayers are allowed to deduct mortgage interest on up to $1,000,000 of acquisition debt for
their qualified residence for acquisition debt incurred after December 15, 2017.
Answer: FALSE
Explanation: The limit is $750,000 for acquisition debt incurred after December 15, 2017.
Bloom's: Understand
8) The deduction for investment interest in excess of net investment income carries forward to
the subsequent year.
Answer: TRUE
Bloom's: Understand
9) To qualify as a charitable deduction the donation must be made by cash or by check.
Answer: FALSE
Explanation: Donations of property also qualify.
Difficulty: 1 Easy
Bloom's: Remember
3
10) In general, taxpayers are allowed to deduct the fair market value of long-term capital gain
property on the date of the donation to a qualified charitable organization.
Answer: TRUE
Bloom's: Understand
11) The deduction to individual taxpayers for charitable contributions paid in cash to public
charities is limited to 10 percent of the taxpayer's AGI.
Answer: FALSE
Explanation: Sixty percent of AGI is the ceiling for donations of cash to public charities.
Bloom's: Understand
12) Unreimbursed employee business expenses and hobby expenses are not deductible.
Answer: TRUE
Bloom's: Understand
13) Taxpayers are not allowed to deduct tax preparation fees as an itemized deduction.
Answer: TRUE
Bloom's: Understand
4
14) Bunching itemized deductions is one form of tax evasion.
Answer: FALSE
Difficulty: 1 Easy
Topic: The standard deduction
Learning Objective: 07-02 Determine the standard deduction available to individuals.
Bloom's: Remember
15) Taxpayers generally deduct the lesser of their standard deduction or their itemized
deductions.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Understand
16) Taxpayers filing single and taxpayers filing married filing separately have the same basic
standard deduction amount.
Answer: TRUE
Bloom's: Understand
17) An individual who is eligible to be claimed as a dependent on another's return and has
$1,000 of earned income may claim a standard deduction of $1,350.
Answer: TRUE
Explanation: The dependent may claim a standard deduction for the greater of (1) $1,100 or (2)
$350 plus her $1,000 earned income = $1,350.
Bloom's: Understand
5
18) Generally, service businesses are considered qualified trade or businesses for purposes of the
deduction for qualified business income.
Answer: FALSE
Explanation: Service businesses are generally excluded from the definition of qualified trade or
businesses for purposes of the deduction.
Topic: Deduction for qualified business income
Learning Objective: 07-03 Calculate the deduction for qualified business income.
Bloom's: Understand
19) Ned is a head of household with a dependent son, Todd, who is a full-time student. This year
Ned made the following expenditures related to Todd's support:
Auto insurance premiums $ 1,700

Room and board at Todd's school 2,200
Health insurance premiums 600
Travel (to and from school) 350
What amount can Ned include in his itemized deductions?

A) $1,700 included in Ned's miscellaneous itemized deductions.
B) $2,050 included in Ned's miscellaneous itemized deductions.
C) $950 included in Ned's miscellaneous itemized deductions.
D) $600 included in Ned's medical expenses.
E) None of the choices are correct.
Answer: D
Explanation: The premiums paid for health and medical insurance for dependents are included
in the taxpayer's medical expenses when determining itemized deductions.
Bloom's: Understand
Accessibility: Keyboard Navigation
AICPA/AACSB: BB Critical Thinking / Reflective Thinking; Analytical Thinking
6
20) Which of the following is a true statement?
A) A taxpayer can deduct medical expenses incurred for members of his family who are
dependents.
B) A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative
does not meet the gross income test.
C) A divorced taxpayer can deduct medical expenses incurred for a child even if the child is
claimed as a dependent by the former spouse.
D) Deductible medical expenses include long-term care services for disabled spouses and
dependents.
E) All of these choices are true.
Answer: E
Explanation: All are true.
Bloom's: Understand
21) Which of the following costs is deductible as an itemized medical expense?

A) The cost of prescription medicine and over-the-counter drugs.
B) Medical expenses incurred to prevent disease.
C) The cost of elective cosmetic surgery.
D) Medical expenses reimbursed by health insurance.
E) None of the costs are deductible.
Answer: B
Explanation: Medical expenses include any payments for the care, prevention, diagnosis, or
cure of injury, disease, or bodily function that are not reimbursed by health insurance.
Difficulty: 1 Easy
Bloom's: Remember
7
22) Which of the following costs is NOT deductible as an itemized medical expense?
A) The cost of eyeglasses.
B) Payments to a hospital.
C) Transportation for medical purposes.
D) The cost of insurance for long-term care services.
E) All of the choices are deductible as medical expenses.
Answer: E
Explanation: All of these are deductible.
Difficulty: 1 Easy
Bloom's: Remember
23) Opal fell on the ice and injured her hip this winter. As a result she paid $3,000 for a visit to
the hospital emergency room and $750 for follow-up visits with her doctor. While she
recuperated, Opal paid $500 for prescription medicine and $600 to a therapist for rehabilitation.
Insurance reimbursed Opal $1,200 for these expenses. What is the amount of Opal's deductible
medical expense before considering any AGI limitations?
A) $3,000.
B) $3,750.
C) $3,650.
D) $4,850.
E) All of the choices are correct.
Answer: C
Explanation: The deductible expenses are calculated as follows:
Emergency room and doctor visits $ 3,750

