Itemized Deductions

Question 1

Vera and Jack (wife and husband) contributed $18,000 in cash to their synagogue during 2024. They also donated $3,000 to a private foundation which is a non-profit cemetery organization. They knew a 30% limit applies to contributions to such foundations. Their adjusted gross income for the year 2024 was $30,000. Vera and Jack’s deductible contribution for the year 2024 and any carryover to next year is
A. $21,000 with $0 carryover to next year.
B. $18,000 with $3,000 carryover to next year.
C. $15,000 with $6,000 carryover to next year.
D. $7,200 with $2,100 carryover to next year.

Answer 1

A. $21,000 with $0 carryover to next year.
Answer (A) is incorrect.
The overall limitation is 60% of adjusted gross income.
B. $18,000 with $3,000 carryover to next year.
Answer (B) is correct.
Charitable contributions are deductible only if they are made to qualified organizations. Charitable contribution deductions are subject to limitations. The overall limitation on charitable deductions is 50% (60% if cash in 2024) of AGI. Other contributions may be limited to 30% or 20%. Any donations that exceed this limitation can be carried forward and deducted in the next 5 years. Contributions to churches and other religious organizations are subject to the 50% (60% if cash) limitation. Thus, Vera and Jack may deduct $18,000 ($30,000 × .6) in the current year and carry over $3,000 ($21,000 – $18,000) into the next 5 years (Publication 526).
C. $15,000 with $6,000 carryover to next year.
Answer (C) is incorrect.
Cash to a public charity is subject to a 60% limitation.
D. $7,200 with $2,100 carryover to next year.
Answer (D) is incorrect.
The 50%-of-AGI (60% for cash) limitation on the contribution does not disallow 50% (60% for cash) of the contribution. Rather, the limitation simply restricts the amount the taxpayer may deduct in the current year. The $3,000 is subject to a 30%-of-AGI limitation. This does not mean that 30% of the contribution is disallowed.

Question 2

Mr. and Mrs. Smith’s real property tax year is the calendar year. Real estate taxes for the previous year are assessed in their state on January 2 and become due on May 1 and October 1. The tax becomes a lien on May 1. The Smiths bought a home on July 1 of the current year. The real estate taxes on the home for the previous year, which became due in the current year, were $1,000. The Smiths agreed to pay the $1,000 after the sale. They paid $500 in late taxes on August 1 and $500 on October 1. How should the Smiths treat the tax payments for federal income tax purposes for the current year?
A. They may not deduct any amount but must add the $1,000 to the cost of their home.
B. They may deduct only the $500 payment made on August 1 as a settlement fee or closing cost.
C. The entire $1,000 is deductible.
D. They may deduct only the $500 payment made on October 1.

Answer 2

A. They may not deduct any amount but must add the $1,000 to the cost of their home.
Answer (A) is correct.
Real property taxes are generally deductible only by the person against whom the tax is imposed. Section 164(d) requires real estate taxes to be apportioned between the buyer and the seller based on the number of days in the real property tax year that the property was held by each.If the buyer pays the seller’s taxes, they are capitalized as an additional cost of the property. The Smiths paid $1,000 in real estate taxes for the previous year after they purchased the property in the current year. They have, in effect, paid taxes owed by the seller and will not be able to deduct any of the amount and instead must add the $1,000 to the basis of the property.
B. They may deduct only the $500 payment made on August 1 as a settlement fee or closing cost.
Answer (B) is incorrect.
They may not deduct the $500 payment made on August 1 because it was levied on the prior owners.
C. The entire $1,000 is deductible.
Answer (C) is incorrect.
The entire $1,000 in taxes was levied on the prior owner.
D. They may deduct only the $500 payment made on October 1.
Answer (D) is incorrect.
The $500 payment made on October 1 was levied on the prior owner.

Question 3

Frank and Melody’s home was completely destroyed by fire in a federally declared disaster. They had no insurance. On which of the following forms would they report their loss?
A. Form 4684, Casualties and Thefts, and Form 1040, U.S. Individual Income Tax Return, as an adjustment to gross income.
B. Form 4684, Casualties and Thefts, only.
C. Form 4684, Casualties and Thefts, and Schedule A, Itemized Deductions.
D. Schedule A, Itemized Deductions, only.

