Study Unit 6: Itemized Deductions

1. Chris flew to Chicago for surgery. He incurred the following costs in connection with the trip:

Round-trip airfare	$ 350
Lodging ($100/night × 2 nights)	200
Restaurant meals	80
Hospital and surgeon	5,000

What is Chris’s medical expense?

$5,490

$5,630

$5,000

$5,450

2. During 2025, Mr. and Mrs. Duhon paid the following expenses for their son, Joel:

Medical insurance premiums	$1,500
Contact lenses	210
Household help recommended by a doctor	2,200

For 2025, Joel had gross income of $9,850. Because Joel had gross income of $9,850, the Duhons did not claim him as a dependent. How much of Joel’s medical expenses can Mr. and Mrs. Duhon include with their deductible medical expenses?

$3,910

$1,710

$1,500

3. John has a heart ailment. On his doctor’s advice, he installed an elevator in his home so that he would not have to climb stairs. The cost of the elevator was $7,000. An appraisal shows that the elevator increased the value of his home by $5,000. John can claim a medical deduction of

$2,000.

$5,000.

$7,000.

None of the answers are correct.

4. Which of the following is deductible as medical insurance?

Medical portion of auto insurance policy that provides coverage for all persons injured in or by the taxpayer’s car.

Insurance policy that pays you $50 a day if you are unable to work due to illness or injury.

Medicare Part B.

None of the answers are correct.

5. To qualify for a medical expense deduction as your dependent, a person must be your dependent either at the time the medical services were provided or at the time you paid the expenses. A person generally qualifies as your dependent for purposes of the medical expense deduction if

The person would qualify as a dependent except for the amount of gross income.

The person was a foreign student staying briefly at your home.

The person is your sibling’s unmarried adult child.

The person is the unrelated caregiver for your elderly parents.

6. Generally, the taxpayer may deduct the cost of medical expenses on Schedule A for which of the following?

Doctor-prescribed birth control pills.

Controlled substances like marijuana that are in violation of federal law.

Trips for general health improvement.

Marriage counseling.

7. Which of the following may NOT be deducted as medical expenses? (Disregard any limitations that may apply.)

$1,000 long-term care insurance.

$600 for eyeglasses.

$300 for maternity clothes.

$3,000 to a family physician for medical care.

8. Alan is a cash-basis taxpayer. During the year, he paid the following medical expenses for himself and his daughter, Johanna, whom he claims as a dependent on his tax return.

$310 for glasses for Johanna and $290 for glasses for himself
$650 for a dental root canal procedure for him
$900 for hospital emergency services of which $700 was paid by insurance in the same year
$1,250 for Johanna’s braces which he charged to his credit card in December and paid in January of the next year
$500 for prescriptions for allergies
$2,200 for cosmetic plastic surgery

The taxpayer’s medical expense deduction before limitations is

$6,100

$4,150

$3,200

$5,400

9. Mr. Cedar broke his hip and must now use a wheelchair. He modified his home to accommodate the wheelchair. He had his home appraised for refinancing just before the improvements to his home. The value of his home was $200,000. After he made the modifications and improvements listed below, the value was $202,000. Mr. Cedar incurred the following expenses during the year. Without consideration of adjusted gross income limitations, compute the amount Mr. Cedar may claim on his 2025 tax return as a medical expense:

$3,000 to construct a ramp in the entrance of his home to accommodate his wheelchair
$4,000 for installation of a lift to transport the wheelchair from the first to the second floor of his house
$1,000 for adding handrails around his tub
$200 to repair his chimney

$8,200

$6,200

$6,000

$8,000

10. During 2025, the Pack family incurred the following medical expenses:

Doctor fees	$2,400
Prescription medicine	900
Health club dues (advised by doctor
for general health purposes)	4,000
Medical insurance premiums	3,200

The Packs’ AGI for 2025 was $60,000. They received insurance reimbursements of $1,000 for their 2025 expenses. What is the amount the Packs would be able to deduct as an itemized deduction on their tax return after any limitation?

$5,500

$4,500

$2,000

$1,000

11. Mr. Green must use a wheelchair. Upon advice from his doctor, in 2025, he installed an elevator and widened the front entrance of his house, incurring $10,000 and $3,000 in respective costs. Mr. Green had purchased his house for $146,000. An appraisal showed the fair market value of Mr. Green’s house immediately after these modifications at $154,000. Also in 2025, Mr. Green decided to join a health club primarily to improve business contacts and for recreational purposes. He paid a $1,250 annual membership fee to make use of this facility.

Compute Mr. Green’s currently deductible medical expenses.

$14,250

$5,000

$13,000

$6,250

12. Jill divorced her husband James in 2024. Their son Harry lived with Jill for all of 2025 and qualified as her dependent. However, the divorce decree indicates James can take the dependency deduction. Jill paid $1,200 in medical expenses for Harry, and James paid $2,000. Jill entered into a multiple support agreement with her 3 brothers to assist with their mother’s care and claimed the deduction. Jill provided one-fourth of her mother’s support and paid $1,500 in medical expenses, which was her quarter share. Without regard to adjusted gross income limitations, compute Jill’s medical expense deduction for 2025.

$1,200

$1,500

$2,700

13. Of the following medical expenses paid by Bill during 2025, how much can he deduct (before limitations)?

$1,000 for his wife Mary’s hospitalization in 2024; they were married in 2025.
$1,000 for Mary’s daughter’s braces; she is Bill and Mary’s dependent in 2025.
$2,000 for Bill’s son’s 2024 medical treatment; he was Bill’s dependent in 2024 but does not qualify for 2025.

$4,000

$2,000

$1,000

14. All of the following capital improvements may be itemized and deducted as medical expenses EXCEPT

Cost of constructing wheelchair accessible ramps for your home.

Cost of modifying a car with special hand controls.

Lowering or modifying kitchen cabinets and equipment.

An elevator costing $8,000 that adds $8,000 to the appraised value of your home.

