Question

Allen paid the following taxes this year:

Property taxes on rental property he owns	$4,000
Property taxes on his own residence	3,600
Estimated Federal income taxes paid in 2019	8,000
California State income taxes withheld from paycheck	3,400
Estimated California Income Taxes paid in 2019	500

What amount can Allen deduct as an itemized deduction on his tax return?

Select one:

a. $19,500

b. $10,000

c. $11,500

d. $7,500

Answer 1

Based on the information available in the question, we can calculate Allen's itemized deduction as follows:-

Particulars	Amount
Property taxes on rental property	4,000
Property taxes on own residence	3,600
California state income tax from paycheck	3,400
California Income taxes	500
Total Itemized deductions available	11,500

The total itemized deductions is $11,500 , but, per IRS, the maximum allowed deducted of property taxes, sales taxes, state and local income taxes, should not exceed $10,000($5,000 if married filing separately).

Based on the above calculation, the correct answer is Option B - $10,000.

Option A is incorrect because, per IRS, the maximum allowed deduction of all these taxes during the year is limited to $10,000. Additionally federal income taxes paid would be reduced at the time of tax settlement in order to find the tax due.

Option B is the correct answer since per IRS Publication 503, the maximum allowed such tax deductions is limited to $10,000 per year.

Option C is incorrect. The $11,500 is not applicable because per IRS Publication 503, the maximum allowed deduction is $10,000.

Option D is incorrect. The $7,500 is an incorrect amount based on above considerations.