Prescription medication 500
Physical therapy 600
Total qualifying medical expenses $ 4,850
Less insurance reimbursement − 1,200
Qualifying medical expenses from the accident $ 3,650
Difficulty: 1 Easy
Bloom's: Remember; Analyze
8
24) Which of the following taxes will not qualify as an itemized deduction?
A) Personal property taxes assessed on the value of specific property.
B) State, local, and foreign income taxes.
C) Real estate taxes on a residence.
D) Gasoline taxes on personal travel.
E) None of the choices qualify as an itemized deduction.
Answer: D
Explanation: Gasoline taxes on personal travel are not deductible.
Difficulty: 1 Easy
Bloom's: Remember; Analyze
25) This year Amanda paid $749 in federal gift taxes on a gratuitous transfer to her nephew.
Amanda lives in Texas and does not pay any state or local income taxes. Which of the following
is a true statement?
A) Amanda cannot deduct federal gift taxes.
B) Amanda can deduct federal gift taxes for AGI.
C) Amanda can deduct federal gift taxes paid as an itemized deduction.
D) Amanda must include federal gift taxes with other miscellaneous itemized deductions.
E) None of the choices are true.
Answer: A
Explanation: Federal gift and estate taxes are not deductible.
Bloom's: Understand
9
26) This year Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal
residence and $9,500 of state income taxes. Which of the following is true?
A) Norma can deduct $11,200 of real estate taxes as an itemized deduction.
B) Norma can deduct $9,500 of state income taxes as a for AGI deduction.
C) Norma can deduct $10,000 of taxes as an itemized deduction.
D) Even if Norma has no other itemized deductions, she should claim the standard deduction.
Answer: C
Explanation: The itemized deduction for taxes is limited to $10,000 for single taxpayers.
Difficulty: 1 Easy
Bloom's: Remember
27) Madeoff donated stock (capital gain property) to a public charity. He purchased the stock
three years ago for $100,000, and on the date of the gift, it had a fair market value of $200,000.
What is his maximum charitable contribution deduction for the year related to this stock if his
AGI is $500,000?
A) $100,000
B) $200,000
C) $150,000
D) $250,000
E) None of the choices are correct
Answer: C
Explanation: The stock is appreciated capital gain property limited to 30 percent of AGI.
Bloom's: Understand
10
28) Carly donated inventory (ordinary income property) to a church. She purchased the inventory
last month for $100,000, and on the date of the gift, it had a fair market value of $92,000. What
is her maximum charitable contribution deduction for the year related to this inventory if her
AGI is $200,000?
A) $100,000.
B) $92,000.
C) $60,000.
D) $46,000 if the church sells the inventory.
Answer: B
Explanation: The charitable deduction for ordinary income property is the lesser of FMV or
basis, limited to 50 percent of AGI.
Bloom's: Understand
29) Simone donated a landscape painting (tangible capital gain property) to a library, a public
charity. She purchased the painting five years ago for $50,000, and on the date of the gift, it had
a fair market value of $200,000. What is her maximum charitable contribution deduction for the
year if her AGI is $300,000?
A) $100,000.
B) $200,000.
C) $90,000 if the library uses the painting in its charitable purpose.
D) $150,000.
Answer: C
Explanation: The painting is appreciated capital gain property given to a public charity.
However, because it is also tangible personal property the donation is FMV only if it is related to
the charitable use or purpose. If so, the deduction is limited to 30 percent of AGI. If not, the
deduction is basis, limited to 50 percent of AGI.
Difficulty: 3 Hard
Bloom's: Analyze
11
30) Larry recorded the following donations this year:
$500 cash to a family in need

$2,400 to a church
$500 cash to a political campaign
To the Salvation Army household items that originally cost $1,200 but are worth $300.
What is Larry's maximum allowable charitable contribution if his AGI is $60,000?

