Question

1. Under an adoption assistance program, in 2018, employees can exclude up to $____________ of employer paid adoption expenses for a healthy child.

2. Taxpayers working overseas in 2018 may be able to exclude all of their foreign source earnings (up to $103,900) as long as they reside in the foreign country for at least ____________ days in a 12-month period.

3. Interest expenses eligible for deduction as itemized deductions include all of the following except:

		interest on a $20,000 home equity loans to improve a primary residence.
		interest on student loans.
		points paid on the purchase of the taxpayer's main home.
		interest incurred to purchase land to be held as an investment.
		all of the above are interest expense deductible as itemized deductions.

Answer 1

1. The maximum amount excludable from an employee’s 2018 gross income is $13,810.

(This applies both to employer-provided adoption assistance programs (for adoption of any child) and to the exclusion from an individual’s income for amounts paid by the individual for adoption of a special needs child (not paid through an employer-provided adoption assistance program).

2.Taxpayers working overseas in 2018 may be able to exclude all of their foreign source earnings (up to $103,900) as long as they reside in the foreign country for at least __330_ days in a 12-month period.

3(I) interest on a $20,000 home equity loans to improve a primary residence.- Eligible

Explanation:

For the tax years ending December 2018 through December 2025, home equity interest is disallowed. This means only acquisition indebtedness is allowed as a qualifying mortgage interest deduction. Thusly, interest incurred on home equity loans used for personal expenditures or minor home repairs (whether used in prior years or used between 2018 and 2025) will not be allowed as an itemized deduction.

• Note: interest incurred on home equity loans used to substantially improve a qualifying residence may still be allowed under the home acquisition indebtedness rules.
• The maximum amount used as acquisition indebtedness is reduced from $1,000,000 to $750,000.

3(ii) interest on student loans- not eligible

Explanation:-

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

You claim this deduction as an adjustment to income, so you don't need to itemize your deductions.

3(iii)points paid on the purchase of the taxpayer's main home.- eligible

Explanation:

The term points is used to describe certain charges paid to obtain a home mortgage. Points are prepaid interest and may be deductible as home mortgage interest, if you itemize deductions.

Points are allowed to be deducted ratably over the life of the loan or in the year that they were paid. You can deduct the points in full in the year you pay them, if you meet all the following requirements:

1. Your main home secures your loan (your main home is the one you live in most of the time).
2. Paying points is an established business practice in the area where the loan was made.
3. The points paid weren't more than the amount generally charged in that area.
4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
5. The points paid weren't for items that are usually listed separately on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
6. The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged. You can't have borrowed the funds from your lender or mortgage broker in order to pay the points.
7. You use your loan to buy or build your main home.
8. The points were computed as a percentage of the principal amount of the mortgage, and
9. The amount shows clearly as points on your settlement statement.

3(iv) interest incurred to purchase land to be held as an investment.- Eligible

Explanation:-

Investment interest is interest paid on a loan where the proceeds were used to purchase property you held for investment. According to the Internal Revenue Service, "Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. It also includes property that produces gain or loss."The amount of interest that can be deducted in any particular year is limited to a taxpayer's net investment income for that same year. It can't exceed that amount.Individual taxpayers can still claim investment interest expenses as an itemized deduction on Schedule A of their Form 1040 tax returns.

3(v) all of the above are interest expense deductible as itemized deductions- Not eligible