m. Ingrid be better off than Ramon?
ANSWER:
a. If Ramon renders an adequate accounting to his employer and is fully reimbursed. In such a
case, the employee reports no income or deduction as to these expenses. The cutback
adjustment is suffered by the employer.
a. If Ramon does not render an adequate accounting to his employer, he will have to
recognize any reimbursement as income and substantiate any deduction. Even worse, he
will be subject to the cutback adjustment and the deduction will be a miscellaneous itemized
deduction upon which the 2%-of-AGI limit is imposed. Although Ingrid also will be subject to
the cutback adjustment, she has a deduction for AGI upon which the 2% rule does not
apply.
CHAPTER 10: DEDUCTIONS AND LOSSES: CERTAIN ITEMIZED DEDUCTIONS
1. Personal expenditures that are deductible as itemized deductions include medical expenses, Federal
income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and
charitable contributions.
a. True
b. False
ANSWER: False
RATIONALE: All of the listed personal expenditures except Federal income taxes are deductible as
itemized deductions.
2. The election to itemize is appropriate when total itemized deductions are less than the standard
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, deduction based on the taxpayer’s filing status.
a. True
b. False
ANSWER: False
RATIONALE: The election to itemize is appropriate when total itemized deductions exceed the standard
deduction based on the taxpayer’s filing status.
3. Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance,
Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
a. True
b. False
ANSWER: False
RATIONALE: Unnecessary cosmetic surgery is not deductible. However, Adrienne’s surgery restored her
appearance and corrected a problem caused by the accident.
4. A physician recommends a private school for Ellen’s dependent child. Because of the physician’s
recommendation, the cost of the private school will qualify as a medical expense deduction (subject to
percentage limitations).
a. True
b. False
ANSWER: False
RATIONALE: A recommendation of a physician, although helpful, does not make the expenditure
automatically deductible as a medical expense.
5. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons
increased the value of her personal residence. The appraisal fee qualifies as a deductible medical
expense.
a. True
b. False
ANSWER: False
RATIONALE: The appraisal fee does not qualify as a medical expense, but it qualifies as a deduction
under § 212 (related to the determination of tax liability) as a miscellaneous itemized deduction.
6. Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of
a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed’s increase in utility bills
due to the operation of the pool qualifies as a medical expense.
a. True
b. False
ANSWER: True
RATIONALE: Such expense does qualify as a medical expense.
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, 7. Mason, age 70, a physically handicapped individual, pays $10,000 in 2014 for the installation of
wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the
value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical
deduction (subject to the AGI floor).
a. True
b. False
ANSWER: False
RATIONALE: The full $10,000 is included as a medical expense under a special rule applicable to
physically handicapped persons. The deduction is subject to the 7.5% floor in 2014. The 7.5% floor applies
(rather than the 10% floor) because Mason is over 65 years of age.
8. Chad pays the medical expenses of his son, James. James would qualify as Chad’s dependent except that
he earns $7,500 during the year. Chad may claim James’ medical expenses even if he is not a dependent.
a. True
b. False
ANSWER: True
RATIONALE: Chad may deduct the medical expenses. The gross income test is waived in determining
dependency status for medical expense purposes.
9. Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a
joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: The joint return test is waived in determining dependency status for medical expense
deduction purposes. Bill may include the $2,500 in calculating his medical expenses.
1. In 2014, Dena traveled 600 miles for specialized medical treatment that was not available in her
hometown. She paid $90 for meals during the trip, $145 for a hotel room on Tuesday night, and $15 in
parking fees. She did not keep records of other out-of-pocket costs for transportation. Dena can include
$206 in computing her medical expenses.
a. True
b. False
ANSWER: True
RATIONALE: Dena can deduct $141 (600 miles × 23.5 cents per mile) for transportation. The 23.5 cents
per mile automatic mileage option for medical transportation does not include related parking fees and tolls,
so she also can deduct the $15 paid for parking fees. She can deduct $50 for the hotel, but she cannot deduct
the cost of meals. Therefore, Dena can deduct $206 ($141 + $50 + $15 = $206).
2. Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son
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, stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for
lodging. The cost of Maria’s airfare and lodging cannot be included in determining her medical expense
deduction.
a. True
b. False
ANSWER: False
RATIONALE: A deduction is allowed for transportation and lodging expenses. In addition, Maria’s
deduction for lodging is allowed, since it falls within the limit of $50 per night.
3. In 2014, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the
$3,000 in computing his medical expense deduction for the year.
a. True
b. False
ANSWER: True
RATIONALE: Taxpayers over age 70 may include up to $4,660 of long-term care insurance premiums in
computing medical expenses.
4. Jim’s employer pays half of the premiums on a group medical insurance plan covering all employees,
and employees pay the other half. Jim can exclude the half of the premium paid by his employer from
his gross income and may include the half he pays in determining his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: Medical coverage provided by an employer is a nontaxable fringe benefit. Premiums paid
by the taxpayer may be included in determining deductible medical expenses.
5. Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2014. He expects $5,000 of these
expenses to be reimbursed by an insurance company in 2015. In determining his medical expense
deduction for 2014, Matt must reduce his 2014 medical expenses by the amount of the reimbursement
he expects in 2015.
a. True
b. False
ANSWER: False
RATIONALE: Unlike the casualty loss deduction, the medical expense deduction does not have to be
reduced by anticipated recoveries. Matt can include all $11,000 as a medical expense in 2014.
6. In 2015, Rhonda received an insurance reimbursement for medical expenses incurred in 2014. She is not
required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in
2014.
a. True
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ANSWER:
a. If Ramon renders an adequate accounting to his employer and is fully reimbursed. In such a
case, the employee reports no income or deduction as to these expenses. The cutback
adjustment is suffered by the employer.
a. If Ramon does not render an adequate accounting to his employer, he will have to
recognize any reimbursement as income and substantiate any deduction. Even worse, he
will be subject to the cutback adjustment and the deduction will be a miscellaneous itemized
deduction upon which the 2%-of-AGI limit is imposed. Although Ingrid also will be subject to
the cutback adjustment, she has a deduction for AGI upon which the 2% rule does not
apply.
CHAPTER 10: DEDUCTIONS AND LOSSES: CERTAIN ITEMIZED DEDUCTIONS
1. Personal expenditures that are deductible as itemized deductions include medical expenses, Federal
income taxes, state income taxes, property taxes on a personal residence, mortgage interest, and
charitable contributions.
a. True
b. False
ANSWER: False
RATIONALE: All of the listed personal expenditures except Federal income taxes are deductible as
itemized deductions.
2. The election to itemize is appropriate when total itemized deductions are less than the standard
121
, deduction based on the taxpayer’s filing status.
a. True
b. False
ANSWER: False
RATIONALE: The election to itemize is appropriate when total itemized deductions exceed the standard
deduction based on the taxpayer’s filing status.
3. Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance,
Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
a. True
b. False
ANSWER: False
RATIONALE: Unnecessary cosmetic surgery is not deductible. However, Adrienne’s surgery restored her
appearance and corrected a problem caused by the accident.
4. A physician recommends a private school for Ellen’s dependent child. Because of the physician’s
recommendation, the cost of the private school will qualify as a medical expense deduction (subject to
percentage limitations).
a. True
b. False
ANSWER: False
RATIONALE: A recommendation of a physician, although helpful, does not make the expenditure
automatically deductible as a medical expense.
5. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons
increased the value of her personal residence. The appraisal fee qualifies as a deductible medical
expense.
a. True
b. False
ANSWER: False
RATIONALE: The appraisal fee does not qualify as a medical expense, but it qualifies as a deduction
under § 212 (related to the determination of tax liability) as a miscellaneous itemized deduction.