15. Josef had to have the following improvements made to his home because he was handicapped:

Cost of ramps 1/2/2025	$ 300
Increase in value of home due to ramps	0
Cost of decorative lattice work over ramp area 1/2/2025	100
Increase in value of home due to lattice work	50
Cost of chair lift on stairs 1/2/2025	2,500
Increase in value of home due to chair lift	1,500
Cost of repairing ramps 12/1/2025	50
Cost of repairing chair lift 12/1/2025	200

None of the expenses were covered by insurance. How much would qualify as a deductible medical expense in 2025 (before any limitations)?

$1,430

$1,550

$2,800

$3,050

16. Which of the following is a medical deduction?

Legal abortion.

Maternity clothing.

Health club dues advised by your doctor.

None of the answers are correct.

17. The taxpayer may deduct the cost of medical expenses for the following items EXCEPT

Doctor-prescribed drugs including birth control pills.

Controlled substances in violation of federal law.

Laser eye surgery, contacts, eyeglasses, and hearing aids.

Guide dogs for the visually impaired and the cost of the dogs’ care.

18. James and his two brothers each provided one-third of their mother’s total support. Under a multiple support agreement, James is allowed to claim his mother as a dependent for the current year. Medical expenses paid by James for his mother amounted to $6,000, and his brothers reimbursed him two-thirds of these expenses. What is the amount James can consider as part of medical expenses in the preparation of his individual tax return?

$1,850

$2,000

$6,000

19. Insurance premiums for which of the following policies qualify as a medical expense?

Replacement of lost or damaged contact lenses.

Membership in an association that gives cooperative (free choice) medical service.

Both replacement of lost or damaged contact lenses and membership in an association that gives cooperative (free choice) medical service.

None of the answers are correct.

20. Which of the following expenses are NOT deductible as medical expenses?

Insulin used for diabetes.

Wig, purchased upon the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease.

Swimming lessons, recommended by a doctor for improvement of general health.

Acupuncture used for migraines.

21. Billy had bypass heart surgery in February Year 1. At the advice of his doctor, he had an elevator installed in his home so that he would not have to climb stairs. The costs associated with this capital improvement are as follows:

Cost of elevator installed 6/30/Yr 1	$5,000
Increase in value of home due to elevator	2,500
Cost of decorative lattice work over elevator 6/30/Yr 1	500
Increase in value of home due to lattice work	0
Maintenance and repair of elevator 9/30/Yr 1	500

None of the expenses were covered by insurance. How much would qualify as a deductible medical expense in Year 1, before any limitation?

$3,000

$2,500

$3,500

$5,500

22. Which one of the following expenses does NOT qualify as a deductible medical expense?

Cost of long-term care for a person who is intellectually and developmentally disabled in a relative’s home.

Special school for a deaf child to learn lip reading.

Cost of elevator installed for individual who had heart bypass surgery (in excess of increase in value of individual’s home).

Cost and care of guide dogs used by a blind person in his business.

23. Which of the following qualify as deductible medical expenses?

Payments to physician
Payments for elective cosmetic face-lifting operation
Medical portion of your auto insurance premium (although not separately stated)
Payments for acupuncture service
Domestic help

1, 3, and 5.

1 and 5.

1, 2, and 4.

1 and 4.

24. Scott is an 8-year-old with a rare lung problem. His doctor wants him to be examined by a specialist at the Mayo Clinic. Scott and his mother travel to Rochester, Minnesota. Scott is not sick enough to be admitted to the hospital, so he stays in a nearby hotel from which he can go to the hospital daily for the specialist to monitor his reaction to a new drug. Scott and his mother have separate rooms so that Scott can rest properly. They remain for 10 nights, and the rooms each cost $60 per night. How much of the hotel expense is allowable as a medical expense?

$500

$600

$1,000

$1,200

25. Mr. E, a single, 35-year-old taxpayer, had an adjusted gross income of $60,000 for the current year. In addition, he paid the following expenses:

Surgeon’s fee (outpatient)	$6,000
Psychiatrist’s fee	7,000
Hospital bill as follows:
Medical services	3,000
Meals in hospital	200
Hospital room charge	500
Transportation to/from doctor’s
office and hospital	50
Contact lenses	200
Prescription drugs	80
Vitamins for general health	60
Weight-loss program	300
Chiropractor’s fee	400

Mr. E also paid $900 for medical insurance premiums and received reimbursement of $6,000 from the insurance company on claims for the above expenses. Compute Mr. E’s current-year medical deduction for Schedule A.

$8,190

$7,830

$12,330

$13,830

26. Gail and Jeff Payne are married and filed a joint return for the current year. During the year, they paid the following doctors’ bills:

For Gail’s mother, who received over half of her support from Gail and Jeff but who does not live in the Payne household, and who earned $2,000 in the current year for baby-sitting.	$700
For their unmarried 26-year-old son, who earned $4,000 in the current year but was fully supported by his parents. He is not a full-time student.	500

Disregarding the adjusted gross income percentage test, how much of these doctors’ bills may be included on the Paynes’ joint return in the current year as qualifying medical expenses?

$500

$700

$1,200

27. Which one of the following expenditures qualifies as a deductible medical expense for tax purposes?

Vitamins for general health not prescribed by a physician.

Health club dues.

Transportation to physician’s office for required medical care.

Mandatory employment taxes for basic coverage under Medicare A. Taxpayer is covered by Social Security.

28. John is a cash-basis taxpayer. During the year, he incurred the following expenses for himself and his son, Michael, whom he claims as a dependent on his return.

$800 for braces;

$100 for babysitting so he could visit the chiropractor;

$900 for emergency room services for Michael;

$875 was covered by insurance;

John paid the remaining $25 in the next year.

John’s medical expense deduction before limitations is

$800

$825

$900

$925

29. Which of the following will NOT usually be 100% deductible as a medical expense?

Adding an elevator to your home to allow access to a second-floor bedroom.

Modifying the hardware on doors.

Lowering the kitchen cabinets.

Building entrance and exit ramps.

