Which of the following statements related to investment interest expense is incorrect?

DEDUCTIONS; PERSONAL EXPENSES - Itemized deductions
PROBLEMS AND QUESTIONS
True or False
1. If you use your car in rendering services without compensation to a qualified charitable organization, you may deduct a standard mileage rate of 12¢ per mile as a contribution.
6. Interest incurred to buy or carry tax exempt securities is not deductible.
7. A taxpayer paid $500 of interest on his credit card. He can deduct part of it.
9. If real property is sold during the real property tax year, the real estate taxes must be apportioned between the buyer and the seller.
10. Social security tax paid by self-employed persons is not deductible.
11. State income tax withheld from an employee's pay is an itemized deduction.
12. Taxpayers receive both a deduction and a credit for foreign income taxes.
13. An individual who pledges to make a contribution to his or her church must wait until the contribution is made to receive a deduction.
14. A taxpayer contributing his or her services to a charity can deduct the value of those services.
15. An individual's deduction for charitable contribution cannot exceed 30% of the taxpayer's adjusted gross income.
16. The 20% of adjusted gross income limitation applies to certain contributions made to private foundations.
17. A deduction is available for the cost of property donated to a charity.
18. In general, excess charitable contributions can be carried back three years and carried over five years.
19. Gambling losses are a miscellaneous itemized deduction subject to the 2% of AGI floor.
20. On a joint return the husband's deduction for his medical expenses is limited to the amount of his expenses in excess of 7.5% of his adjusted gross income.
21. A gift to the federal government could qualify as a charitable contribution.
22. In certain circumstances, a portion of the costs of installing a swimming pool is deductible as a medical expense.
25. A taxpayer who moves to a milder climate after retirement can deduct moving expenses.
26. No deduction is allowed for any charitable contribution of $250 or more unless the charity furnishes a receipt.

Multiple Choice
l. Fleeks incurred $3,000 of interest expenses on his personal residence, $2,000 of interest on a credit card, $5,000 of interest in his business and $1,000 of interest on funds borrowed to pay life insurance premiums. His deduction for adjusted gross income is:
a. $9,000
b. $8,000
c. $5,000
d. $3,000
e. none of the above.

2. Fleeks in the preceding question would have an itemized deduction of:
a. $5,000
b. $6,000
c. $3,100
d. $3,000
e. none of the above

3. Jemison had the following income and expenses:
Investment interest expense $35,000
Net investment income 20,000
Business interest expense 4,000
Jemison's itemized deduction for investment interest expense is:

a. $35,000
b. $20,000
c. $21,000
d. $25,000
e. none of the above

4. Which of the following interest expenses are disallowed?
a. A debt incurred specifically for tax savings purposes.
b. A debt incurred to buy or carry tax exempt securities.
c. Personal interest
d. a and c
e. All of the above.

7. Dalton contributed stock worth $10,000 to a public charity. The stock had cost $9,000 four years earlier. Assuming Dalton's adjusted gross income is $40,000, she can deduct
a. $10,000
b. $ 8,400
c. $ 7,600
d. $ 6,000
e. none of the above

8. If Dalton in the preceding example had an adjusted gross income of $20,000, she could have deducted
a. $6,000 and had a $4,000 carryover
b. $9,000 and had no carryover
c. either a or b
d. $10,000
e. none of the above

9. Hardman has $30,000 of adjusted gross income and incurs $500 of dental bills. Hardman has no other medical expenses. As a result
a. Hardman can deduct $500
b. Hardman can deduct $200
c. Hardman can carryover the $500 and deduct it next year
d. Hardman will not receive a medical deduction even if he itemizes
e. none of the above

10. Which of the following would be deductible as a medical expense?
a. medical insurance
b. toothpaste
c. a trip to Hawaii for rest
d. the cost of attending a weight loss clinic
e. none of the above

11. Which of the following is not deductible as a medical expense?
a. Operation to reduce size of nose
b. Skin transplant after a burn accident
c. New limb after amputation
d. Transportation for medical care
e. All are deductible