A) $2,900.
B) $1,000.
C) $2,700.
D) $4,600.
Answer: C
Explanation: $2,400 to church + $300 FMV of household items to the Salvation Army.
Difficulty: 1 Easy
Bloom's: Remember

A) The deduction of cash contributions to public charities is limited to 30 percent of AGI.
B) The deduction of capital gain property to private nonoperating foundations is limited to 50
percent of AGI.
C) The deduction of capital gain property to public charities is limited to 20 percent of AGI.
D) The deduction of cash contributions to private nonoperating foundations is limited to 30
percent of AGI.
Answer: D
Explanation: The deduction of cash contributions to public charities is limited to 60 percent of
AGI, the deduction of capital gain property to private nonoperating foundations is limited to 20
percent of AGI, and the deduction of capital gain property to public charities is limited to 30
percent of AGI.
Difficulty: 3 Hard
Bloom's: Analyze
12
32) When taxpayers donate cash and capital gain property to a public charity, the AGI
percentage limitation is applied in the following order:
A) a 30 percent of AGI limitation is applied to the aggregate donation.
B) a 60 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI
limitation is applied to the fair market value of the capital gain donation.
C) a 30 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI
limitation is applied to the fair market value of the capital gain donation.
D) a 60 percent of AGI limitation is applied to the cash donation and the fair market value of the
capital gain donation is subject to the lesser of a 30 percent of AGI limitation or a 50 percent of
AGI limitation after subtracting the cash contributions.
E) donations to public charities are not subject to AGI limitations.
Answer: D
Explanation: Capital gain property is subject to lower AGI limits but the aggregate donation
cannot exceed 50 percent of AGI.
Bloom's: Understand

A) Taxpayers may only deduct interest on up to $1,500,000 of home acquisition indebtedness.
B) Taxpayers may deduct interest on up to $1,000,000 of home-equity debt.
C) The deduction for investment interest expense is not subject to limitation.
D) A taxpayer who incurs acquisition indebtedness in 2018 may only deduct interest on up to
$750,000 of home acquisition indebtedness.
Answer: D
Explanation: The $750,000 limit applies to acquisition indebtedness incurred after December
15, 2017.
Bloom's: Understand
13
34) Margaret Lindley paid $15,000 of interest on her $300,000 acquisition debt for her home
(fair market value of $500,000), $4,000 of interest on her $30,000 home-equity loan, $1,000 of
credit card interest, and $3,000 of margin interest for the purchase of stock. Assume that
Margaret Lindley has $10,000 of interest income this year and no investment expenses. How
much of the interest expense may she deduct this year?
A) $23,000.
B) $22,000.
C) $19,000.
D) $18,000.
Answer: D
Explanation: The credit card interest is nondeductible personal interest and the home-equity
interest is not deductible. The remaining interest is deductible as qualified residence interest
($15,000) and investment interest ($3,000). The $3,000 investment interest is not restricted by
her net investment income ($10,000).
Bloom's: Understand

A) A casualty loss on personal-use assets is generally not deductible.
B) A casualty loss on investment property is generally not deductible.
C) All casualty losses are deductible.
D) A casualty loss on personal-use assets is deductible for AGI.
E) All of the choices are true.
Answer: A
Explanation: Casualty losses on personal-use assets are generally nondeductible.
Difficulty: 1 Easy
Bloom's: Remember
14
A) Fees for investment advice are not deductible.
B) Unreimbursed employee business expenses are not deductible.
C) Fees for tax preparation are not deductible.
D) Hobby expenses are not deductible.
Answer: E
Explanation: All of the expenses are not deductible.
Bloom's: Understand
37) Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of
$80,000 from his employer and won $2,000 in various races. What is the effect of the racing
activities on Glenn's taxable income if Glenn has also incurred $4,200 of hobby expenses this
year? Assume that Glenn itemizes his deductions but has no other miscellaneous itemized
deductions.
A) Increase in taxable income of $2,000.
B) Increase in taxable income of $1,640.
C) No change in taxable income.
D) Decrease in taxable income of $560.
E) Decrease in taxable income of $2,200.
Answer: A
Explanation: Hobby expenses are not deductible, whereas hobby revenue is included in gross
income.
Difficulty: 3 Hard
Bloom's: Analyze
15
38) Which of the following is a deductible miscellaneous itemized deduction?
A) gambling losses to the extent of gambling winnings.
B) fees for investment advice.
C) employee business expenses.
D) tax preparation fees.
Answer: A
Explanation: Employee business expenses, tax preparation fees, investment expenses, and
hobby expenses are not deductible.
Bloom's: Understand
39) Frieda is 67 years old and deaf. If Frieda files as a head of household, what amount of
standard deduction can she claim in 2019? Standard deduction
A) $12,200.
B) $13,850.
C) $18,350.
D) $19,650.
E) $20,000.
Answer: E
Explanation: $20,000 = $18,350 + $1,650, the regular standard deduction increased for being
age 65 or blindness.
Bloom's: Understand
16
40) Andres and Lakeisha are married and file jointly. Andres is 72 years old and in good health.
Lakeisha is 62 years old and blind. What amount of standard deduction can Andres and Lakeisha
claim in 2019? Standard deduction
A) $27,000.
B) $27,700.
C) $25,850.
D) $25,700.
Answer: A
Explanation: $27,000 = $24,400 + ($1,300 × 2). The married filing jointly standard deduction is
increased by $1,300 for each blind taxpayer and/or each taxpayer age 65 by year-end.
Difficulty: 3 Hard
Bloom's: Analyze

