Tax Chapter

Chapter 7

1) a. Taxpayers can deduct medical expenses incurred by all people that they claim as dependents on their taxes.

b. It depends on the situation, if there is a written agreement stating otherwise, for the most part the person claims the child covers the expenses. But whoever pays the medical expenses can deduct them as their expenses.

c. If medical expenses are subject to a multiple support agreement the person who pays the bill is either the one who gives the most support or whatever the agreement states.

4) So I combined the answer for a and b together. The taxpayer may deduct actual out-of-pocket expenses to a certain degree. For example, actual out-of-pocket vehicle expenditures, taxis, airfare, ambulance fees and other forms of transportation. So a limitation to it is that you can deduct 18 cents for each mile that is driven and the cost of tolls and parking. One can deduct fifty percent of meals of the traveling meals and fifty dollars per night for a hotel or lodging plus and extra fifty dollars per person who travels with you including a nurse, parent, and spouse.

7) Yes, he can deduct his trip as a medical expense, because it was under the doctor's orders. But he can only deduct a certain amount based on the limitations as stated before.

10) a. These taxes are specified for federal income tax purpose under sec. 164 are state, local, and foreign real property taxes, state and local personal property taxes based on value, state, local, and foreign income, war profits, and excess profits taxes, state and local sales taxes if you are electing to use it.

b. If a tax is not listed it may be considered based on it may be classified in another way, for example, federal customs and excise taxes incurred in the taxpayer's normal business or incoming producing activity are deductible as normal and ordinary expenses.

14) a. The different categories of interest expense include; active trade or business, passive activity, investments, personal, qualified residence, and student loan. The classification of interest is determined by the use of the borrowed money is put, not on the nature of the property used to secure the loan.

b. The different categories of interest are deductible in different ways. For example, active business expenses are deductible in full, where interest of a taxpayer's residence has its limitations, and becomes part of their itemized deductions.

15) Points: It is equal to 1% if the loan amount, in a qualified residence. Taxpayer's might have to pay points based on real estate debt. Points are deductible in certain ways by points paid on a loan incurred to purchase the taxpayer's principal residence are deductible.

19) Acquisition indebtedness is in respect to qualified residences by it is any debt secured by the residence and by acquiring, constructing, or substantially improving the qualified residence. It might be qualified if the taxpayer acquires the residence within 90 days before or after the date that the debt was incurred. The limitations for this are $1,000,000 limitation of indebtedness incurred after October 13, 1987; any indebtedness incurred before that has no limitations. Home equity indebtedness interest can be deducted, but has limits as well. Any indebtedness is secured by the qualified residence the taxpayer may use the proceeds of the loan for any purpose. Some limits are the lesser of the FMV of the qualified residence in excess of the acquisition in respect to the residence or $100,000. SO the $1,000,000 limit and $100,000 limit are two separate limits, so that is the maximum a taxpayer can deduct.

21) Interest expense is disallowed because if you are purchasing or holding a tax-exempt obligation, you are already getting the tax break because you are not paying any tax on those items that's why the interest is not deductible as well, or exempt.

31) Some tax issues that Wayne and Maria should consider would be whether or not their insurance would cover their medical expenses and if not how much they can take as a deductible. Since they have $4,800 of medical expenses and an AGI of $50,000, they can take the excess of $3,750. They will be able to deduct a total of $1,050 from their medical expenses, if they are not getting any reimbursement.

34) Bob should consider the following tax issues; one is determining the FMV of the stock. He also needs to prove to the church that it is real and actual and exists. Bob also needs to donate directly to the church, because Bob will receive a deduction equal to the FMV of the stock, so therefore he does not need to recognize any taxable gain on the stock.

Chapter 8

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