Question: How are charitable contribution deductions reported

> Under what circumstances a loss arising from a casualty or theft may be deducted in a year other than the year in which the loss occurs?

> Compare and contrast the computational rules for deducting casualty losses on personal-use property with casualty losses incurred on business or investment property.

> During the current year, Rulon’s toilet overflowed because of a mechanical problem. Rulon was outside playing croquet, and by the time he returned, the water had flooded the basement, causing damage to the carpet, walls, and ceiling. The cost of repairin

> Explain how a taxable gain on property can be realized because of a casualty event such as a fire or theft. How are these gains treated?

> What tests must be met to qualify a loss as deductible under the casualty loss provisions? Discuss the application of each of these tests.

> Are the losses suspended under the passive loss rules lost forever? Explain.

> a. What requirements must be met in order for a taxpayer to deduct up to $25,000 of passive losses from rental real estate activities against active and portfolio income? b. What requirements must be met in order for a real estate rental activity to be

> Explain the difference between materially participating and actively participating in an activity. When is the active participation test used?

> Elaine is a physician who uses the cash method of accounting for tax purposes. During the current year, Elaine bills Ralph $1,200 for office visits and outpatient surgery. Unfortunately, unknown to Elaine, Ralph moves away leaving no payment and no forwa

> A client comes to you with an idea to treat a loan that he made to one of his children two years ago as a bad debt. The loan is evidenced by a properly executed note with stated interest and payment dates. However, the client has not collected any loan p

> Which of the following activities are considered passive for the year? Explain. Consider each situation independently. a. Laura owns a rental unit that she rents out to students. The rental unit is Laura’s only business and she spends approximately 875

> a. If a taxpayer is involved in several different business operations during the year, how is the determination made as to how many activities these operations constitute for purposes of the passive activity loss rules? b. Can a business operation and a

> Why it is important to identify exactly what constitutes an activity for purposes of the passive activity rules?

> a. F or purposes of the passive loss rules, what is a closely held C corporation? b. In what way do the passive loss rules differ from the regular passive loss rules when applied to closely held C corporations?

> a. What is a passive activity? b. Who is subject to the passive loss limitation rules?

> Describe a situation where a loss on the sale of business or investment property is not currently deductible, and explain why.

> What tax treatment applies to gains and losses on Sec. 1244 stock?

> What requirements must be met for stock to be considered Sec. 1244 stock?

> What two general requirements must be met for a transaction to result in a capital loss?

> During 2017, Pam incurred the following casualty losses: All of the items were destroyed in the same casualty. Before considering the casualty items, Pam reports business income of $80,000, qualified residential interest of $6,000 property taxes on her p

> Under what circumstances will a loss that is realized on a worthless security not be treated as a capital loss?

> Charley Long is a truck driver, the 18-wheeler variety. He works for Fishy Co., a seafood company in Mobile, Alabama, and drives a company truck. Charley’s job entails leaving Mobile at 4:00 PM each day (five days per week) and delivering fresh fish to r

> Describe the usual tax consequences that apply to a worthless security.

> When property is disposed of, what factors influence the amount of the deductible loss?

> What is the closed transaction doctrine, and why does it exist for purposes of recognizing a loss realized on holding property?

> Several years ago, Magdelena purchased a new residence for $300,000. Currently, the outstanding mortgage on the residence is $260,000. The current fair market value of the home is $330,000. Magdelena wants to borrow a sizable sum of money to pay for the

> During the current year, Tina purchases a beachfront condominium for $600,000, paying $150,000 down and taking out a $450,000 mortgage, secured by the property. At the time of the purchase, the outstanding mortgage on her principal residence is $700,000.