30. During the year, the Ship family incurred the following medical expenses:

Doctor fees	$1,450
Prescription medicine	650
Health club dues (advised by doctor
for general health purposes)	2,000
Medical insurance premiums	1,900
Medical insurance reimbursements	500

The Ships’ AGI for the year was $40,000. What is the amount the Ships would be able to deduct on their tax return after any limitation?

$3,500

$3,000

$1,000

$500

31. Which of the following statements are true about health insurance deductions?

A taxpayer is allowed a medical expense deduction for health insurance premiums.
The deduction is subject to the 7.5%-of-AGI floor.
Self-employed persons may deduct up to 75% of health insurance premiums paid from gross income.

I only.

I and II.

III only.

I, II, and III.

32. Jim and Nancy Walton, both age 55, had adjusted gross income of $25,000 in 2025. During the year, they paid the following medical-related expenses:

Over-the-counter medicines	$400
Prescription drugs	300
Doctor fees	830
Health club membership (recommended by
the family doctor for general health care)	800
Medical care insurance	280

How much may the Waltons use as medical expenses in calculating itemized deductions for 2025?

$1,410

$465

$735

33. Ruth and Mark Cline are married and will file a joint 2025 income tax return. Among their expenditures during 2025 were the following discretionary costs that they incurred for the sole purpose of improving their physical appearance and self-esteem:

Face lift for Ruth, performed by a licensed surgeon	$5,000
Hair transplant for Mark, performed by a licensed surgeon	3,600

Disregarding the adjusted gross income percentage threshold, what total amount of the aforementioned doctors’ bills may be claimed by the Clines in their 2025 return as qualifying medical expenses?

$3,600

$5,000

$8,600

34. Smith paid the following unreimbursed medical expenses:

Dentist and eye doctor fees	$ 5,000
Contact lenses	500
Facial cosmetic surgery to improve Smith’s personal appearance (surgery is unrelated to personal injury or congenital deformity)	10,000
Premium on disability insurance policy to pay him if he is injured and unable to work	2,000

What is the total amount of Smith’s tax-deductible medical expenses before the adjusted gross income limitation?

$17,500

$15,500

$7,500

$5,500

35. For a medical expense to be deductible as an itemized deduction in the current year, the expense must exceed what percentage of adjusted gross income?

10%.

7.5%.

2.0%.

Medical expenses are no longer deductible.

36. All of the following taxes are deductible on Schedule A (Form 1040) EXCEPT

State or local inheritance tax.

State income tax.

State real estate tax on a personal residence.

Foreign income tax.

37. In the current year, Maria paid the following taxes:

Special assessment to provide local benefits	$2,500
County real estate taxes paid on her vacation home	1,250
Sales taxes paid when she purchased a new auto	900
Personal property taxes paid to her local government	350

What amount is allowable as an itemized deduction for the current year?

$1,250

$2,500

$3,750

$5,000

38. During the current year, Ms. Gonzales paid $2,000 for local real estate taxes on property she rents to others and $3,425 real estate taxes on her residence. In addition, she paid gift taxes of $650 and $1,250 for state income taxes to New Jersey. What amount can Ms. Gonzales deduct as an itemized deduction on her tax return for the current year?

$4,675

$5,325

$6,675

$7,325

39. Taxes deductible as an itemized deduction up to $40,000 include all of the following EXCEPT

State and local real estate taxes based on the assessed value of the property and charged uniformly against all property.

State and local income taxes.

Taxes that the taxpayer paid on property owned by his or her parents or children.

Personal property taxes based on the value of the personal property.

40. In the current year, Smith paid $6,000 to the tax collector of Big City for realty taxes on a two-family house owned by Smith’s mother. Of this amount, $2,800 covered back taxes for the previous year, and $3,200 covered the current-year taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith’s itemized deductions on his current-year return, what amount was Smith entitled to claim for realty taxes?

$6,000

$3,200

$3,000

41. Which of the following costs are deductible on Form 1040, Schedule A, as taxes for 2025?

Personal property tax on an airplane
Garbage pickup itemized on the real estate bill
Real estate tax on property owned in Canada
Sales tax paid on the purchase of your personal car

None of the answers are correct.

1 and 4.

2, 3, and 4.

All of the answers are correct.

42. All of the following taxes could be deductible as itemized deductions EXCEPT

Ad valorem personal property tax.

Local property tax.

Tobacco tax.

Service charges for police protection.

43. Which of the following taxes is NOT deductible?

Special assessment to provide local benefits.

State and local real estate tax.

Personal property tax.

One-half of the self-employment tax paid.

44. Which of the following types of taxes can be deducted on Schedule A?

Transfer taxes on the sale of a residence.

A tax on a motor vehicle based on engine horsepower.

A tax on a motor vehicle based on vehicle weight.

None of the answers are correct.

45. Lonnie and Judy Landers bought a home July 1, 2025. Real estate taxes are assessed in their state on April 1, 2025, for property owned in 2024. The 2024 tax is due October 1, 2025. When the Landers bought the house they agreed to pay all taxes due after the date of purchase. Taxes of $1,200 for 2024 were due October 1, 2025, and the Landers paid this amount on October 1, 2025. In 2026, the Landers received a property tax bill for $1,500 for 2025. Payment is due October 1, 2026. What amount can the Landers deduct on their 2025 return as real property tax?

$1,200

$600

$750

46. During the current year, Anthony paid the following taxes:

County real estate taxes on rental property he owns	$3,000
County real estate taxes on his own residence	2,500
Federal income taxes	7,000
State income taxes	2,700
Local city income taxes	500
Social Security taxes for household help	500

Anthony did not use the rental property for personal purposes. What amount is deductible as an itemized deduction on Anthony’s current-year income tax return?