A) The standard deduction is increased for taxpayers who are blind or deaf at year-end.
B) A married couple is only entitled to one addition to their standard deduction even if both
spouses are over age 65.
C) Bunching itemized deductions is a legal method of tax avoidance.
D) The standard deduction is subject to a phase-out based on AGI.
Answer: C
Explanation: Bunching is a perfectly permissible tax planning strategy.
Difficulty: 1 Easy
Bloom's: Remember
17
42) Campbell, a single taxpayer, has $95,000 of profits from her general store, which she
operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and
$50,000 of taxable income before the deduction for qualified business income. How much is
Campbell's deduction for qualified business income?
A) $95,000.
B) $19,000.
C) $10,000.
D) $8,000.
E) $0.
Answer: C
Explanation: Her deduction for qualified business income is limited to 20 percent of her taxable
income before the deduction. She is not subject to the wage limit because her income falls below
the $160,700 threshold.
Bloom's: Understand
operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and
$500,000 of taxable income before the deduction for qualified business income. How much is
Campbell's deduction for qualified business income?
A) $100,000.
B) $80,000.
C) $20,000.
D) $1,000.
E) $0.
Answer: D
Explanation: Her deduction for qualified business income is limited to 25 percent of her wages
($0) plus 2.5 percent of her qualified property (2.5% × $40,000 = $1,000).
Bloom's: Understand
18
operates as a sole proprietorship. She has $100,000 of employee wages, $40,000 of qualified
property, and $500,000 of taxable income before the deduction for qualified business income.
How much is Campbell's deduction for qualified business income?
A) $100,000.
B) $80,000.
C) $50,000.
D) $26,000.
E) $0.
Answer: C
Explanation: Her deduction for qualified business income is limited to 50 percent of her wages
($100,000 × 50% = $50,000).
Bloom's: Understand
45) Detmer is a successful doctor who earned $204,800 in fees this year, but he also competes in
weekend golf tournaments. Detmer reported the following expenses associated with competing
in almost a dozen tournaments:
Transportation to various tournaments $ 3,450

Lodging 1,890
Entry fees 920
Golf supplies (balls, tees, etc.) 75
This year Detmer won $5,200 from competing in various golf tournaments. Assuming that
Detmer itemizes his deductions and that he did not have any other miscellaneous itemized
deductions, what amount of the golfing expenses is deductible after considering all limitations if
the tournament golfing is treated as a hobby activity?
Answer: $0.
Hobby expenses are not deductible.

Bloom's: Understand
19
46) Jenna (age 50) files single and reports AGI of $40,000. This year she has incurred the
following medical expenses:
Dentist charges $ 90
Physician's fees 2,800
Cosmetic surgery 400
Cost of eyeglasses 250
Hospital charges 1,330
Prescription drugs 240
Over-the-counter drugs 75
Medical insurance premiums 1,200
Calculate the amount of medical expenses that will be included with Jenna's other itemized
deductions.
Answer: $1,910.
All expenses are qualified medical expenses except for the cosmetic surgery and over-the-
counter drugs. Hence, the medical expense deduction is $5,910 less $4,000 (10 percent ×
$40,000) = $1,910, and this amount is included with other itemized deductions.
Bloom's: Understand
20
47) Chuck has AGI of $70,000 and has made the following payments this tax year:
State income tax withholding $ 1,900

