Question

 

I4) Brad, who uses the cash method of accounting, lives in a state that imposes an income tax

(including withholding from wages). On April 14, 2008, he files his state return for 2007, paying

an additional $600 in state income taxes. During 2008, his withholdings for state income tax

purposes amount to $3,550. On April 13, 2009, he files his state return for 2008 claiming a

refund of $800. Brad receives the refund on August 3, 2009. If he itemizes deductions, how

much may Brad claim as a deduction for state income taxes on his Federal income tax return for

calendar year 2008 (filed in April 2009)?

a. $3,350.

b. $3,550.

c. $4,150.

d. ss, l 50.

e. None of the above.

I 5) Rick and Carol Ryan, married taxpayers, took out a mortgage on their home for $160,000 ten

years ago. In October of the current year, when the home had a fair market value of $200,000 and

they owed $ I 25,000 on the mortgage, the Ryans took out a home equity loan for $1 10,000. They

used the funds to purchase a sailboat to be used for recreational purposes. The sailboat does not

qualify as a residence. What is the maximum amount of debt on which the Ryans can deduct

home equity interest?

a. $75,000.

b. $90,000.

c. Sl10,000.

d. $125,000.

e. None of the above.

I 6) Joseph and Sandra, married taxpayers, took out a mortgage on their home for $350,000 in 1989.

In May of this year, when the home had a fair market value of $450,000 and they owed $250,000

on the mortgage, they took out a home equity loan for $220,000. They used the funds to purchase

a single engine airplane to be used for recreational travel purposes. What is the maximum amount

of debt on which they can deduct home equity interest?

a. $50,000

b. $100,000

c. $220,000

d. $230,000

e. None of the above

17) Pedro's child attends a school operated by the church the family attends. Pedro made a donation

of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the

regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable

contribution?

a. $0

b. $800

c. $1,000

d. $6,800

Answer 1

Answer:-

1. C(4150)

Explanation

Brad is the cash basis tax payer so is the deduction limit the amount paid is in 2008.

The 800 is refund is reported income in 2009 under the tax benefit rule. The Brad state income tax deduction for 2008 is determined as below:-

Paid April 14 2008 for 2007. 600

Withholding for 2008. 3550

Total deduction is. 4150

2. A (75000)

Explanation

Interest is deductible only on the portion of home equity loan interest that does not exceed and the lesser of

The fair market value of the residence of reduced by the acquisition of indebtness( 450000 fmv- 250000indebtedness =200000) Or 100000( 50000 for married person filing separate return. the 220000 is home equity loan ,interest on 100000 is deductible as home equity interest.

3. B(100000)

Explanation

Interest is deductible only on the portion of home equity loan interest that does not exceed and the lesser of:-

The fair market value of the residence of reduced by the acquisition of indebtness( 200000 fmv- 125000 indebtedness =75000).

100000( 50000 for married person filing separate return) .

On a joint return or Rick and Carol can deduct all of the interest on the first mortgage since it in acquisition of indebtness .of the 110000 is home equity loan ,interest on 75000 is deductible as home equity interest.

4. B (800)

Explanation

The tax payer donation of 1000 in the lieu of normal 200 is registration fees would be deductible (1000-200=800)

The tuition fee is 6000 is a personal expenses that can not be deducted as a charitable contribution.