5.50
In 2018, Mickey, a 12-year-old dialysis patient, and his mother, Sue, drove 50 miles daily for Mickey’s treatment. This included a 20-mile one-way trip to the dialysis clinic and an additional 10 miles to stop at Mickey’s favorite restaurant on the way back. Sue wants to know how many of these miles can be used as an itemized deduction for transportation.
Sue can use 4,680 miles to calculate an itemized deduction for transportation. Here’s how we arrive at this figure:
Throughout the year, Mickey and Sue make 156 trips, each covering a distance of 50 miles (20 miles to the dialysis clinic and an additional 30 miles with the stop). Therefore, the total miles driven in a year are 156 trips x 50 miles per trip = 7,800 miles. BUS 4065 Unit 3 Assignment 1 Schedule A Rules and Laws
To determine the deductible portion, we exclude the miles traveled for personal reasons (the 10 miles to the restaurant on the way home). The deductible mileage is 7,800 miles – (156 trips x 10 miles) = 4,680 miles.
Using the mileage rate in effect for 2018 (as provided by the IRS), which is 18 cents per mile, Sue can calculate her itemized deduction for transportation by multiplying the deductible mileage (4,680 miles) by the mileage rate: 4,680 miles x $0.18 = $842.40.
Therefore, Sue can use 4,680 miles to calculate an itemized deduction of $842.40 for transportation on her tax return.
5.51
Reggie, who is 55, had an AGI of $32,000 in 2018. During the year, he paid the following:
– Drugs (prescribed by physicians): $200
– Marijuana (prescribed by physicians): $1,400
– Health insurance premiums–after taxes: $850
– Doctors’ fees: $1,250
– Eyeglasses: $375
– Over-the-counter drugs: $200
Reggie received $500 in 2018 for some of the doctors’ fees from his insurance. What is Reggie’s medical expense deduction?
Reggie’s medical expense deduction is $1,375. Here’s how we calculate it:
To determine the allowable medical expenses, we exclude the cost of marijuana since it cannot be legally procured under federal law and is, therefore, not deductible. The allowed medical expenses are as follows:
– Drugs (prescribed by physicians): $200
– Health insurance premiums–after taxes: $850
– Doctors’ fees: $1,250
– Eyeglasses: $375
Total allowed medical expenses: $200 + $850 + $1,250 + $375 = $2,675
However, Reggie received $500 in reimbursement for a portion of the doctors’ fees from his insurance. We subtract this reimbursement from the total allowed medical expenses:
$2,675 – $500 = $2,175
To claim a deduction for medical expenses, the amount must exceed 7.5% of Reggie’s AGI. Calculate 7.5% of AGI:
7.5% of $32,000 = $2,400
Since Reggie’s allowed medical deductions ($2,175) do not exceed 7.5% of his AGI ($2,400), he does not qualify for a medical expense deduction. BUS 4065 Unit 3 Assignment 1 Schedule A Rules and Laws
5.53
Leslie and Jason, who are married, paid the following expenses in 2018:
– Interest on a car loan: $100
– Interest on lending institution loan (used to purchase municipal bonds): $3,000
– Interest on the home mortgage (home mortgage principal is less than $750,000): $2,100
What is the maximum amount they can use to calculate itemized deductions for 2018?
Leslie and Jason can use $5,100 in calculating itemized deductions for 2018. Here’s the explanation:
The interest expenses that can be included in itemized deductions are as follows:
– Interest on a car loan: $100
– Interest on lending institution loan (used to purchase municipal bonds): $3,000
– Interest on the home mortgage (home mortgage principal is less than $750,000): $2,100
Total interest expenses: $100 + $3,000 + $2,100 = $5,200
However, starting in 2018, the tax law limited the deduction for mortgage interest paid on a principal of up to $750,000. Since Leslie and Jason’s home mortgage principal is less than $750,000, they can include the full $2,100 in their itemized deductions.
Therefore, the maximum amount they can use to calculate itemized deductions for 2018 is $5,100 ($100 + $3,000 + $2,100).
5.54
Paul sold a house to Amy on April 1, 2018. The property tax on the house, due on September 1, 2018, was paid in full by Amy for $2,500. Now let’s calculate the allowable deductions for property tax for both Paul and Amy, assuming a 365-day year.
Paul’s allowable deduction for the property tax is $616.44, and Amy’s permissible deduction is $1,883.56. Here’s the breakdown:
To determine the portion of property tax deductible for Paul and Amy, we need to prorate it based on the ownership period within the year.
– Paul owned the house from January 1 to March 31, 90 days out of the 365-day year.
– Amy owned the house from April 1 to December 31, 275 days out of the 365-day year.