State income tax estimated payments 850
Federal income tax withholding 7,100
Social Security tax withheld from wages 4,800
State excise tax on liquor 400
State inheritance tax 1,200
County real estate tax 790
School district tax on realty 510
Calculate the amount of taxes that Chuck can include with his itemized deductions.
Answer: $4,050 = $1,900 + $850 + $790 + $510.
The deductible taxes include county real estate and school district tax on real estate. State income
taxes paid and withheld are also deductible.
Difficulty: 1 Easy
Bloom's: Remember
21
48) Homer is an executive who is paid a salary of $80,000. Homer also paints landscapes as a
hobby. This year Homer expects to sell paintings for a total of $750 and incur the following
expenses associated with his painting activities:
Travel $1,480
Paints and canvas 610
Painting classes 230
What is the effect of Homer's hobby on his taxable income?
Answer: Homer's hobby will increase his taxable income by $750.
Homer will not receive any deduction for the hobby expenses, but the hobby income will
increase taxable income.
Difficulty: 1 Easy
Bloom's: Analyze
49) This year, Benjamin Hassell paid $20,000 of interest on a mortgage on his home (Benjamin
borrowed $600,000 in 2015 to buy the residence and it is currently worth $1,000,000), $6,000 on
a $75,000 home-equity loan on his home (proceeds used to buy a car and pay off consumer
debt), and $10,000 of interest on a mortgage on his vacation home (loan of $300,000; home
purchased for $400,000 in 2016). How much interest expense can Benjamin deduct as an
itemized deduction?
Answer: $30,000.
Benjamin's acquisition debt incurred before December 16, 2017, on his home and vacation home
does not exceed $1,000,000. Thus, he can deduct the $20,000 mortgage interest on his home and
$10,000 of mortgage interest on his vacation home. The home-equity interest is not deductible.
Bloom's: Analyze
22
50) This year Darcy made the following charitable contributions:
Donee Property Cost FMV

State University IBM stock $ 15,000 $ 10,500
Salvation Army Clothes 2,500 500
State Art Museum Painting 5,000 45,000
City Hospital Cash 8,000
Determine the maximum amount of charitable deduction for Darcy's contribution of the painting
if her AGI is $80,000 this year. You may assume that both the stock and painting have been
owned for 10 years and the painting is used in the State Art Museum's charitable purpose.
Answer: The charitable deduction is $21,000 for the painting and $40,000 overall.
Description Amount Explanation

(1) AGI $ 80,000
(2) 60% contributions 8,000 Cash contribution
(3) 60% AGI contribution limit 48,000 (1) × 60%
(4) Allowable 60% deductions 8,000 Lesser of (2) or (3)
(5) 50% contributions 11,000 IBM stock and clothes
(6) 50% AGI contribution limit 32,000 [(1) × 50%] − (4)
(7) Allowable 50% deductions 11,000 Least of (5) or (6)
(8) 30% contributions 45,000 painting
(10) Remaining 50% AGI contribution 21,000 (6) − (7)
limit
(11) Allowable 30% deductions 21,000 Least of (8), (9), or (10)
Deductible charitable contributions $ 40,000 (4) + (7) + (11)
The stock and clothes are not subject to the 30 percent AGI limit because these are
ordinary income properties (basis exceeds its value so neither is capital gain property).
The painting is long-term tangible personal property apparently related to the purpose of
the charity. The deduction this year is $40,000, consisting of cash of $8,000, IBM stock
of $10,500, clothes of $500, and the painting of $21,000. The remaining value of the
painting, $24,000 ($45,000 − $21,000), is carried over to next year, subject to the 30
percent of AGI limit.
Difficulty: 3 Hard
Bloom's: Analyze
23
51) Claire donated 200 publicly traded shares of stock (held for five years) to her father's
nonoperating private foundation this year. The stock was worth $15,000 but Claire's basis was
only $4,000. Determine the maximum amount of charitable deduction for the donation if Claire's
AGI is $60,000 this year.
Answer: $12,000.
The stock is long-term capital gain property donated to a nonoperating private foundation, so the
maximum donation is limited to 20 percent of AGI. The remaining deduction of $3,000 will
carry over to next year.
Bloom's: Understand
24
52) This year Latrell made the following charitable contributions:
Donee Property Cost FMV

Jones Foundation IBM stock $ 15,000 $ 25,000
Salvation Army Clothes 2,500 500
City Hospital Cash 20,000
Determine the maximum amount of Latrell's charitable deduction assuming the Jones Foundation
is a private nonoperating foundation and Latrell's AGI is $100,000 this year. You may assume
that the stock has been owned for 10 years.
Answer: The charitable deduction is $40,500 overall.
Description Amount Explanation