> During the current year, Travis takes out a $40,000 loan, using stock he owns as collateral. He uses $10,000 to purchase a car, which he uses 100% for personal use. He uses the remaining funds to purchase stocks and bonds. He pays $3,200 interest on the

> On January 1 of the current year, Scott borrows $80,000, pledging the assets of his business as collateral. He immediately deposits the money in an interest-bearing checking account. Scott already had $20,000 in this account. On April 1, Scott invests $7

> On May 1 of the current year, Tara sells a building to Janet for $500,000. Tara’s basis in the building is $300,000. The county in which the building is located has a real property tax year that ends on June 30. The taxes are payable by September 1 of th

> In the current year Ned completely destroys his personal automobile (purchased two years earlier for $28,000) in a traffic accident. Fortunately none of the occupants are injured. The FMV of the car before the accident is $18,000; after the accident it i

> If an NOL is carried back to a prior year, what adjustments must be made to the prior year’s taxable income? What are the possible results of the adjustments?

> Dawn, a single, cash-method taxpayer, paid the following taxes in the current year: Dawn’s employer withheld $5,400 for federal income taxes, $2,000 for state income taxes, and $3,800 for FICA from her paychecks. Dawn purchased a new car and paid $600 in

> Assume the same facts as Problem I: 7-40, but change the amount of Joyce’s mortgage interest to $3,000. a. What is her taxable income for 2017? b. What is her AGI for 2018? Problem 7-40: Joyce is a single, cash-method taxpayer. On April 11, 2016, Joyc

> Steve is part owner and manager of a small manufacturing company that makes keypads for alarm systems. The keypads are sold to several different alarm companies throughout the country. Steve must travel to several cities each year to meet with current c

> Joyce is a single, cash-method taxpayer. On April 11, 2016, Joyce paid $120 in state income taxes with her 2015 state income tax return. During 2016, Joyce had $1,600 in state income taxes withheld. On April 13, 2017, Joyce paid $200 with her 2016 state

> In 2017, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla’s legs 85% paralyzed. After incurring $14,000 of medical expenses at the hospital, the doctor recommended that C

> Chad is divorced and has custody of Brett, his 14-year-old son. Chad’s ex-wife has custody of their daughter, Sara. During the year, Chad incurs $3,000 for orthodontic work for Sara to correct a severe overbite and $2,000 in unreimbursed medical expenses

> Dan lives in Duncan, a small town in Arizona. Because of a rare blood disease, Dan is required to take special medical treatments once a month. The closest place these treatments are available to Dan is in Phoenix, 200 miles away. The treatments are prov

> Assume the same facts as in Problem I: 7-35. In addition, assume that in 2018, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of the settlement is to pay Angela’s medical bills, and $

> During 2017, Angela sustains serious injuries from a snowskiing accident. She incurs the following expenses: Item……………………………………………………Amount Doctor bills………………………………………………..$11,700 Hospital bills…………………………………………………9,400 Legal fees in suit against ski res

> During the current year, Bob has AGI of $100,000. He also donated some stock to his church. He purchased the stock two years ago for $55,000. The FMV of the stock at the time of the contribution is $60,000. Bob has $5,000 of unused excess contributions f

> Jerry sprayed all of the landscaping around his house with a pesticide in June 2017. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the plants were $15,000. Later that year, the pesticide manufacture

> During the current year, George made contributions totaling $40,000 to an organization called the National Endowment for the Preservation of Liberty (NEPL). Later during the year, the NEPL started giving money to a political candidate to help with his ca

> This year, Chuck took out a loan to purchase some raw land for investment. He paid $40,000 for the land, and he expects that within 5 years the land will be worth at least $75,000. Chuck is married, and his AGI for the year is $230,000. Chuck paid $4,300

> Wayne and Maria file a joint tax return on which they itemize their deductions and report AGI of $50,000. During the year they incurred $1,500 of medical expenses when Maria broke her leg. Furthermore, their dentist informed them that their daughter, Ali

> Ajax Corporation is a young high-growth company engaged in the manufacture and distribution of automotive parts. Its common stock has doubled in value since the company was listed on the NASDAQ exchange about two years ago. Ajax currently has a high debt

> Other than the 10% limitation placed on medical expenses, the 10% reduction for casualty losses on personal property, the 2% reduction applied to certain miscellaneous itemized deductions, and the fact that itemized deductions are only deductible if they

> List some of the more common miscellaneous itemized deductions and identify any limitations that are imposed on the deductibility of these items.

