Problem 1: Phillip developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for the year was $100,000. How much of these expenditures can Phillip deduct as a medical expense?
a. $14,000.
b. $15,000.
c. $21,500.
d. $29,000.
e. None of the above.
Problem 2: Your friend Scotty informs you that he received a "tax-free" reimbursement in 2007 of some medical expenses he paid in 2006. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income?
a. Scotty itemized deductions in 2006.
b. Scotty did not itemize deductions in 2006.
c. Scotty itemized deductions in 2007.
d. Scotty did not itemize deductions in 2007.
e. Scotty itemized deductions in 2007 but not in 2006.
Problem 3: In 2007, Boris pays a $4,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,000 to a Health Savings Account. Which of the following statements is true?
a. If Boris is self-employed, he may deduct $7,800 as a deduction for AGI.
b. If Boris is self-employed, he may deduct $3,000 as a deduction for AGI and may include the $4,800 premium when calculating his medical expense deduction.
c. If Boris is an employee, he may deduct $7,800 as a deduction for AGI.
d. If Boris is an employee, he may include $7,800 when calculating his medical expense deduction.
e. None of the above.
Problem 4: During the current year, Hugh, a self-employed individual, paid the following amounts:
Real estate tax on Iowa residence $3,800
State income tax 1,700
Real estate taxes on land in Puerto Rico (held as an investment) 1,100
Gift tax paid on gift to daughter 1,200
State sales taxes 1,750
State occupational license fee 300
Property tax on value of his automobile (used 100% for business) 475
What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI?
a. $6,600.
b. $6,650.
c. $7,850.
d. $8,625.
e. None of the above.
Problem 5: During 2007, Nancy paid the following taxes:
Taxes on residence (for the period from March 1 through August 31, 2007) $5,250
State motor vehicle tax (based on the value of the personal use automobile) 430
State sales tax 3,500
State income tax 3,050
Nancy sold her personal residence on June 30, 2007, under an agreement in which the real estate taxes were not prorated between the buyer and the seller.
What amount qualifies as a deduction from AGI for 2007 for Nancy?
a. $9,180.
b. $9,130.
c. $7,382.
d. $5,382.
e. None of the above.