(1) AGI $ 100,000
(2) 60% contributions 20,000 Cash contribution
(4) Allowable 60% deductions 20,000 Lesser of (2) or (3)
(5) 50% contributions 500 Clothes
(6) 50% AGI contribution limit 30,000 [(1) × 50%] - (4)
(7) Allowable 50% deductions 500 Least of (5) or (6)
(8) 20% contributions 25,000 IBM stock
(10) Remaining 50% AGI contribution 29,500 (6) - (7)
limit
(11) Allowable 30% deductions 20,000 Least of (8), (9), or
(10)
Deductible charitable contributions $ 40,500 (4) + (7) + (11)
The clothes are not subject to the 30 percent AGI limit because it is ordinary income property
(basis exceeds its value so it is not capital gain property). The IBM stock is long-term capital
gain property, but because the donee is a private nonoperating foundation, the deduction for the
value of the stock is subject to a 20 percent of AGI limitation. The deduction this year is
$40,500, consisting of cash of $20,000, clothes of $500, and IBM stock of $20,000. The
remaining value of the stock, $5,000 ($25,000 − $20,000), is carried over to next year, subject to
the 20 percent of AGI limit.
Difficulty: 3 Hard
Bloom's: Analyze
25
53) Erika (age 62) was hospitalized with injuries from an auto accident this year. She incurred
the following expenses from the accident:
Hospital charges $3,280

Prescription medicine 510
Doctor's fees 1,240
In addition, Erika's auto was completely destroyed in the accident. She bought the car several
years ago for $18,000 and it was worth $4,700 at the time of the accident. What are Erika's
itemized deductions this year if she was uninsured and her AGI is $40,000?
Answer: $1,030 of medical expenses.
The medical expenses of $5,030 are reduced by 10 percent of AGI ($40,000) and the casualty
loss is not deductible.
Bloom's: Understand
54) Don's personal auto was damaged in a windstorm this year. Don purchased the auto several
years ago for $32,000 and it was worth $18,000 at the time of the storm. The damage was
superficial, so Don decided not to repair the car. Although Don collected $750 from his
insurance company, the value of the car dropped after the storm to $15,000. What is Don's tax
deduction related to the damage?
Answer: $0.
Personal-use casualty losses are not deductible.

Difficulty: 1 Easy
Bloom's: Remember
26
55) Colby is employed full time as a food technician for a local restaurant chain. This year he has
incurred the following expenses associated with his employment:
Transportation between various restaurants $280

Technician uniforms (not adaptable to daily wear) 310
Professional dues and license 1,200
Colby was reimbursed $125 of the expenses from his employer's accountable plan. How much of
the expenses are deductible by Colby?
Answer: $0.
Unreimbursed employee business expenses are not deductible.

Difficulty: 1 Easy
Bloom's: Remember
27
56) Karin and Chad (ages 30 and 31, respectively) are married and together have $110,000 of
AGI. This year they have recorded the following expenses:
Home mortgage interest $16,640

Real estate taxes 5,400
State income taxes paid 6,300
Medical expenses (unreimbursed) 1,800
Employee business expenses (unreimbursed) 450
Charitable contributions (cash to their church) 760
Karin and Chad will file married filing jointly. Calculate their taxable income.
Answer: $82,600 = $110,000 − ($16,640 mortgage interest + $10,000 taxes + $760 charitable
contributions).
Karin and Chad will choose to itemize their deductions. The medical expenses will not generate
any addition to the itemized deductions because they are subject to a 10 percent of AGI floor
limit. The taxes are limited to $10,000, and the unreimbursed business expenses are not
deductible.
Difficulty: 1 Easy
Bloom's: Remember
28
57) Rochelle, a single taxpayer (age 47), has an AGI of $300,000. This year, she paid medical
expenses of $37,500, state income taxes of $4,000, mortgage interest of $10,600 on $250,000
acquisition debt for her home, and charitable contributions of $6,000. What would be the amount
of her total itemized deductions she may claim on her tax return?
Answer: Rochelle's itemized deductions for the year are $28,100.
Description Amount
Medical expenses ($37,500 − 7.5% of $30,000) $ 7,500
Taxes 4,000
Mortgage interest 10,600
Charitable contributions 6,000
Total itemized deductions $ 28,100
Difficulty: 3 Hard
Bloom's: Analyze
58) Bryan is 67 years old and lives alone. This year he has received $25,000 in taxable interest
and pension payments, and he has paid the following expenses: Use Standard deduction.
Real estate taxes $1,640

Medical expenses ($2,000 was reimbursed by insurance) 3,650
Charitable contributions (cash to the Unity church) 460
If Bryan files single, calculate his taxable income.
Answer: $11,150 = $25,000 − $13,850.
Bryan's itemized deductions only total $2,100 (the unreimbursed medical expenses are
eliminated by the floor limit of 10 percent of AGI), so Bryan will elect the standard deduction.
Bryan's standard deduction is increased by $1,650 for his age.
Difficulty: 3 Hard
Bloom's: Analyze
29
59) Misti purchased a residence this year. Misti, age 32, is a single parent and lives with her one-
year-old daughter. This year, Misti received a salary of $160,000 and made the following
payments: Use Standard deduction.
Home mortgage interest ($500,000 acquisition debt) $15,000