We calculate the deductible amounts as follows:
Paul’s deduction: $2,500 x (90 / 365) = $616.44 (rounded to two decimal places)
Amy’s deduction: $2,500 x (275 / 365) = $1,883.56 (rounded to two decimal places
Therefore, Paul’s allowable deduction for the property tax is $616.44, and Amy’s permissible deduction is $1,883.56.
5.58
Tyrone and Akira, who is married, incurred and paid the following amounts of interest during 2018:
– Home acquisition debt interest: $15,000
– Credit card interest: $5,000
– Home equity loan interest (used for home improvement): $6,500
– Investment interest expense: $10,000
With a 2018 net investment income of $2,000, calculate the amount of their allowable deduction for investment interest expense and their total deduction for allowable interest.
Tyrone and Akira’s allowable deduction for investment interest expense are $2,000, and their total deduction for allowable interest is $22,500. Here’s the breakdown:
The allowable deductions for interest expenses are as follows:
– Home acquisition debt interest: $15,000
– Home equity loan interest (used for home improvement): $6,500
– Investment interest expense: $2,000 (limited to the net investment income)
Total allowable interest expenses:
$15,000 + $6,500 + $2,000 = $23,500
Therefore, Tyrone and Akira’s allowable deduction for investment interest expense is $2,000, and their total deduction for allowable interest is $22,500 ($15,000 + $6,500 + $2,000).
5.60
Jaylen made a charitable contribution to his church this year. He donated common stock valued at $33,000 (acquired as an investment in 2005 for $13,000). Jaylen’s AGI in the current year is $75,000. What is his allowable charitable contribution deduction? How are any excess amounts treated?
Jaylen’s allowable charitable contribution deduction is $33,000, and any excess amounts can be carried over for the next five years, subject to the overall 60% limitation. Here’s the breakdown:
The allowable charitable contribution deduction is determined based on a percentage of the taxpayer’s AGI. For public charities, the deductible amount is limited to 60% of the individual taxpayer’s AGI.
In this case, Jaylen’s AGI is $75,000. Therefore, the maximum allowable charitable contribution deduction is $75,000 x 60% = $45,000. BUS 4065 Unit 3 Assignment 1 Schedule A Rules and Laws
Since Jaylen’s donation of $33,000 does not exceed the 60% limit, his allowable charitable contribution deduction is $33,000.
If there had been excess amounts, they would be carried over for the next five years, subject to the overall 60% limitation. Excess contributions carried over can be claimed as deductions in those subsequent years if they don’t exceed the 60% limit.
5.63
In 2018, Reynaldo and Sonya, a married couple, experienced flood damage in their home due to a nearby dam break. The incident occurred in a Federally Designated Disaster Area and destroyed furniture stored in their garage.
Damaged Items | FMV Just Prior to Damage | Original Item Cost
-|-|-
Antique poster bed | $6,000 | $5,000
Pool table | $7,000 | $11,000
Flat-screen TV | $700 | $2,500
What is the deductible amount of casualty loss that Reynaldo and Sonya can claim on their joint return for 2018, considering their homeowner’s insurance deductible of $10,000 and a net payment of $2,700 after an insurance reimbursement of $12,700? Their AGI for 2018 was $50,000.
Reynaldo and Sonya can claim a casualty loss of $4,900 on their joint return for 2018. Here’s the breakdown:
A personal casualty loss is deductible if it’s due to a Federally Declared Disaster area designated by the president. The deductible amount is the lower of:
- The FMV (Fair Market Value) immediately before the casualty is reduced by the FMV immediately after the casualty.
- The deductible is based on the adjusted basis used to calculate the loss from selling or disposing of the property.
However, there are two general limitations on personal casualty deductions:
- Each separate casualty is reduced by $100.
- The 10% of AGI (Adjusted Gross Income) limitation is the more substantial limitation. For the taxpayer to obtain any benefit from a casualty loss, the total losses for the year after the $100 per casualty deduction must exceed 10% of AGI.
The calculations for Reynaldo and Sonya’s casualty loss deduction are as follows:
– Loss of antique
poster bed: $6,000 (FMV just prior to damage) – $0 (FMV immediately after the damage) = $6,000
– Loss on the pool table: $7,000 – $0 = $7,000
– Loss on flat-screen TV: $700 – $0 = $700
Total losses: $6,000 + $7,000 + $700 = $13,700
However, the casualty loss is reduced by the $10,000 deductible from their insurance reimbursement:
$13,700 – $10,000 = $3,700
The deductible casualty loss must exceed 10% of their AGI ($50,000 x 10% = $5,000) to qualify for a deduction. Since the deductible casualty loss is less than the 10% of AGI limitation, they cannot claim any deduction for the casualty loss.
Therefore, Reynaldo and Sonya cannot claim a casualty loss deduction on their joint return for 2018. BUS 4065 Unit 3 Assignment 1 Schedule A Rules and Laws