> If a taxpayer’s charitable contributions for any tax year exceed the deduction limitations, may the excess contributions be deducted in another year? If so, in which years may they be deducted?

> For individuals, what is the overall deduction limitation on charitable contributions? What is the limitation for corporations?

> May an individual who is married and files a joint return deduct any charitable contributions if the itemized deductions total $7,000 (of which $3,000 are qualified charitable contributions)?

> On December 17 of the current year, Kelly’s business office safe is burglarized. The theft is discovered a few days after the burglary. $3,000 cash from the cash registers is stolen. A diamond necklace and a ring that Kelly frequently wore are also stole

> How is the amount of a charitable contribution of capital gain property determined if it is donated to a private nonoperating foundation? How does this determination differ if capital gain property is donated to a public charity?

> a. For purposes of the charitable contribution deduction, what is capital gain property? Ordinary income property? b. What is the significance of classifying property as either capital gain property or ordinary income property?

> When is interest generally deductible for cash method taxpayers? Explain if the general rule applies to prepaid interest, interest paid with loan proceeds, discounted notes, and personal interest. If the general rule does not apply, explain when these in

> Why is interest expense disallowed if it is incurred to purchase or hold tax-exempt obligations?

> Paul Price is the president and majority stockholder of Lightmore Communications, Inc. Lightmore is a C corporation and has been extremely successful over the past 20 years. Paul travels extensively in connection with the business to meet with existing a

> Explain what a qualified residence is for purposes of qualified residence interest.

> Explain what acquisition indebtedness and home equity indebtedness are with respect to a qualified residence of a taxpayer. Identify any limitations on the deductibility of interest expense on this indebtedness.

> a. What is the amount of the annual limitation placed on the deductibility of investment interest expense? b. Explain how net investment income is calculated. c. Is any disallowed interest expense for the year allowable as a deduction in another year?

> Why does Sec. 267 impose a restriction on the deductibility of expenses accrued and payable by an accrual method taxpayer to a related cash method taxpayer?

> In which year or years are points (representing prepaid interest on a loan) deductible?

> Tony is a carpenter who owns his own furniture manufacturing business. During the current year, vandals broke into the workshop, damaged several pieces of equipment, stole his delivery truck, and also stole his personal automobile, which he often kept in

> At times, the term points is used to refer to different types of charges. Define the term and describe when points are deductible.

> a. Identify the different categories of interest expense an individual may incur. How is the classification of the interest determined? b. Are these different categories of interest deductible? If so, how?

> When real estate is sold during a year, why is it necessary that the real estate taxes on the property be apportioned between the buyer and seller?

> What is an ad valorem tax? If a tax that is levied on personal property is not an ad valorem tax, under what circumstances may it still be deductible?

> If Susan overpays her state income tax because of excess withholdings, can she deduct the entire amount in the year withheld? When Susan receives a refund from the state how must she treat that refund for tax purposes?

> The Morriss Corporation is a very successful and profitable manufacturing corporation. The corporation just completed construction of new corporate offices, primarily for its top executives. The president and founder of the corporation, Mr. Timothy Couch

> a. Which taxes are specifically deductible for federal income tax purposes under Sec. 164? b. If a tax is not specifically listed in Sec. 164, under what circumstances may it still be deductible?

> What is the limit placed on medical expense deductions? When can a deduction be taken for medical care? What if the medical care is prepaid?

> In what cases are medical insurance premiums paid by an individual not deductible as qualified medical expenses?

> Bill, a plant manager, is suffering from a serious ulcer. Bill’s doctor recommends that he spend three weeks fishing and hunting in the Colorado Rockies. Can Bill deduct the costs of the trip as a medical expense?

> In 2017, Julie, a single individual, reported the following items of income and deduction: Salary……………………………………………………………………………$166,000 Interest income…………………………………………………………………14,000 Long-term capital gain from sales of stock………………………….22, 000 Short-term

> a. Which types of capital expenditures incurred specifically for medical purposes are deductible? b. What limitations, if any, are imposed on the deductibility of these expenditures?