Real estate taxes 1,525
State income taxes paid 1,340
Income tax preparation fee 2,250
Charitable contributions (cash to their church) 120
Misti files as a head of household. Calculate her taxable income this year.
Answer: $141,650 = $160,000 − $18,350.
Misti's itemized deductions total $17,985 ($15,000 + $1,525 + $1,340 + $120). Thus, Misti will
elect the standard deduction of $18,350. The income tax preparation fee is nondeductible.
Bloom's: Understand
60) Jon and Holly are married and live in a retirement community. This year Jon celebrated his
65th birthday and Holly turned 68 years old. For their ages, both Jon and Holly are in good
health. This year the only significant expense that they incurred was an unreimbursed medical
expense of $3,200. If Jon and Holly together have AGI of $42,000, what is the amount of their
standard deduction this year?
Answer: $27,000.
The married filing jointly standard deduction is $24,400, increased by $2,600 because both
taxpayers are age 65 by year-end ($1,300 each).
Difficulty: 1 Easy
Bloom's: Remember
30
61) This year Kelly bought a new auto for $20,000 plus $1,650 in state and local sales taxes.
Besides this sales tax, Kelly also paid $8,260 in state income taxes and had mortgage interest of
$5,500 ($400,000 acquisition indebtedness on her residence). If Kelly files single with AGI of
$56,000, what amount of itemized deductions will she be eligible to claim?
Answer: $13,760 = $8,260 + $5,500.
State income taxes, but not sales taxes, are included with other itemized deductions when
determining total itemized deductions. A taxpayer could elect to deduct state sales taxes instead
of state income taxes. Nonetheless, Kelly would not make this election because her state income
taxes ($8,260) exceed her state sales taxes.
Difficulty: 1 Easy
Bloom's: Remember
62) Toshiomi works as a sales representative and travels extensively for his employer's business.
This year Toshiomi was paid $75,000 in salary and made the following expenditures:
State income taxes withheld $6,300

