Question

8) Joe Taxpayer has AGI of $100,000 in 2018 for the following

a. He has doctor costs of $10,000, hearing aid of $1,000, bayer aspirin of $500, braces of $3,000, and eyeglasses of $1000. What is is deductible medical?

b. He has state withholding of $10,000, property taxes of $5,000, DMV of $500. What is his deductible state taxes?

c. He purchased a home in 2018, and paid mortgage interest of $30,000. The loan on the home is $1,000,000. He also has credit card debt interest of $1000. What is his deductible interest?

d. He has employee business expenses of $3,000, and tax preparation fees of $500. His deductible miscellaneous expenses would be?

Answer 1

Q (a)

Note: For the Tax year beginning January 1, 2019, tax payers of "all" ages can deduct only the total amount of "unreimbursed" medical care expenses for the year that exceeds 10% of the Adjusted Gross Income.

Qualified medical expenses that are deductible, include:

1. Preventative care

2. Surgeries

3. Dental Care

4. Vision Care;

5. Visits to psychologists and psychiatrists;

6. Prescription medications and appliances, viz.,

- Glasses, Contact lenses, Dentures,Hearing Aids, Braces, Teeth fillings,Prosthetic limbs

7. Expenses paid to travel for medical care, e.g., car mileage and parking fees;

8. Payment of fees to Doctors, Dentists,Surgeons, Chiropractors, and Non-Traditional medical practitioners.

Expenses that are Non-Deductible:

1. Medical expenses that are reimbursed;

2. Cosmetic procedures;

3. Non-prescription drugs, other than Insulin;

4. General health purchases like tooth paste, vitamins, band-aid, etc.

	Joe's Qualified Medical expenses
S.No.	Details	Deductible?	Amount $	Reasons for not being deductible
1	Doctor costs	Yes	10,000
2	Hearing Aid	Yes	1,000
3	Bayer Aspirin	No	500	It is a over-the-counter/ Non-prescription drug
4	Braces	Yes	3,000
5	Eye-Glasses	Yes	1,000
	Total Qualified deductible medical expenses (1+2+4+5)		15,000
	AGI (Given)		1,00,000
	10% of AGI allowable with effect from Jan 1 2019		10,000
Answer	Joe can deduct medical expenses of:		10,000

Q (b) IRS provides itemized deduction for:

i) State, Local and Foreign Income Taxes;

ii) Sales Tax ( in lieu of state and local income tax);

iii) State, local and foreign real property taxes;

iv) State, local and foreign personal property taxes.

For individual Tax-Payers, like Joe, the limit is $ 10,000.

However, Department of Motor Vehicle (DMV), license fees, renewal of license, taxes on vehicle used for personal purposes are NOT deductible.

Q (b)
	Joe qualified deductions for Tax paid
S.No.	Details	Deductible?	Amount $	Reasons for not being deductible
1	State Witholding Tax	Yes	10,000
2	Property Tax	Yes	5,000
3	DMV	No	500	Not deductible as car used for personal purposes
	Total Qualified deductible Tax expenses (1+2)		15,000
	AGI (Given)		1,00,000
	Taxes paid deductible upto		10,000
Answer	Joe can deduct Tax expenses of:		10,000

Q (c)

With effect from Dec 17,2018, Joe can deduct home mortgage interest on the first $ 750,000 of indebtedness ( $ 375,000, if Joe is married, and filing separately).

To compute the amount of mortgage interest deductible starting 2018 ( when the house was purchased by Joe), the following steps have been followed:

1. Calculate the deductible based on the first year of a 30 year mortgage;

2. To compute the first year interest, we have taken Freddie Mac's reported average rate of 4.32 % p.a for a 30-year mortgage and loan balance of $ 750,000 ( applicable home loan balance with effect from Dec 17 2017)

3. The amount of deductible first year interest works out to $ 32,155.

Answer:

Since, Joe has paid $ 30,000 by way of interest, this will be deductible.

The amount of Credit Card Debt interest of $ 1,000 is NOT deductible.

Q d):

Miscellaneous Itemized deductions are categorized into two types, viz.,

i) Expenses that are subject to the 2% AGI floor; and

ii) Those expenses which are not subject to the 2% AGI floor.

The expenses (deductions) that are subject to the 2% AGI floor are:

a. Unreimbursed employee business business expenses and employee expenses reimbursed under a non-accountable plan;

b. Investment expenses; and

c. Other Miscellaneous expenses, e.g., Tax Preparation Fees.

As per Information provided, both amounts, ie.

i ) Business Expenses : $ 3,000; and

ii) Tax Preparation expenses : $ 500

Totalling $ 3,500

are deductible, subject to 2% of AGI of $ 2,000 ---> Answer

are deductible subject to 2% of AGI of $ 100,000 or $ 2,000:

i)