13. Pete cannot claim his son age 26 as a dependent because the son earned $3,000. Pete paid $1,000 of his son's medical bills. How much can Pete deduct on his income tax return if his AGI is $12,000 and his own personal medical bills are $1,000?
a. $100 ($1,000 7.5% of $12,000)
b. $900 (7.5% of $12,000)
c. $1,000
d. $1,100 ($2,000 7.5% of $12,000)
e. none of the above

True or False

1. T. 8. F 15. F 22. T
2. F. 9. T 16. T 23. F
3. F 10. F 17. F 24. T
4. F 11. T 18. F 25. F
5. F 12. F 19. F 26. T
6. T 13. T 20. F
7. F 14. F 21. T

Multiple Choice
1. C 5. B. 9. D 13. D
2. D 6. C 10. A
3. B 7. A 11. A
4. E 8. C 12. A

Multiple Choice
1. Which of the following is deductible for adjusted gross income?
a. union dues
b. medical expenses
c. unreimbursed employee expenses
d. alimony
e. none of the above

2. Which of the following would be deductible if incurred by a self employed person in connection with his self-employment:
a. traffic fine
b. political contribution
c. advertising
d. capital expenditure
e. none of the above

3. Compensation is not deductible if it is
a. paid to a relative
b. paid to a maid to clean the taxpayer's office
c. paid in a form other than cash
d. paid for personal services, e. g., a butler's salary
e. none of the above

6. Which of the following is deductible for adjusted gross income by an employee?
a. travel
b. transportation
c. reimbursed expenses
d. meals
e. all of the above

7. Mr. and Mrs. Adams rent out their ski condo for most of the year. Rental receipts are $40,000. Expenses are $35,000. What amount would be treated as an itemized deduction?
a. $5,000
b. $35,000
c. $40,000
d. 0
e. none of the above

8. Which of the following deductions are specifically disallowed by the code?
a. personal living expenses
b. alimony
c. consumer interest
d. a & c
e. none of the above

9. Which of the following is deductible as a moving expense?
a. cost of refitting rugs
b. commissions on the sale of the old residence
c. lodging incurred on the move to the new residence
d. house hunting expenses
e. none of the above

SOLUTIONS
True or False
1. F .8. T 15. F 22. T
2. T .9. T 16. F 23. T
3. F 10. T 17. T 24. F
4. T 11. T 18. F 25. F
5. T 12. T 19. T 26. F
6. F 13. F 20. T 27. T
7. T 14. F 21. F

Multiple Choice
1. D 3. D 5. D 7. D
2. C 4. B 6. C 8. D
................9. C

True or False
1. The loss from the sale of a personal residence is deductible.
2. If a taxpayer owns stock that has decreased in value, the taxpayer can deduct the amount of the decrease as a loss.
3. If a taxpayer owns stock that becomes completely worthless, the taxpayer can claim a deduction for an amount equal to the adjusted basis of the stock.
4. Losses from worthless securities are generally ordinary losses.
5. Casualty losses to business property are deductions for adjusted gross income.
6. Casualty losses generally include fire, earthquakes, automobile accidents, and termite damage.
7. The $100 floor applies to casualties involving either business or personal use assets.
8. Taxpayer had a fire at his personal residence which caused damage to the residence and also an automobile parked nearby. The losses must be reduced by $200 and 10% of AGI.
10. Theft losses are deducted in the year the theft occurs even if the loss is discovered in the following year.
12. Insurance and other proceeds are subtracted from a casualty loss in determining the amount of the deduction.
13. A taxpayer who demolishes a building can deduct as a loss the basis of the building even if it was purchased with the intention of demolition.
14. Wash sales rules apply to both gains and losses.
16. Wash sales rules apply for a period beginning 30 days before and ending 30 days after a sale when substantially identical stock is acquired.
18. The wash sales rules will apply if the taxpayer sells stock at a loss and buys stock of another corporation that is in the same industry.
20. A husband can deduct the loss on the sale of stock even if he sells the stock to his wife.
21. The deduction for gambling losses is limited to gambling winnings.
22. The fact that an activity continuously produces losses may result in a presumption that the activity is a hobby.
23. A taxpayer with a net operating loss can elect to forego a carryback.
31. Partially worthless nonbusiness loans are deductible.
32. Business bad debts generally receive more favorable tax treatment than nonbusiness bad debts.
37. The motive for a debt must be primarily business for a loss to be a business bad debt.