Employee business expenses (unreimbursed portion) 1,450
Charitable cash contributions 200
Investment counseling fees 780
Tax preparation fee 310
Toshiomi also made a number of trips to Las Vegas for gambling. This year Toshiomi won
$12,000 in a poker tournament and this amount was almost enough to offset his other gambling
losses ($13,420). Calculate Toshiomi's 2019 taxable income if he files single.
Answer: $68,500.
$68,500 = ($75,000 salary + $12,000 gambling winnings) − ($6,300 state taxes + $12,000
gambling losses + $200 charitable contributions). The employee expenses, investment
fees, and tax preparation fee are nondeductible. The gambling losses (up to gambling
winnings) are a miscellaneous itemized deduction, and the state income taxes and
charitable contributions are also itemized deductions.
Difficulty: 3 Hard
Bloom's: Analyze
31
63) Cesare is 16 years old and works throughout the year at a local coffee shop. This year, he
made $9,200 at the coffee shop and earned $2,000 in interest income from his savings account.
Assume that Cesare is claimed as a dependent on his parent's tax return. What is Cesare's
standard deduction for the year?
Answer: $9,550.
Since Cesare is claimed as a dependent on another's tax return, his standard deduction ($12,200)
is limited to his earned income ($9,200) plus $350.
Difficulty: 3 Hard
Bloom's: Analyze
64) Rachel is an accountant who practices as a sole proprietor. This year, Rachel had net
business income of $270,000 from her practice. Assume that Rachel pays $50,000 wages to her
employees, she has $20,000 of property (unadjusted basis of equipment she purchased last year),
has no capital gains, and her taxable income before the deduction for qualified business income
is $225,000. Calculate Rachel's deduction for qualified business income.
Answer: $0.
Since Rachel has taxable income of $225,000 (before the deduction for qualified business
income) and above $210,700, her accounting would be considered a specified service or trade
business. Thus, she would not be eligible for the deduction for qualified business income.
Difficulty: 3 Hard
Bloom's: Analyze
32
65) Rachel is an accountant who practices as a sole proprietor. This year, Rachel had net
business income of $200,000 from her practice. Assume that Rachel pays $50,000 wages to her
employees, she has $20,000 of property (unadjusted basis of equipment she purchased last year),
Answer: $28,000.
Since Rachel has taxable income of $140,000 (before the deduction for qualified business
income), and below $160,700, her accounting would not be considered a specified service or
trade business. Thus, she is eligible for the deduction for qualified business income. Because her
taxable income is below $160,700, the wage limitation would not apply. Thus, her deduction is
$28,000, the lesser of (a) $40,000 (20 percent of her qualified business income, 20% × $200,000)
or (b) $28,000 (20 percent of her taxable income before the deduction, 20% × $140,000).
Difficulty: 3 Hard
Bloom's: Analyze
66) Rachel is an engineer who practices as a sole proprietor. This year, Rachel had net business
income of $400,000 from her business. Assume that Rachel pays $150,000 wages to her
employees, she has $20,000 of property (unadjusted basis of equipment he purchased last year),
Answer: $75,000.
Engineering is a qualified trade or business. So, Rachel is eligible for the deduction for qualified
business income. Rachel is limited by the wage-base limitation because her taxable income is
above $160,700. Her deduction of 20 percent of her qualified business income ($400,000 × 20%
= $80,000) is limited to the greater of (a) 50 percent of her wages paid ($150,000 × 50% =
$75,000) or (b) 25 percent of her allocable wages ($150,000 × 25% = $37,500) plus 2.5 percent
of the unadjusted basis of qualified property ($20,000 × 2.5% = $500). Thus, the wage limit
reduces her potential deduction for qualified business income to $75,000. Rachel is not limited
by the taxable income limitation because 20 percent of her qualified business income ($400,000
× 20% = $80,000, limited to $75,000 by the wage limit) is less than 20 percent of her taxable
income before the deduction ($380,000 × 20% = $76,000). Thus, she may deduct $75,000 as a
Difficulty: 3 Hard
Bloom's: Analyze
33
Test Bank for McGraw-Hillâ€™s Essentials of Federal Taxation 2020 Edition, 11th by Spilker
67) Rachel is an engineer who practices as a sole proprietor. This year, Rachel had net business
income of $500,000 from her business. Assume that Rachel pays $20,000 wages to her
employees, she has $500,000 of property (unadjusted basis of equipment she purchased last
year), has no capital gains, and her taxable income before the deduction for qualified business
income is $380,000. Calculate Rachel's deduction for qualified business income.
Answer: $17,500.
Engineering is a qualified trade or business. So, Rachel is eligible for the deduction for qualified
business income. Rachel is limited by the wage-base limitation because her taxable income is
above $160,700. Her deduction of 20 percent of her qualified business income ($500,000 × 20%
= $100,000) is limited to the greater of (a) 50 percent of her wages paid ($20,000 × 50% =
$10,000) or (b) 25 percent of her allocable wages ($20,000 × 25% = $5,000) plus 2.5 percent of
the unadjusted basis of qualified property ($500,000 × 2.5% = $12,500). Thus, the wage limit
reduces her potential deduction for qualified business income to $17,500. Rachel is not limited
by the taxable income limitation because 20 percent of her qualified business income ($500,000
× 20% = $100,000, limited to $17,500 by the wage limit) is less than 20 percent of her taxable
income before the deduction ($380,000 × 20% = $76,000). Thus, she may deduct $17,500 as a
Difficulty: 3 Hard
Bloom's: Analyze
34
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9) To qualify as a charitable deduction the donation must be made by cash or by check.

Auto insurance premiums $ 1,700

What amount can Ned include in his itemized deductions?

21) Which of the following costs is deductible as an itemized medical expense?

Emergency room and doctor visits $ 3,750

$500 cash to a family in need

What is Larry's maximum allowable charitable contribution if his AGI is $60,000?

31) Which of the following is a true statement?

33) Which of the following is a true statement?

35) Which of the following is a true statement?

41) Which of the following is a true statement?

Transportation to various tournaments $ 3,450

Hobby expenses are not deductible.

State income tax withholding $ 1,900

Answer: $4,050 = $1,900 + $850 + $790 + $510.

What is the effect of Homer's hobby on his taxable income?

Answer: Homer's hobby will increase his taxable income by $750.

Donee Property Cost FMV

Description Amount Explanation

Donee Property Cost FMV

Answer: The charitable deduction is $40,500 overall.

Description Amount Explanation

Hospital charges $3,280

Answer: $1,030 of medical expenses.

Personal-use casualty losses are not deductible.

Transportation between various restaurants $280

Unreimbursed employee business expenses are not deductible.

Home mortgage interest $16,640

Answer: Rochelle's itemized deductions for the year are $28,100.

Real estate taxes $1,640

If Bryan files single, calculate his taxable income.

Answer: $11,150 = $25,000 − $13,850.

Home mortgage interest ($500,000 acquisition debt) $15,000

Answer: $141,650 = $160,000 − $18,350.

Answer: $13,760 = $8,260 + $5,500.

State income taxes withheld $6,300

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