> What are the rules dealing with the deductibility of the cost of meals and lodging incurred while away from home in order to receive medical treatment as an outpatient?

> a. If a taxpayer must travel away from his or her home in order to obtain medical care, which en route costs, if any, are deductible as medical expenses? b. Are there any limits imposed on the deductibility of these expenses?

> a. What is the definition of cosmetic surgery under the Internal Revenue Code? b. Is the cost of cosmetic surgery deductible as a medical expense? Explain.

> What is the definition of medical care for purposes of the medical care deduction?

> a. For which persons may a taxpayer deduct medical expenses? b. In the case of children of divorced parents, must the parent who is entitled to the dependency exemption pay the medical expenses of the child to ensure that the expenses are deductible? Ex

> In 2015, the Margate Corporation acquired an automobile with a cost of $30,000 for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales. Several employees were laid off, and the automobile was not immediately needed

> For several years, you have prepared the tax return for Alpha Corporation, a closely held corporation engaged in manufacturing garden tools. On February 20 of the current year, Bill Johnson, the president of Alpha Corporation, delivered to your office th

> Brian Brown, an executive at a manufacturing enterprise, comes to you on December 1 of the current year for tax advice. He has agreed to donate a small tract of land to the Rosepark Community College. The value of the land has been appraised at $58,000.

> On December 1, 2017, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $5,000 to charity. She has no other itemized deductions. This year, she plans to make her charitable donation with stock. She present

> During the current year, Juan, a single individual, has AGI of $124,000 before taking into account any passive activity losses. He also actively participates and owns 100% of activity A, which is a real estate rental activity. For the year, activity A ge

> Dean makes a pledge of $30,000 to a local college. The college is willing to accept either cash or marketable securities in fulfillment of the pledge. Dean owns stock in Ajax Corporation worth $30,000. The stock was purchased five years ago for $10,000.

> Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2017 tax return: 1. Tim works as a pediatrician for the county hospital. The W-2 form he received

> John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail store, Brite-On. Brite-On had the following assets on Janu

> Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $850,000 of depreciable property during 2017: You are working in Woburn’s tax department and are trying to decide how to make the Sec. 1

> Bonnie’s charitable contributions and AGI for the past four years were as follows: What is the amount of the charitable deduction for each year and the order in which the deduction and carryovers are used? 2014 2015 2016 2017 $60,00

> In the current year, Coastal Corporation acquires all of the net assets of Acorn Corporation for $2,000,000. The purchase agreement allocated the following amounts to the individual assets and liabilities: Land and building …………………………………………. $1,400,000 A

> Paula is planning to either purchase or lease a $50,000 automobile. She anticipates that business use of the auto will be 60% for the first two years but will decline to 40% in years three through five. Currently, Paula’s marginal tax rate is 15% but she

> Georgia Corporation acquires a business automobile for $30,000 on December 31 of the current year but does not actually place the automobile into service until January 1 of the following year. What tax issues should Georgia Corporation consider?

> Simon acquires an interest in an oil property for $50,000. Intangible drilling costs (IDCs) in the initial year are $10,000. Cost depletion is $5,000 if the IDCs are expensed and $6,000 if the costs are capitalized. Percentage depletion is $15,000 if the

> Explain the difference between cost depletion and percentage depletion. Which of these two methods generally provides the largest deduction?

> In 2016, Mark purchased two separate activities. Information regarding these activities for 2016 and 2017 is as follows: The 2016 losses were suspended losses for that year. During 2017, Mark also reports salary income of $120,000 and interest and divide

> In a business combination, why does the buyer generally prefer to allocate as much of the purchase price to short-lived depreciable assets, ordinary assets such as inventory, and Sec. 197 intangible assets?

> Why do most taxpayers prefer to currently expense research and experimental expenditures?

> In January of the current year, Park Corporation incurs $34,000 of legal costs associated with a patent that was developed internally and has a legal life of 17 years. Park also acquired for cash the net assets of Central Corporation for $1,000,000. The