Answer 3

A. Form 4684, Casualties and Thefts, and Form 1040, U.S. Individual Income Tax Return, as an adjustment to gross income.
Answer (A) is incorrect.
Personal casualty losses are reported on Schedule A.
B. Form 4684, Casualties and Thefts, only.
Answer (B) is incorrect.
Form 4684 is used in reporting Frank and Melody’s casualty loss.
C. Form 4684, Casualties and Thefts, and Schedule A, Itemized Deductions.
Answer (C) is correct.
Form 4684, Section A, Personal Use Property, lists and calculates the amount of the loss. The amount of the loss is then added to Schedule A, Itemized Deductions (Publication 547).
D. Schedule A, Itemized Deductions, only.
Answer (D) is incorrect.
Schedule A is used in reporting Frank and Melody’s casualty loss.

Question 4

Question4) During the current year, Jack and Mary Bronson paid the following taxes:
County taxes on residence (for period January 1 to September 30 of the current year) $2,700
State motor vehicle tax on value of the car $360

The Bronsons sold their house on June 30 of the current year under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What amount should the Bronsons deduct as taxes in calculating itemized deductions for the current year?
A. $2,160
B. $1,800
C. $2,700
D. $3,060

Answer 4

A. $2,160
Answer (A) is correct.
Section 164(a) allows a deduction for state and local real property taxes, and for state and local personal property taxes. Real estate taxes must be apportioned between the buyer and the seller on the basis of the number of days the property was held by each in the year of sale, regardless of an agreement not to prorate them [Sec. 164(d)]. The taxpayers held the property for 6 months of the 9-month period the taxes covered. The amount of the taxes apportioned to the Bronsons is $1,800 ($2,700 × 6 ÷ 9). The state motor vehicle tax on the value of the car is a tax on the value of personal property, so the $360 may also be deducted (Publication 17). The taxpayers may deduct a total of $2,160 as taxes in calculating their itemized deductions.
B. $1,800
Answer (B) is incorrect.
The state motor vehicle tax may also be deducted.
C. $2,700
Answer (C) is incorrect.
The entire amount of the taxes on the residence may not be deducted and the state motor vehicle tax is deductible.
D. $3,060
Answer (D) is incorrect.
The entire amount of the taxes on the residence may not be deducted.

Question 5

Of the following medical expenses paid by Bill during 2024, how much can he deduct (before limitations)?
$1,000 for his wife Mary’s hospitalization in 2023; they were married in 2024.
$1,000 for Mary’s daughter’s braces; she is Bill and Mary’s dependent in 2024.
$2,000 for Bill’s son’s 2023 medical treatment; he was Bill’s dependent in 2023 but does not qualify for 2024.
A. $0
B. $4,000
C. $1,000
D. $2,000

Answer 5

A. $0
Answer (A) is incorrect.
The expenses rendered or paid while the person was a dependent are deductible.
B. $4,000
Answer (B) is correct.
To qualify for a deduction, an expense must be paid during the taxable year for the taxpayer, the taxpayer’s spouse, or a dependent and must not be compensated for by insurance or otherwise during the taxable year. The deduction is allowed for a person who was either a spouse or a dependent at the time medical services were rendered or at the time the expenses were actually paid. Deductible medical expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body (Publication 502).
C. $1,000
Answer (C) is incorrect.
The $1,000 in hospitalization expenses for his wife were paid for during the taxable year, the $1,000 expense incurred for his daughter’s braces was in the current year while she is a dependent, and the $2,000 in expenses paid for the son’s medical treatment were rendered at the time he was a dependent.
D. $2,000
Answer (D) is incorrect.
The $1,000 in hospitalization expenses for his wife were paid for during the taxable year, the $1,000 expense incurred for his daughter’s braces was in the current year while she is a dependent, and the $2,000 in expenses paid for the son’s medical treatment were rendered at the time he was a dependent.

Question 6

Question9) All of the following statements relating to a contribution of $500 or more of charitable deduction property (property other than money or publicly traded securities) are true EXCEPT
A. The donor of such property is required to get a qualified appraisal if the claimed value of the property exceeds $1,000.
B. An organization selling such property must provide the donor with a copy of Form 8282, Donee Information Return, or be subject to a penalty.
C. An organization that received such property in July of the current year and sells it in December of the following year must file a special return Form 8282, Donee Information Return, within 125 days after the disposition.
D. The organization receiving such property is not a qualified appraiser for the purpose of making a qualified appraisal.

