Chapter 7: Itemized Deductions

Question 1

itemized deductions

Answer 1

BTLD:
- reported on Schedule A

Itemized Deductions Include the following:
- medical expenses
- taxes
- interest
- charitable contributions
- casualty losses
- misc. itemized deductions

Question 2

itemized deductions:
(Medical Expenses)

Answer 2

expenditures for:
- diagnosis, cure, treatment, or prevention of disease affecting any structure or function of the body

Question 3

itemized deductions:
(medical expenses: deductible vs nondeductible)

Answer 3

insert chart

Question 4

medical expense deductions

Answer 4

• deduction in year paid
• must exceed 7.5% of AGI to be deductible

Question 5

capital medical expenses

Answer 5

included the following:
- wheelchairs
- medical beds
- seeing eye dogs

& they must be:
- a medical necessity
- advised by a physician
- used primarily by patient
- reasonable

maintenance on cap expend. are also deductible as medical expenses

Question 6

captial improvements to homes

Answer 6

• deductible to extent that the cost of improvement exceeds the increae in value to home
  
  • EXCEPTIONS: removal of structural barriers to home of handicapped are deemed to add no value to homes… thus full amount is considered a medical expense
• • improvements for accessibility are ALWAYS deductible
    
    • handicapped entry/exit ramps
    • modifications to bathroom & kitchens

Question 7

nursing homes & sepcial needs schools

Answer 7

• if the primary purpose is medical treatment: all costs (including meals and lodging) qualify as medical expenses
• if the primary purpose is personal: only sepcific medical costs qualify (no meals or lodging)

Question 8

transportation & lodging

Answer 8

transportation to & from medical care is deductible
- 22cents per mile for 2023

lodging while away from home for medical expenses
- allowable amount is $50 per person per night

if parent &/or aide needs to accompany patient , their expenses are alsop deductible

Question 9

Health Insurance Premiums

Answer 9

• premiums paid for medical care insurance are deductible medical expenses
• for self employed, 100% of the insurance premiums are deductible ATL

Question 10

Reimbursed Expenses

Answer 10

if reimbursed in same year as expense paid:
- reimbursed offsets deductible amount

if reimbursed in the year after medical expenses were paid:
- reimbursement is income only to the extent medical deduction was taken by taxpayer (tax benefit rule)

Question 11

Taxes

Answer 11

deductions of up to $10,000 for the aggregate of:
- state & local property taxes
- state & local income taxes
- or sales taxes in lieu of income taxes (in states where there is no income tax)

Question 12

Non-Deductible Taxes

Answer 12

• foreign property taxes
• prepayments of state or local income taxes

Question 13

Interest

Answer 13

General Rule: all interest paid or accrued within the taxable year on indebtedness is deductible

many exceptions apply (making only the following types of interest deductible:
- qualified residence interest
- interest incurred in a trade or business
- interest incurred for production of income

Question 14

“Interest” includes the following:

Answer 14

• prepayment penalties
• points (buy downs, prepaid interest)
• late payment fees
• mortgage insurance premiums (through December 31, 2021)

Question 15

Qualified Residence Interest

Answer 15

can deduct interest on:
- principal residence and 1 other home:
- one vacation home
- includes boat/vehicle with sleeping and eating accomodations
- vacation home treated as “qualified residence” if the home is not rented during the year or if the home does not meet the “rental use” exception of IRC Section 280A
- only have to use the home 1 day a year if you don’t rent it out
- if you do rent it out, you have to use it for 15 days of the year
- for it to be a “qualified residence” and be deductible

Question 16

qualified residence interest:
(Acquisition Indebtedness)

Answer 16

• acquire, construct dor improve principal residence
• for acquisition indebtedness incurred on or before December 15, 2017, interest is deductible on up to:
  
  • $1 million maximum principal amount (total, the sum of the two homes “the debt on the 2” cannot exceed these caps)
  • $500,000 for married filing separately
• during tax years 2018-2025, for acquisition indebtedness incurred after December 15, 2017, interest is deductible on up to:
  
  • $750,000 maximum principal amount (total, the sum of the two homes “the debt on the 2” cannot exceed these caps)
  • $375,000 for married filing separately

Question 17

qualified residence interest:
(Home Equity Indebtedness)

Answer 17

before 2018, and after 2025, interest is deductibel on up to:
- $100,000 maximum principal amount
- $50,000 for married filing separately
- cannot exceed FMV of home less acquisition indebtedness

for tax years 2018-2025, no interest on hom eequity indebtedness may be deducted:
- this provision sunsets for tax years beginning after December 31, 2015
- interest on home equity loan that qualifeis as acquisition indebtedness is deductible