$5,200

$5,700

$8,700

$14,000

47. Humberto purchased a new home on March 15, 2024, in a county that assesses real estate property taxes in the succeeding year (i.e., 2024 taxes assessed in 2025). At the closing on his new home, Humberto received the following credits against the purchase price of the home:

2023 real estate property taxes	$2,000
2024 real estate property taxes prorated	420

In 2024, when the real estate property tax bill for 2023 came in, Humberto had to pay $2,200 total. The real estate property tax bill for 2024 rose to a total of $2,350, which he paid when he received it in 2025. What is the amount of Humberto’s deduction for real estate property taxes on his 2024 and 2025 income tax returns?

2024

$2,200

2025

$2,350

2024

$200

2025

$1,930

2024

2025

$1,930

2024

2025

$1,880

48. Jeremy decided to itemize on his Year 1 return. He has the following receipts:

State income tax, $3,000
Federal income tax, $12,000
County real estate tax, $2,000
Fee for inspection of car that he uses only personally, $50
Homeowners’ association fees on his personal home, $500
Self-employment tax of $1,000

Compute the amount of tax deductions he can take on his Schedule A, Itemized Deductions.

$18,550

$6,000

$5,000

$5,500

49. During the current year, Jack and Mary Bronson paid the following taxes:

County taxes on residence (for period January 1
to September 30 of the current year)	$2,700
State motor vehicle tax on value of the car	360

The Bronsons sold their house on June 30 of the current year under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What amount should the Bronsons deduct as taxes in calculating itemized deductions for the current year?

$1,800

$2,160

$2,700

$3,060

50. Mr. and Mrs. Smith’s real property tax year is the calendar year. Real estate taxes for the previous year are assessed in their state on January 2 and become due on May 1 and October 1. The tax becomes a lien on May 1. The Smiths bought a home on July 1 of the current year. The real estate taxes on the home for the previous year, which became due in the current year, were $1,000. The Smiths agreed to pay the $1,000 after the sale. They paid $500 in late taxes on August 1 and $500 on October 1. How should the Smiths treat the tax payments for federal income tax purposes for the current year?

The entire $1,000 is deductible.

They may deduct only the $500 payment made on October 1.

They may not deduct any amount but must add the $1,000 to the cost of their home.

They may deduct only the $500 payment made on August 1 as a settlement fee or closing cost.

51. During the year, Mark paid his first quarter county real estate taxes of $1,400 on his personal home. Mark paid real estate taxes on his unemployed brother-in-law’s home of $800. During the year, Mark was assessed a tax for trash pick-up of $165. He also paid a tax of $250 for improvements made by the town in his development, which increased the value of his property. Mark also withdrew the entire amount of $10,400 from his traditional IRA of which $2,400 was interest earned, to go on vacation to Italy. Mark, in previous years, had taken deductions for his IRA contributions. Mark is 48 years old. What is deductible on his Form 1040 for real estate taxes and what is the tax penalty, if any, on the early withdrawal from his IRA?

Deductible Real Estate Tax on Schedule A

$1,400

Tax on IRA

Deductible Real Estate Tax on Schedule A

$1,400

Tax on IRA

$240

Deductible Real Estate Tax on Schedule A

$1,815

Tax on IRA

$1,040

Deductible Real Estate Tax on Schedule A

$1,400

Tax on IRA

$1,040

52. During the current year, Paul and Mary Davis, cash-basis taxpayers, paid the following taxes:

State income taxes withheld	$ 300
Estimated federal income tax	250
Estimated state income tax	1,500
Sales tax on new auto used 60% for business	1,400
State gift tax	1,050
State and local property tax, including $50 for trash pickup	2,600
Property tax on their vacation home in Canada	1,000

What amount can Mary and Paul claim as an itemized deduction on their current-year federal income tax return?

$5,350

$4,350

$5,400

$5,450

53. Ms. L, a cash-basis taxpayer, lives in a county where the real estate tax year runs from July 1 to June 30. The tax bills are due in two installments--July 1 and January 1. Ms. L purchased her first house on September 1 of the current year. As part of her purchase price, she reimbursed the sellers $700 for her share of the current-year real estate taxes. At the date of purchase, she also paid her mortgage company $450, which was credited to her tax escrow account. From her monthly mortgage payments in the current year, a total of $600 was credited to her tax escrow account. On January 4 of the following year, the bank paid the escrow balance to the county tax office. L’s real estate tax deduction for the current year is

$450

$700

$1,150

$1,750

54. Mr. Jones filed an amended federal income tax return during the current year for an earlier tax year. This amended return resulted in an additional tax payment of $400, a penalty of $100, and an interest payment of $40. How much of these payments will be deductible on the current-year tax return?

$440

$40

55. During the current year, Marlena paid $4,000 for county real estate taxes on property she rents to others and $6,850 county real estate taxes on her residence. In addition, she paid Social Security taxes of $1,300 for household help and $2,500 for state income taxes to New Jersey. What amount can Marlena deduct as an itemized deduction on her tax return for the current year?

$9,350

$10,650

$13,350

$14,650

56. During the current year, Luca paid the following taxes:

State and local real estate taxes on rental property he owns	$ 4,500
State and local real estate taxes on his own residence	3,750
Federal income taxes	10,500
State income taxes	4,050
Local city income taxes	750
Social Security taxes for household help	750

Luca did not use the rental property for personal purposes. What amount is deductible as an itemized deduction on Luca’s current-year income tax return?

$7,800

$8,550

$13,050

$21,000

57. Which of the following taxes may be deducted on Form 1040, Schedule A?

Homeowners’ association charges.

Assessments for sewer lines.

State income taxes on municipal bond interest.

State and local taxes on gasoline.

58. Which of these taxes is deductible on Schedule A?

Current-year property taxes paid for real property purchased on December 31 of the current year.

Current-year property taxes paid on land owned in Canada.

Personal property tax paid annually on a luxury car based on its value.

A special assessment paid to improve the taxpayer’s neighborhood.

59. Johnny has been divorced for 8 years. He failed to make his alimony and support payments. The court ordered him to pay $1,500 as interest on the back alimony and support payments. He paid interest of $1,000 on a car loan, $2,500 on his outstanding credit card balance, $6,000 on a home equity loan that was not used to substantially improve his residence, and $10,000 on his mortgage. Other interest payments amounted to $2,500 on various appliance loan payments. How much is Johnny’s deductible interest?