6. Upon the recommendation of a physician, Ed has a swimming pool installed at his residence because of
a heart condition. If he is allowed to deduct all or part of the cost of the pool, Ed’s increase in utility bills
due to the operation of the pool qualifies as a medical expense.
a. True
b. False
ANSWER: True
RATIONALE: Such expense does qualify as a medical expense.
122
, 7. Mason, age 70, a physically handicapped individual, pays $10,000 in 2014 for the installation of
wheelchair ramps, support bars, and railings in his personal residence. These improvements increase the
value of his personal residence by $2,000. Only $8,000 of the expenditure qualifies as a medical
deduction (subject to the AGI floor).
a. True
b. False
ANSWER: False
RATIONALE: The full $10,000 is included as a medical expense under a special rule applicable to
physically handicapped persons. The deduction is subject to the 7.5% floor in 2014. The 7.5% floor applies
(rather than the 10% floor) because Mason is over 65 years of age.
8. Chad pays the medical expenses of his son, James. James would qualify as Chad’s dependent except that
he earns $7,500 during the year. Chad may claim James’ medical expenses even if he is not a dependent.
a. True
b. False
ANSWER: True
RATIONALE: Chad may deduct the medical expenses. The gross income test is waived in determining
dependency status for medical expense purposes.
9. Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a
joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: The joint return test is waived in determining dependency status for medical expense
deduction purposes. Bill may include the $2,500 in calculating his medical expenses.
1. In 2014, Dena traveled 600 miles for specialized medical treatment that was not available in her
hometown. She paid $90 for meals during the trip, $145 for a hotel room on Tuesday night, and $15 in
parking fees. She did not keep records of other out-of-pocket costs for transportation. Dena can include
$206 in computing her medical expenses.
a. True
b. False
ANSWER: True
RATIONALE: Dena can deduct $141 (600 miles × 23.5 cents per mile) for transportation. The 23.5 cents
per mile automatic mileage option for medical transportation does not include related parking fees and tolls,
so she also can deduct the $15 paid for parking fees. She can deduct $50 for the hotel, but she cannot deduct
the cost of meals. Therefore, Dena can deduct $206 ($141 + $50 + $15 = $206).
2. Maria traveled to Rochester, Minnesota, with her son, who had surgery at the Mayo Clinic. Her son
123
, stayed at the clinic for the duration of his treatment. She paid airfare of $300 and $50 per night for
lodging. The cost of Maria’s airfare and lodging cannot be included in determining her medical expense
deduction.
a. True
b. False
ANSWER: False
RATIONALE: A deduction is allowed for transportation and lodging expenses. In addition, Maria’s
deduction for lodging is allowed, since it falls within the limit of $50 per night.
3. In 2014, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the
$3,000 in computing his medical expense deduction for the year.
a. True
b. False
ANSWER: True
RATIONALE: Taxpayers over age 70 may include up to $4,660 of long-term care insurance premiums in
computing medical expenses.
4. Jim’s employer pays half of the premiums on a group medical insurance plan covering all employees,
and employees pay the other half. Jim can exclude the half of the premium paid by his employer from
his gross income and may include the half he pays in determining his medical expense deduction.
a. True
b. False
ANSWER: True
RATIONALE: Medical coverage provided by an employer is a nontaxable fringe benefit. Premiums paid
by the taxpayer may be included in determining deductible medical expenses.
5. Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2014. He expects $5,000 of these
expenses to be reimbursed by an insurance company in 2015. In determining his medical expense
deduction for 2014, Matt must reduce his 2014 medical expenses by the amount of the reimbursement
he expects in 2015.
a. True
b. False
ANSWER: False
RATIONALE: Unlike the casualty loss deduction, the medical expense deduction does not have to be
reduced by anticipated recoveries. Matt can include all $11,000 as a medical expense in 2014.
6. In 2015, Rhonda received an insurance reimbursement for medical expenses incurred in 2014. She is not
required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in
2014.
a. True
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