Question

T OR F

5.     If a taxpayer uses the standard deduction, current year charitable contributions may be carried forward and deducted in future years

6.     A taxpayer's home is burglarized and six items of artwork and jewelry are stolen. The taxpayer must reduce his casualty loss deduction by $600 ($100 for each item stolen).

7.     Interest paid on home equity debt is not deductible if the proceeds from the debt are used to pay off the taxpayer's credit card debt.

8.   Taxpayers with high amounts of AGI must reduce their total itemized deductions in 2015. Assume MFJ and their AGI is $500,000.

9.     Points paid by cash basis taxpayers on the purchase of a vacation home (not the primary residence) are deducted over the term of the loan.

10.  Medical and dental insurance premiums paid by employees through payroll deductions qualify as deductible medical expenses.

Answer 1

5. FALSE -  

If you use the Standard Deduction, your charitable donations are not used on your tax return. However, you cannot carry over would be Itemized Deductions from a previous year in which you used the Standard Deduction. Any amount you had that would have been considered an Itemized Deduction is lost when you use the Standard Deduction and cannot be carried forward.

You may have heard of a Charitable Donation carry forward however. This has to do with donating such a large amount to charity that your Itemized Deductions related to that donation are limited for the year in which you itemize. In this case you can carry forward the amount that was limited in the prior year.

6. TRUE - You can deduct theft losses of property involving your home, household items or vehicles when you file your federal income tax return. To qualify as a theft, the property must have been intentionally and illegally taken with criminal intent. But, You can't claim a theft loss on your federal income tax return that was reimbursed by insurance. You can claim any portion of the loss that was not reimbursed by your insurance policy, provided you filed your claim in a timely manner. You must adjust the cost of the stolen item to reflect its current market value, because the IRS will only allow you to deduct the depreciated value of used items, not the the cost to replace them new. You must itemize your deductions if you wish to claim a theft loss on your federal income tax return.

You can only deduct the amount of your unreimbursed theft and casualty losses that exceed 10 percent of your adjusted gross income. Figure your unreimbursed theft loss on IRS Form 4684. If your results are greater than 10 percent of your AGI, you can add the difference to your itemized deductions. If your unreimbursed theft loss is less than 10 percent of your AGI you cannot take a deduction for the loss.

7. TRUE - if you use the money to pay off credit card debt or student loans — or take a vacation — the interest is no longer deductible.

8. TRUE -

Generally, in 2016 and 2017 taxpayers are allowed to deduct personal exemptions of $4,050 for themselves, their spouses and their dependents. In addition, taxpayers are allowed a standard deduction or, if their deductions are large, they can itemize their deductions. .

However, the personal exemptions and itemized deductions for higher income taxpayers are phased out beginning when a taxpayer’s adjusted gross income (AGI) reaches a phase-out threshold amount.

The threshold amounts are based on the taxpayers’ filing statuses and for 2017 are: $261,500 (up from $259,400 for 2016) for single filers, $287,650 (up from $285,350 for 2016) for individuals filing as heads of households, $313,800 (up from $311,300 for 2016) for married couples filing jointly and $156,900 (up from $155,650 for 2016) for married individuals filing separately. Here is how the phase-out works:

• Personal Exemption - The otherwise allowable exemption amounts are reduced by 2% for each $2,500 or part of $2,500 ($1,250 for a married taxpayer filing separately) that the taxpayer’s AGI exceeds the threshold amount for the taxpayer’s filing status.
• Itemized Deductions - The total amount of itemized deductions is reduced by 3% of the amount by which the taxpayer’s AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions.
  
  Not all itemized deductions are subject to phase-out. The following deductions are not subject to the phase-out:
  
  o Medical and dental expenses
  o Investment interest expenses
  o Casualty and theft losses from personal-use property
  o Casualty and theft losses from income-producing property
  o Gambling losses
  
  Thus, a taxpayer who is subject to the full phase-out still gets to deduct 20% of the deductions subject to the phase-out and 100% of the deductions listed above.