$18,500

$10,000

$23,500

$17,500

60. Keith and Margaret had adjusted gross income of $100,000. They had real estate taxes of $4,000, mortgage interest of $12,000, home equity loan interest of $6,000 used to substantially improve the residence, automobile loan interest of $3,000, second home mortgage interest of $4,000, and credit card interest of $2,000. The total allowable interest deduction is

$31,000

$24,000

$22,000

$18,000

61. Which of the following would disqualify points from being fully deductible in the year paid?

The points were computed as a percentage of the amount of the mortgage.

The loan proceeds were used to purchase a second home.

The payment of points is common in your area.

The points are clearly stated on the settlement statement.

62. Which of the following is treated as personal interest of Individual A?

Interest incurred on refinancing A’s home if the funds are used to substantially improve the qualified residence.

Interest incurred to purchase bonds as an investment.

Interest incurred by a limited partnership in which A is a limited partner.

Interest incurred on an ordinary bank loan if the funds are used to provide medical care for a dependent of A.

63. Which of the following interest expenses incurred by Leila is treated as a personal interest?

Ordinary bank loan used to pay for her son’s medical care.

Interest on a $200,000 home mortgage she took out in 2015.

Bonds purchased with accrued interest.

Interest incurred by a partnership in which Leila is a limited partner.

64. Chester and Mary, a married couple, have interest and dividends (investment income) of $14,000. They have margin interest expense of $16,000, home mortgage interest of $12,000 on a $360,000 loan, equity loan interest (for substantial improvements to the home) of $3,000 on a $50,000 loan, credit card interest of $4,500 and automobile loan interest of $2,000. They have no tax-exempt investments. What amount can they take as interest deductions after limitations?

$29,000

$52,500

$31,000

$37,500

65. Mary and George are both employed by H.T. Forest & Co. Her salary was $35,000 and his was $30,000. During the year, they made the following interest payments: mortgage $8,000, car loan $2,000, home equity loan (for substantial home improvements) $3,000, and interest on margin account $4,000. In addition to their salaries, they had interest income of $1,500 and dividend income of $1,000. What is the amount that Mary and George will be able to deduct on Schedule A?

$17,000

$13,500

$15,500

$15,000

66. Which of the following payments can Demi deduct, at least in part, as interest in the current year?

Points that the seller paid to a lender to arrange financing for Demi’s purchase of her main home.

Interest she paid on a loan used to purchase tax-exempt bonds.

Interest on income taxes paid to the IRS.

Property insurance premiums on a policy entered into in 2025.

67. On July 1, 2022, Correy refinanced his mortgage and obtained a new 30-year loan. He paid $3,600 (1% of the loan value) to obtain an 8% rate. On March 1, 2025, Correy sold his home and purchased a new house, with a down payment of $10,000. He paid an additional 1% of the loan value ($3,600) to obtain a 30-year loan with an 8% interest rate. Points are normal business practice and were reasonable in the area in which Correy lived. Assuming mortgage payments were made at the end of the month, how much can Correy deduct as points on his 2025 tax return?

$3,400

$3,600

$6,900

68. Matt paid interest in 2025 as follows:

$100 on his personal credit card
$200 on funds borrowed in order to purchase $6,000 in tax-exempt securities
$500 interest on his personal car loan since he does not use his car for business
$10,000 on his home mortgage

What is the amount of Matt’s deductible interest in 2025?

$17,400

$10,600

$10,000

$10,800

69. Geraldine, a single taxpayer, had investment income from dividends and a net gain on the sale of investment property that totaled $12,000. Geraldine’s investment expenses of $2,980, other than interest, were directly connected with the production of the investment income. Geraldine’s adjusted gross income was $100,000, and her investment interest paid was $12,500. When figuring her investment interest deduction, she chooses to include all of her net capital gain in investment income. What is Geraldine’s investment interest deduction?

$9,020

$12,500

$12,000

$11,020

70. Earl took out a mortgage on his home for $250,000 in 2015. He filed as single for 2025. In April 2025, when the home had a fair market value of $430,000, Earl took out a home equity loan for $140,000. He used the proceeds as follows:

$90,000 for home improvements
$30,000 for payment of credit card debt
$20,000 for purchase of securities that produce tax-free income

How much of the $140,000 loan would produce deductible mortgage interest in 2025?

$90,000

$120,000

$140,000

71. George had the following income and expenses:

Interest and dividend income of $8,000
Gross wages of $100,000
Margin interest of $10,000
Mortgage interest of $6,000
Interest on a mobile home used as a second home, $3,000
Credit card interest of $2,000

How much interest can George deduct on Schedule A?

$21,000

$18,000

$17,000

$19,000

72. Luke took out a mortgage on his home for $250,000 10 years ago. He filed as single for Year 1. In April Year 1 when the home had a fair market value of $430,000 and he owed $180,000 on the mortgage, he took out a home equity loan for $140,000. Luke used the proceeds as follows:

$90,000 was for substantial home improvements.
$30,000 was for credit card debt.
$20,000 was used to purchase securities that produce tax-free income.

How much of the $140,000 loan would produce deductible mortgage interest in Year 1?

$120,000

$90,000

$140,000

73. On June 30, Jeff, who uses the cash method of accounting, borrowed $25,000 from a bank for use in his business. Jeff was to repay the loan in one payment with interest on December 30 of the same year. On December 30, he renewed that loan plus the interest due. The new loan was for $27,000. What amount of interest expense can Jeff deduct for the current year?

$333

$1,000

$2,000

74. In the current year, Mr. A, a sole proprietor, made interest payments of $800 on his personal credit cards, $650 on his business truck loan, $3,000 to the bank for a loan origination fee (charge for services) for his Veterans Administration mortgage, and $8,000 on his home mortgage. What is the total allowable interest deduction on Schedule A, Form 1040?

$12,450

$11,800

$9,450

$8,000

75. Which of the following payments may be deducted in full in the current year as interest expense on Form 1040, Schedule A?