Multiple Choice
2. The value of Seth's personal automobile decreased by $3,000 as a result of a casualty. The adjusted basis of the auto before the casualty was $8,000. Seth received $1,300 of insurance. Seth's AGI was $10,000. Seth's casualty loss deduction is:
a. $3,000
b. $2,900 ($3,000 100)
c. $ 700 ($3,000 1,300 10% of AGI)
d. $ 600 ($3,000 1,300 10% of AGI 100)
e. none of the above

3. Assuming Seth, in the preceding question, spends $3,000 to repair his auto, his basis will be
a. $9,700 ($8,000 + 3,000 1,300)
b. $8,000 (same as before casualty)
c. $9,100 ($8,000 + 3,000 1,300 600)
d. $6,100 ($8,000 1,300 600)
e. none of the above

4. Which of the following would not normally result in a casualty loss deduction?
a. fire
b. shipwreck
c. automobile accident
d. rust
e. none of the above

5. Which of the following is true?
a. Casualty losses are always itemized deductions.
b. No casualty loss deduction is allowed for losses involving personal use assets.
c. The amount of a casualty loss must be reduced by insurance proceeds.
d. Casualty losses are always deducted in the year incurred.
e. none of the above

6. Trent sold stock for $7,000 and purchased identical shares two days later for $7,100. Trent had purchased the original shares for $9,700. The transaction is a wash sale. The basis of the new shares is
a. $7,000
b. $7,100
c. $9,700
d. $9,800
e. none of the above

7. Bandick owned a machine that cost $5,000 and that has been fully depreciated. The machine was stolen, and she received $1,000 of insurance. Bandick would report
a. $1,000 gain
b. $4,000 loss
c. $4,000 loss, less $100 and 10% of AGI
d. $1,000 decrease in depreciation and no gain
e. none of the above

11. Nonbusiness bad debts are
a. deductible only when they are completely worthless
b. itemized deductions
c. treated the same as business bad debts
d. deductible only by banks
e. none of the above

12. An individual would most likely be able to deduct a bad debt for a loan to
a. a  political party
b. a relative
c. a controlled corporation
d. a business acquaintance
e. none of the above

13. A taxpayer who determines a loan is uncollectible will be entitled to deduct the amount of the loan and the accrued but uncollected interest only if
a. the loan is a nonbusiness loan
b. the loan is completely worthless
c. the taxpayer is a corporation
d. the interest has been included in gross income
e. none of the above

14. Jones guaranteed repayment of a loan to his son made by a local bank. The son died before repaying the loan. Jones repaid the loan himself. Jones will not be able to collect anything from his son's estate. Jones guaranteed the loan because of the family relationship. Jones is entitled
a. to a casualty deduction
b. to no deduction
c. to short-term capital loss
d. to a business deduction
e. none of the above

15. Which of the following would most likely be a nonbusiness loan?
a. a shareholder's loan to a corporation
b. loan by a person in lending business
c. trade accounts receivable
d. all of the above
e. none of the above

SOLUTIONS
True or False
1. F 10. F 19. F 28. T
2. F 11. T 20. F 29. T
3. T 12. T 21. T 30. F
4. F 13. F 22. T 31. F
5. T 14. F 23. T 32. T
6. F 15. T 24. T 33. T
7. F 16. T 25. T 34. T
8. F 17. T 26. T 35. T
9. T 18. F 27. T 36. T
............... 37. T

Multiple Choice
1. A 5. C 9. C 13. D
2. D 6. D 10. E 14. B
3. C 7. A 11. A 15. A
4. D 8. C 12. D
 

Which of the following types of interest expense is not deductible?

Which of the following expenses are classified as itemized deductions for tax purposes check all that apply?

Which of the following expenses are deductible for AGI?

Which of the following gifts is a deductible contribution?