Question

1.          What is the amount of Taxpayer’s interest deduction that would be allowable for the current year assuming Taxpayer incurred the following, and assuming that Taxpayer itemizes deductions?

Interest on loan used to purchase land for investment (assume no net investment income)	$18,000
Interest on loan used to purchase primary personal residence	$6,000
Interest on loan used to purchase boat	$500
Interest on loan to purchase 100 shares of General Auto	$3,000

a.             $27,000

b.             $6,000

c.             $27,500

d.             $21,000

2.         On April 10, 2018 Cathy closed on the purchase of a house (her principal residence) that cost $2,000,000, paying $500,000 down and borrowing the other $1,500,000 at 5% interest. If her interest expense for the year is $75,000, what amount may Cathy deduct for interest expense?

a.             $75,000

b.             $50,000

c.             $37,500

d.             $0

3.          Assume the following taxes are paid by the Taxpayer in 2018: real estate taxes on Taxpayer’s home in the amount of $2,000; state income taxes in the amount of $4,500; city sales tax in the amount of $2,800; state sales taxes of $210 paid while on vacation to states other than the state in which Taxpayer resides; state gasoline tax (personal use of automobile) in the amount of $400; dog licenses in the amount of $20; and real estate taxes on the home of and owned by Taxpayer’s mother in the amount of $1,450. Assuming also that Taxpayer itemizes deductions on Taxpayer’s 2018 Federal income tax return, the allowable amount of Taxpayer’s deduction for taxes is which of the following?

a.             $9,960

b.             $6,500

c.             $9,510

d.             $10,380

4.          Taxpayer purchased a personal residence in 2017 for $266,000. The fair market value of the residence was $280,000 when it was damaged by a flood on June 10, 2018 that resulted from not turning off the bath water before leaving for vacation. The fair market value of the residence after the flood was $240,000 and insurance proceeds totaled $15,000. What is the net amount of casualty loss Taxpayer may deduct for 2018 as an itemized deduction if Taxpayer’s adjusted gross income is $120,000?

a.             0

b.             $25,000

c.             $24,900

d.             $8,500

e.             $12,900

Answer 1

Answer 1: option B $6,000

Interest on loan used to purchase primary personal residence is the only one which will be included in the itemized deduction.

Answer 2: option B $50,000

Only interest on $1,000,000 of initial indebtedness is deductible and therefore 75000*(1000000/1500000) = 50000

Answer 3: option B 6,500

real estate taxes on Taxpayer’s home in the amount of $2,000 + state income taxes in the amount of $4,500 = 6500

Answer 4: option B $25000

Fmv before damage - fmv after damage - insurance proceeds - (10% of AGI upto 100000) = 280000-240000-15000-(10%*100000) = 25000