Mortgage prepayment penalty
Interest relating to tax-exempt interest income
Installment plan interest for clothes purchases
Mortgage interest
Credit investigation fees

1, 3, and 5.

1 and 4.

2, 4, and 5.

3 and 4.

76. Investment interest generally includes

Interest expense for rental activity in which the taxpayer materially participates.

Interest expense for an investment in property subject to a net lease.

Interest expense to acquire a limited partnership interest.

Interest expense to acquire stocks and bonds.

77. How much of the following interest expense is deductible on Schedule A before limitations? The taxpayer is reporting $1,500 in investment income.

$1,200 interest paid on a loan used to purchase a vacant lot held for investment

$750 interest paid on a qualifying student loan

$2,700 credit card interest on an advance used to make a down payment on a new home

$625 interest on a loan used to invest in tax-free bonds

$1,200

$1,950

$4,650

$3,900

78. Carla borrowed $100,000 to buy land for investment. Her income sources for the year include $3,000 interest, $1,000 dividends, and $4,000 royalties. How much of the $5,000 interest expense paid on the land loan can she deduct this year?

$8,000

$4,000

$3,000

$5,000

79. Which of the following types of interest payments, not allowed because of one of the limitations, may be carried over to the next year?

Interest on a personal car loan.

Interest on credit cards.

Interest on a personal residence mortgage.

Interest on money borrowed to buy stocks.

80. Wilson, CPA, uses a commercial tax software package to prepare clients’ individual income tax returns. Upon reviewing a client’s computer-generated Year 1 itemized deductions, Wilson discovers that the schedule’s deductible investment interest expense is less than the amount paid by the taxpayer and the amount that Wilson entered into the computer. After analyzing the entire tax return, Wilson determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct?

The client’s investment interest expense exceeds net investment income.
The client’s qualified residence interest expense reduces the deductible amount of investment interest expense.

I only.

II only.

Both I and II.

Neither I nor II.

81. During the current year, Ms. Cheung used corporate stock that she held for investment as collateral to borrow funds. The funds were used to purchase personal property for sale in her business. Which of the following statements concerning the interest expense paid or incurred by Ms. Cheung is true?

The expense is limited by the personal interest limitation.

The expense is fully deductible in the year paid or incurred.

The expense is limited by the investment interest limitation.

The expense has to be capitalized.

82. All of the following statements regarding deductible interest expense are true EXCEPT

The day you mail a check for the payment of interest is the date the interest is paid.

“Points” paid by a seller are deductible as interest only by the seller.

A mortgage prepayment penalty is deductible as interest.

“Points” paid by the borrower for the use of money are deductible as interest either ratably as the loan is repaid or in the year of payment.

83. Raul and Monika (husband and wife) are both lawyers, and they contribute money to various organizations each year. They file a joint return, and their adjusted gross income for 2025 is $100,000. They contributed to the following organizations in 2025:

$5,000 to Alta Sierra country club
$10,000 to prevent cruelty to animals
$2,000 to state bar association (This state bar association is not a political subdivision of the state, serves both public and private purposes, and the funds used are unrestricted and can be for private purposes.)
$12,000 to cancer research foundation
Donated clothing to Salvation Army (Raul purchased the items for $1,000, but the fair market value of the same items at a thrift store is equal to $50.)

How much can Raul and Monika deduct as charitable contributions for 2025?

$29,050

$25,000

$22,050

$24,000

84. Mr. Hardwood has an adjusted gross income of $50,000. In 2025, he donated capital gain property valued at $25,000 to his church and did not choose to reduce the fair market value of the property by the amount that would have been long-term capital gain if he had sold it. His basis in the property was $20,000. In addition, he made the following contributions:

$500 to upgrade the city public park
$1,000 to the Hill City Chamber of Commerce
$5,000 to a charitable organization in Germany

Compute Mr. Hardwood’s deduction for charitable contributions in the current year (without regard to any carryover or carryback amounts).

$25,000

$31,500

$16,500

$15,500

85. In 2025, Janice volunteered at her local art museum where she conducted art-education seminars. She was required to wear a blazer that the museum provided, but she paid the dry cleaning costs of $200 for the year. The blazer was not suitable for everyday use. Her travel to and from the museum was 1,000 miles for the year. She estimates the value of the time she contributed during the year at $2,000 ($20/hr × 100 hours). Her Schedule A deduction for charitable contributions is which of the following?

$2,340

$2,140

$140

$340

86. The acknowledgment an individual needs from any charitable organization to claim a deduction for any cash contribution of $250 or more in a single donation must include which of the following?

The reason for the contribution.

The returned check showing the donation amount.

A description of past contributions and any plans for future contributions.

A contemporaneous written receipt.

87. Jerry’s adjusted gross income for the current year is $40,000. How much of the following contributions (after limitations, if any) can he deduct on Schedule A?

$1,000 paid at a charity auction for a week at a fishing resort in Arkansas. The trip is valued at $1,000.
$500 to the local Chamber of Commerce.
Land adjacent to his church for use as a parking lot. The fair market value of the land is $35,000. Jerry paid $20,000 for the land. He does not elect to reduce the fair market value to qualify for a different AGI limit.

$20,000

$12,000

$10,500

$8,000

88. Which of the following statements is NOT true regarding documentation requirements for charitable contributions?

If the total deduction for all noncash contributions for the year is more than $500, Section A of Form 8283, Noncash Charitable Contributions, must be completed.

A noncash contribution of less than $250 must be supported by a receipt or other written acknowledgment from the charitable organization.

A deduction of more than $1,000 for one property item generally requires that a written appraisal be obtained and attached to the return.

A contribution charged to a credit card is a cash contribution for purposes of documentation requirements.

89. If the taxpayer makes a contribution by cash, check, credit card, or payroll deduction to a qualified organization, what record of the contribution is the taxpayer required to obtain from the organization?

If the amount is for some item or service, like a charity dinner, and over $100, the taxpayer must have a separate acknowledgment for each contribution.