Answer 6

A. The donor of such property is required to get a qualified appraisal if the claimed value of the property exceeds $1,000.
Answer (A) is correct.
A donor of noncash charitable contributions is not required to obtain a qualified appraisal unless the value of the property exceeds $5,000. If the value of the property exceeds $500 but is not over $5,000, then the person making the contribution must retain a description of the property, including its fair market value and how the fair market value was computed (Reg. 1.170A-13) (Publication 526).
B. An organization selling such property must provide the donor with a copy of Form 8282, Donee Information Return, or be subject to a penalty.
Answer (B) is incorrect.
It is a true statement.
C. An organization that received such property in July of the current year and sells it in December of the following year must file a special return Form 8282, Donee Information Return, within 125 days after the disposition.
Answer (C) is incorrect.
It is a true statement.
D. The organization receiving such property is not a qualified appraiser for the purpose of making a qualified appraisal.
Answer (D) is incorrect.
It is a true statement.

Question 7

On December 30, 2024, Mr. and Mrs. Anchor’s personally owned yacht was wrecked in a federally declared disaster. Based on the following information, what is the amount of loss Mr. and Mrs. Anchor can deduct for 2024?
Fair market value of yacht before the wreck $ 34,500
Fair market value of yacht after the wreck 0
Adjusted basis of yacht before wreck $40,000
Insurance reimbursement received 2/1/2025 19,500
Replacement cost 45,000
Adjusted gross income for 2024 100,000
A. $34,500
B. $14,500
C. $34,000ster
D. $4,900

Answer 7

A. $34,500
Answer (A) is incorrect.
The amount of $34,500 is less than $40,000 and therefore represents the amount of the loss before any reimbursements or limitations.
B. $14,500
Answer (B) is correct.
Section 165(h) allows a casualty deduction for nonbusiness casualty losses to the extent that it occurs in a federally declared disaster area, each uninsured loss exceeds $500. The amount of a loss is the lesser of the decrease in the fair market value of the property resulting from the casualty or the property’s adjusted basis. If any insurance reimbursements result in casualty gains, the gains are netted against casualty losses before computing the casualty loss deduction. In any case, a deduction for casualty losses is allowed to the extent of any casualty gain (Publication 547).
Lesser of adjusted basis ($40,000)
or decrease in FMV ($34,500)
$ 34,500
Less: Insurance reimbursement
(19,500)
$500 per occurrence
(500)
Deductible casualty loss
$ 14,500
C. $34,000
Answer (C) is incorrect.
The insurance reimbursement must be subtracted from the loss.
D. $4,900
Answer (D) is incorrect.
The amount of the loss is a qualified disaster loss and is reduced by $500, not $100 and 10% of AGI.

Question 8

A flood completely destroyed Mr. and Mrs. Washington’s home on November 30, 2024. The home was located in a qualified disaster loss. They claimed the loss on their 2024 tax return. Based on the following facts, what is the amount of loss Mr. and Mrs. Washington can deduct for 2024?
Basis (contents not considered for this purpose) $110,000
Fair market value before flood 150,000
Fair market value after flood 30,000
Insurance reimbursement received 2/15/2025 80,000
Replacement 2/1/2025 (property provided under disaster relief programs of government agencies) 8,000
Adjusted gross income for 2024 40,000
A. $0
B. $27,900
C. $35,900
D. $21,500

Answer 8

A. $0
Answer (A) is incorrect.
A loss is deductible for the year.
B. $27,900
Answer (B) is incorrect.
The adjusted basis is less than the decrease in FMV and therefore is the basis of the loss before any reimbursements or limitations.
C. $35,900
Answer (C) is incorrect.
The adjusted basis is less than the decrease in FMV, and the replacement property must be subtracted from the loss. The loss must be reduced by $500, not $100 and 10% of AGI.
D. $21,500
Answer (D) is correct.
Section 165(h) allows a casualty deduction for nonbusiness casualty losses to the extent that each uninsured loss exceeds $500. The amount of a loss is the lesser of the decrease in the fair market value of the property resulting from the casualty or the property’s adjusted basis. If any insurance reimbursements result in casualty gains, the gains are netted against casualty losses before computing the casualty loss deduction (Publication 547).
Lesser of adjusted basis ($110,000)
or decrease in FMV ($120,000)
$110,000
Less:
Insurance reimbursement
(80,000)
Replacement property
(8,000)
$500 per occurrence
(500)
Deductible casualty loss
$ 21,500

Question 9

Which of the following are NOT other itemized deductions?
A. Gambling losses up to the amount of gambling winnings.
B. Impairment-related work expenses of persons with disabilities.
C. Federal estate tax on income in respect of a decedent.
D. Safety deposit box expenses

