Leah Pasternak Federal Taxation ACC307 Chapter 10: Deductions and Losses: Certain Itemized Deductions Homework Submission

n 2. Ruth may include as medical expenses for purpose of computing her medical expense deduction her medical insurance premiums, any fees incurred for the alcohol rehabilitation program, contact lenses that she purchased and her travel expenses that she incurred while obtaining treatment at the MD Anderson center in Houston, TX. 4. a. All $36,000 of the nursing home expenses are deductible and subject to the 7.5% floor. b. Franks sons could do a multiple support agreement since Frank is only able to provide less than half of his own support. One of the sons would have to claim Frank as a dependent and then pay the larger share of the medical expenses and then the other two would have to agree to pay the remaining equally. 9. Contributions to an HSA are deductible for AGI, which reduces the nondeductible amount of itemized deductions subject to certain limitations, and the taxpayer does not have to itemize to obtain the deduction. If the HSA distributions are used to pay for the deductible medical expenses then they are not included in gross income. Interest earned on an HSA is not included in gross income if it is used to pay medical expenses that are not covered by the high-deductible medical plan. 11. a. Diego must prorate all property taxes for 2007 for deduction purposes between the buyer and the seller. Diego can deduct property taxes for the period he owned the property from January 1, 2012 through June 30, 2012. b. Dinah can deduct property taxes related to the period she owned the property from July 1, 2012 through December 31, 2012, even though she did not actually pay the taxes. c. Diego will treat the taxes he paid on Dinahs behalf as a reduction of the amount realized on the sale of the property. In turn, Dinah must treat this amount as a reduction in her basis for the property. 12. Julia can deduct mortgage interest on her principal residence in California and one of her two other residences. Her deduction is limited to interest on up to $1,000,000 of acquisition indebtedness, and $100,000 of home equity indebtedness. She should consider consolidating her three mortgages into two, otherwise she would need to choose the second property that will give her the highest interest deduction. 20. Fran cannot deduct the lost wages of $1,500 but she is able to deduct her out-of-pocket expenses of $1,600 for lodging, $550 for meals and $400 for transportation for a total deduction of $2,550. 40. a. Roberta can deduct $660 as a charitable contribution for 2007. Giving the tickets to the minister is of no tax consequence, because the minister is not a qualified charity. She cannot deduct the $4,000 pledge made to the building fund of her church as this belongs under the 2013 tax year. b. It does not matter whether Roberta uses the cash or the accrual method of accounting for tax purposes because she is unable to claim her pledge of $4,000 for the 2012 tax year. Charitable

donations are deductible only in the year in which they are paid. Roberta would have had to mail the check that satisfied the pledge on December 31, 2012 in order to claim this deduction for 2012. 41. December 1, 2012 Ms. Eleanor Young 2622 Bayshore Drive Berkeley, CA 94709 Dear Ms. Young: I have evaluated the proposed alternatives for your 2007 year-end contribution to the United Way. I recommend that you sell the Gold Corporation stock and donate the proceeds to the United Way. The four alternatives are discussed below. Donation of cash, the unimproved land, or the Gold stock will each result in a $21,000 charitable contribution deduction. Donation of the Blue Corporation stock will result only in a $3,000 charitable contribution deduction. A direct contribution of the Gold Corporation stock will be a bad move tax-wise in that the decline in value of $5,000 ($21,000 $26,000) is not deductible and the amount of the charitable contribution would be $21,000. However, you will benefit in two ways if you sell the Gold stock and give the $21,000 in proceeds to the United Way. Donation of the proceeds will result in a $21,000 charitable contribution deduction. In addition, sale of the stock will result in a $5,000 long-term capital loss. If you have capital gains of $2,000 or more in 2007, you could use the entire loss in computing taxable income for 2007. If you have no capital gains in 2007, you can deduct $3,000 of the capital loss in 2007 and carry the remaining $2,000 over to 2008. You should make the donation in time for ownership to change hands before the end of the year. Therefore, I recommend that you notify your broker immediately so there will be no problem in completing the donation on a timely basis. I would be pleased to discuss my recommendation in further detail if you wish. Please call me at (407) 589-3019 if you have any questions. Thank you for consulting my firm on this matter. We look forward to serving you in the future. Sincerely, Leah M. Pasternak, CPA Partner