Question

1) Answer T or F for the following

a) Medical expenses for the year are to be reduced by any insurance reimbursement that is expected to be received in the future in order to arrive at the current deduction.

b) The full-cost of home-related capital expenditures paid to enable a physically disabled individual to live independently qualifies as a medical expense, but is still subject to the 10% of AGI floor limitation.

c) Appraisal costs associated with determining the increase in value of a residence due to capital expenditures undertaken for medical reasons are deductible as a medical expense.

d) If the seller of a residence during the year pays more than her prorate share of the real estate taxes, the buyer must increase his basis in the home by the "excess".

e) When arriving at the taxpayer's net investment income in calculating the deduction for investment interest expense for the year, miscellaneous "investment expenses" are disallowed before any non-investment expenses when applying the 2% of AGI floor.

f) points paid to refinance an existing home mortgage are fully deductible in the year of payment.

g) A taxpayer who gives cash directly to a needy individual will be able to claim a charitable contribution, subject to AGI limits.

h) No deduction is allowed for the value of one's services contributed to a charity.

Answer 1

Solution :

A) False, As per Tax Rules , You can include only the medical and dental expenses you paid this year, but generally not payments for medical or dental care you will receive in a future year. This is not the rule for determining whether an expense can be reimbursed by a flexible spending arrangement (FSA). You can include in medical expenses only those amounts paid during the tax year for which you received no insurance or other reimbursement. In the question, medical reimbursement to be received in future , not liable to be deducted from current medical expense.

B) False, As per Tax Rules, If you are a person with a disability, you can take a business deduction for expenses that are necessary for you to be able to work. If you take a business deduction for impairment-related work expenses, they aren't subject to the 10% limit that applies to medical expenses.You have a disability if you have:•A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed; or•A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.Impairment-related expenses defined.Impairment-related expenses are those ordinary and necessary business expenses that are:•Necessary for you to do your work satisfactorily;•For goods and services not required or used, other than incidentally, in your personal activities; and•Not specifically covered under other in-come tax laws, hence, rules clearly states the full capital expenditure for house does not qualify the conditions stated above. question states that the expense are subject to 10 % AGI Limit but it limit criteria does not apply in the case.

C) The statement is false, Appraisal costs are not in the nature of medical expenses. Hence , it doesn't become the part of the medical expense as per defined in the Law.

D) The statement is false , Because the buyer has not reimbursed the payment to the seller excess payment for real estate tax. The buyer can increase basis only if he pays part of his obligation.

E) The statement is false, Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income.This section discusses interest expenses you may be able to deduct as an investor. If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to the limit discussed later.However, you can't deduct interest you incurred to produce tax-exempt income. Nor can you deduct interest expenses on straddles.Investment interest doesn't include any qualified home mortgage interest or any interest taken into account in figuring income or loss from a passive activity. In the questions , the miscellaneous expense are in lien with the expenses allowed for the said objective. Hence should not be considered for disqualification.

F) The statement is False, As per Rules : If you pay points to get a loan (including a mortgage, second mortgage, line of credit,or a home equity loan), do not add the points to the basis of the related property. Generally, you deduct the points over the term of the loan. In the case , points are allowed during the tenure of loan not in the year of payment itself.

G) The statement is False, As per Rules : If A taxpayer gives cash directly to a needy individual will not be able to claim a charitable contribution, subject to AGI limits. Not deductible, if it is given to individual.The contributions must be made to a qualified organization and not set aside for use by a specific person. Hence , Disallowed as an expense.

H) The statement is True, Generally, you can deduct contributions of money or property you make to, or for the use
of, a qualified organization. A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. In the above statement, services provided are not in nature of money or property, Hence , dis-allowance of expense is correct.