Answer 9

A. Gambling losses up to the amount of gambling winnings.
Answer (A) is incorrect.
Gambling losses up to the amount of gambling winnings are an other itemized deduction.
B. Impairment-related work expenses of persons with disabilities.
Answer (B) is incorrect.
Impairment-related work expenses of persons with disabilities are an other itemized deduction.
C. Federal estate tax on income in respect of a decedent.
Answer (C) is incorrect.
Federal estate tax on income in respect of a decedent is an other itemized deduction.
D. Safety deposit box expenses.
Answer (D) is correct.
According to Publication 17,the following expenses are deductible as other itemized deductions and are reported on line 16 of Schedule A (Form 1040):
Amortizable premium on taxable bonds
Federal estate tax on income in respect of a decedent
Gambling losses up to the amount of gambling winnings
Impairment-related work expenses of persons with disabilities
Repayment of more than $3,000 under a claim of right
Unrecovered investment in a pension
Safety deposit box expenses formerly were second-tier miscellaneous itemized deductions subject to the 2% adjusted gross income limitation. However, those deductions are no longer allowed.

Question 10

During the year, Mark paid his first quarter county real estate taxes of $1,400 on his personal home. Mark paid real estate taxes on his unemployed brother-in-law’s home of $800. During the year, Mark was assessed a tax for trash pick-up of $165. He also paid a tax of $250 for improvements made by the town in his development, which increased the value of his property. Mark also withdrew the entire amount of $10,400 from his traditional IRA of which $2,400 was interest earned, to go on vacation to Italy. Mark, in previous years, had taken deductions for his IRA contributions. Mark is 48 years old. What is deductible on his Form 1040 for real estate taxes and what is the tax penalty, if any, on the early withdrawal from his IRA?

Deductible Real Estate Tax on Schedule A Tax on IRA
A. $1400 $240
B. $1815 $1040
C. $1400 $1040
D. $1400 $0

Answer 10

Deductible Real Estate Tax on Schedule A
A
$1,400
Tax on IRA
$1,040
B.
Deductible Real Estate Tax on Schedule A
$1,815
Tax on IRA
$1,040
Answer (B) is incorrect.
Mark may only deduct the real estate taxes on his personal home, or $1,400. The taxes paid for trash pick-up and improvements are not deductible real estate taxes.
C.
Deductible Real Estate Tax on Schedule A
$1,400
Tax on IRA
$1,040
Answer (C) is correct.
State and local taxes on real property levied for the general public welfare may be deductible as real estate taxes on Form 1040, Schedule A. The taxes must be for general community or governmental purposes and assessed uniformly against all property under the jurisdiction of the taxing authority. Taxes charged for a special privilege granted, services rendered for the taxpayer, or local benefits and improvements that increase the value of the taxpayer’s property are not deductible. Additionally, itemized charges assessed against specific property or certain people are not deductible. This includes services, such as trash collection, even when paid to the taxing authority. Therefore, Mark can only deduct the $1,400 of real estate taxes paid on his personal home.
A taxpayer must include early distributions of taxable amounts from a traditional IRA in gross income. Early distributions are amounts distributed from a traditional IRA account or annuity before the taxpayer is age 59 1/2 and are subject to an additional 10% tax. The additional tax on Mark’s early distribution is $1,040 ($10,400 IRA withdrawal × 10%). Using the IRA money for a vacation does not qualify as an exception.
D.
Deductible Real Estate Tax on Schedule A
$1,400
Tax on IRA
$0
Answer (D) is incorrect.
Mark must pay a penalty tax of 10% on the early withdrawal from his IRA.

Question 11

During the current year, Anthony paid the following taxes:
County real estate taxes on rental property he owns $3,000
County real estate taxes on his own residence 2,500
Federal income taxes 7,000
State income taxes 2,700
Local city income taxes 500
Social Security taxes for household help 500
Anthony did not use the rental property for personal purposes. What amount is deductible as an itemized deduction on Anthony’s current-year income tax return?
A. $5,700
B. $5,200
C. $8,700
D. $14,000

Answer 11

A. $5,700
Answer (A) is correct.
Publication 17 and Sec. 164(a) list the taxes that are deductible from adjusted gross income. The county real estate taxes on the personal residence, the state income taxes, and the local city income taxes are deductible as itemized deductions. The county real estate taxes on the rental property and the Social Security taxes for household help may be deductible but not as itemized deductions. Federal income taxes are not deductible.
B. $5,200
Answer (B) is incorrect.
The local city income taxes are also deductible.
C. $8,700
Answer (C) is incorrect.
The county real estate taxes on rental property are not deductible as an itemized deduction.
D. $14,000
Answer (D) is incorrect.
Only the county real estate taxes on the personal residence and the state and local income taxes are deductible.