For annual payroll deductions over $250, the taxpayer must have a separate acknowledgment for each contribution.

Weekly contributions of $50 to the taxpayer’s church must have a separate acknowledgment for each contribution.

For contributions under $250, the taxpayer must keep an account, statement, receipt or other reliable written record.

90. The written acknowledgment an individual needs from any charitable organization to claim a deduction for any cash contribution of $250 or more in a single donation must include all of the following EXCEPT

The amount of cash contributed.

Whether the organization is a 50% or a 30% organization.

Whether goods or services were provided to the donor.

A description and good-faith estimate of the value of any goods or services provided to the donor.

91. Which of the following organizations qualifies for deductible contributions (not dues)?

A public library in your city.

The Salvation Army.

Churches.

All of the answers are correct.

92. In the current year, Donald donated his old car to the local high school to be used by students studying car repair and received a written receipt. Donald had originally purchased the car for $10,000 5 years ago. The “blue book” value of the car was listed as $2,000. However, it needed some major repair work. Donald checked with several local dealers and determined that the car would not sell for more than $1,000. What amount can Donald deduct as a charitable contribution for the current year?

$1,000

$2,000

$10,000

93. During the current year, John donated $100 to the United Way, $200 to Veterans of Foreign Wars, and $300 to his neighbor whose home was destroyed by a tornado. How much is John’s deduction for charitable contributions?

$300

$400

$500

$600

94. Mr. Young’s records for the year reflect the following information:

Paid $7,500 to a church of which $4,500 was contributed to the church and $3,000 was paid to enroll his child in the school.
Paid $100 to the local bank.
Paid $1,000 cash to qualified public charitable organizations.
Donated stock having a fair market value of $1,800 to a qualified charitable organization. He purchased the stock 5 months earlier for $1,000.

Mr. Young’s adjusted gross income (AGI) for the year was $25,000. What is the amount of his charitable contribution deduction?

$6,500

$6,600

$7,500

$10,600

95. Some contributions may be limited to 50% of the taxpayer’s adjusted gross income. Deductions to the following organizations are subject to the 50% limitation on deductible contributions:

Churches; church organizations; conventions; and educational organizations with regular faculty, curriculum, and regularly enrolled students.

Hospitals and certain medical research organizations associated with them.

Kiwanis, Rotary, and Lions Clubs who raise money for public causes.

Churches; church organizations; conventions; educational organizations with regular faculty, curriculum, and regularly enrolled students; and hospitals and certain medical research organizations associated with them.

96. Ms. Boone’s records for 2025 reflect the following information:

Paid $8,500 to a church of which $5,000 was contributed to the church and $3,500 was paid to enroll her child in its school.
Paid $100 dues to a business organization.
Paid $1,500 cash to the University of Florida scholarship fund.
Donated stock having a fair market value of $1,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000.

Ms. Boone’s adjusted gross income for 2025 was $25,000. What is the amount of her charitable contribution deduction?

$7,500

$8,000

$9,600

$12,500

97. For 2025, Mrs. Lynn had adjusted gross income of $30,000. During the year, she contributed $9,000 to her church, $10,000 to qualified public charities, and a painting she has owned for 8 years with a fair market value of $16,000 and a $4,000 adjusted basis to her city’s library. What is the amount of Mrs. Lynn’s charitable contributions deduction for the year?

$18,000

$19,000

$23,000

$35,000

98. For the current year, Mr. Reid had adjusted gross income of $50,000. During the year, he contributed $5,000 to his church and $2,000 to qualified public charities. He also contributed land with a fair market value of $25,000 and a basis of $20,000 to his church. If Reid itemizes his deductions, what is the amount of his deduction for charitable contributions?

$22,000

$25,000

$27,000

$32,000

99. Mr. and Mrs. Mead, both full-time teachers, wanted to volunteer their services to work for the tsunami victims. Their services consisted of going to various neighborhoods in the community to raise funds for the tsunami cause. While volunteering, the Meads kept records of the costs involved. These costs included time spent, out-of-pocket expenses for travel, and car expenses.

The Meads valued their volunteered time at $500 total for the year;
Out-of-pocket expenses directly related to their services rendered were at $25 for parking fees and $350 for gas and oil; and
Car expenses for new tires were at $200 and registration fees at $90.

If the Meads elect to take the actual expenses, how much can they deduct in 2025?

$375

$665

$875

$1,165

100. Vera and Jack (wife and husband) contributed $18,000 in cash to their synagogue during 2025. They also donated $3,000 to a private foundation which is a non-profit cemetery organization. They knew a 30% limit applies to contributions to such foundations. Their adjusted gross income for the year 2025 was $30,000. Vera and Jack’s deductible contribution for the year 2025 and any carryover to next year is

$21,000 with $0 carryover to next year.

$15,000 with $6,000 carryover to next year.

$7,200 with $2,100 carryover to next year.

$18,000 with $3,000 carryover to next year.

101. Brian kept the following information to be used in filing his 2025 tax return:

Brian paid $100 to his church to go to a dinner-dance. The dinner and entertainment provided normally would have cost $50.
Brian used his car to take a tax-exempt youth group on a caving trip. Brian was the only troop leader who attended and was in charge for the entire trip. He drove his car 500 miles and elected to use the standard rate for mileage. He also determined his time of 10 hours for the trip to be worth $10 per hour.
Brian contributed $1,000 each to his church and the local chamber of commerce.

What is the amount that Brian can claim as a charitable contribution in 2025?

$1,550

$1,255

$1,220

$1,120

102. Joe has the following records of charitable contributions he made in 2025. How much can he deduct on Schedule A, Itemized Deductions?

$300 check to local church but no written acknowledgment
$600 by payroll deduction of $50 per month to United Way
$400 fair market value of furniture to a qualifying shelter with receipt and acknowledgment from the shelter dated after the return is filed.

$1,300

$900

$600

$1,000

103. Julie made cash contributions to her local chapter of the Society for Prevention of Cruelty to Animals (SPCA) to care for stray dogs and cats. She donated several times a year but paid less than $250 for the entire year. These are the only charitable contributions Julie makes during the year. What documentation must Julie keep and provide to the Internal Revenue Service upon request in order to substantiate her tax return charitable contribution deduction?

No documentation is necessary since the contribution is less than $250.

A receipt for each donation that shows the amount, date, and to whom paid.

An acknowledgment from the SPCA that she made contributions during the year.

A self-prepared statement or letter would be sufficient for contributions less than $250.

104. Ms. Rosen, a volunteer Girl Scout leader, gave you the following list regarding her charitable contributions for 2025:

The use of Ms. Rosen’s basement as the Scouts’ meeting room, with fair rental value of $500 ($10 per week for 50 weeks)
Ms. Rosen’s services of $2,500 (5 hours per week for 50 weeks at $10 per hour)
Airfare of $550 to attend and speak at a national Girl Scout meeting as a representative of the local organization
Automobile expenses of $140 (200 miles to and from Girl Scout summer camp in August at $0.70 per mile)

What is the amount, if any, of Ms. Rosen’s charitable contribution?

$3,078

$1,078

$690

$578

105. Ilene made the following cash contributions to qualifying organizations for the year:

Veterans of All Wars	$8,000
University of Nevada Las Vegas	5,000
Hospital for Children	7,000

Ilene’s AGI for the year was $30,000. What is her allowable contribution deduction?

$18,000

$20,000

$15,000

$9,000

106. All of the following are qualified organizations for charitable contribution purposes EXCEPT

Civic league.

War veterans’ organization.

Nonprofit volunteer fire company.

Medical research organization.

107. During the current year, Mr. K, who is single and 45 years of age, made cash contributions of $500 to his church. Mr. K is taking the standard deduction on his current-year return. What is the amount of Mr. K’s deduction for charitable contributions?

$500

$300

$75

108. On December 20 of the current year, Mr. and Mrs. Garrison purchased four tickets for a New Year’s Eve party at their church, a qualified charitable organization. Each ticket cost $75 and had a fair market value of $50. The Garrisons gave two of the tickets to a needy family in the community. Mr. Garrison tended bar at the party from 8 p.m. to 4 a.m. and was paid $40. The usual charge for such services is $80. Immediately before midnight, Mr. Garrison pledged $200 to the building fund and delivered a check for that amount on January 2 of the following year. Of the amounts described above, the total amount the Garrisons can include as a charitable contribution deduction for the current year on a joint return is

$340

$140

$100

$50

109. Mr. Q’s records for the year contain the following information:

Donated stock having a fair market value of $1,000 to a qualified charitable organization. He acquired the stock 5 months previously at a cost of $800.
Paid $3,000 to a church school as a requirement for the enrollment of his daughter.
Paid $200 for annual homeowner’s association dues.
Drove 300 miles in his personal auto that were directly related to services he performed for his church. Actual costs were not available.
Paid $40 in parking fees and tolls in connection with the 300 miles.

What is Mr. Q’s charitable contribution deduction for the year?

$882

$1,082

$4,042

$4,082

110. During the current year, Vincent Tally gave to the municipal art museum title to his private collection of rare books that was appraised and valued at $60,000. However, he reserved the right to the collection’s use and possession during his lifetime. For the current year, he reported an adjusted gross income of $100,000. Assuming that this was his only contribution during the year and that there were no carryovers from prior years, what amount can he deduct as contributions for the current year?

$30,000

$50,000

$60,000

111. Mr. U is actively involved in church activities in his community. During the current year, he incurred the following church-related expenses:

Cash contributed to the church	$2,000
Round-trip mileage to attend church services (400 miles × $0.14)	56
Round-trip mileage to do church volunteer work (500 miles × $0.14)	70
Fair market value of used clothing given to church mission	500
Raffle tickets purchased from the church	200
Value of time and services contributed to the church	400

Mr. U’s adjusted gross income is $25,000, and he itemizes his deductions on his tax return. What is his charitable contribution deduction?

$2,500

$2,570

$2,770

$3,226

112. Mr. E donated stock, which he had held for 10 months, to his church. The stock had a fair market value of $1,000 at the time of the gift, but had only cost Mr. E $800. What amount can he deduct as a charitable contribution?

$200

$600

$800

$1,000

113. All of the following statements relating to a contribution of $500 or more of charitable deduction property (property other than money or publicly traded securities) are true EXCEPT

An organization that received such property in July of the current year and sells it in December of the following year must file a special return Form 8282, Donee Information Return, within 125 days after the disposition.

An organization selling such property must provide the donor with a copy of Form 8282, Donee Information Return, or be subject to a penalty.

The donor of such property is required to get a qualified appraisal if the claimed value of the property exceeds $1,000.

The organization receiving such property is not a qualified appraiser for the purpose of making a qualified appraisal.

114. Kate’s records for the year reflect the following information:

Paid a church $9,500, of which $6,000 was contributed to the church and $3,500 was paid to enroll her child in its school.
Paid $100 dues to a business organization.
Paid $1,500 cash to qualified public charitable organizations.
Donated stock having a fair market value of $1,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000.

Kate’s adjusted gross income (AGI) for the year was $20,000. What is the amount of her charitable contribution deduction?

$7,500

$9,000

$10,000

$13,500

115. Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer?

A contemporaneous written acknowledgment is required for donations of $100.

A charitable contribution deduction is not allowed for the value of services rendered to a charity.

A qualified appraisal for real property donations is not required to be attached to the tax return unless the property value exceeds $10,000.

The charitable contribution deduction for long-term appreciated stock is limited to 50% of adjusted gross income.

116. Which of the following would qualify as a deductible charitable contribution in Year 1 for an individual taxpayer?

A $200 contribution to the taxpayer’s church charged by credit card on December 31, Year 1.

A $450 contribution to a senator’s campaign on December 31, Year 1.

A $1,000 contribution to a foreign charity on December 31, Year 1.

A contribution on December 31, Year 1, of $500 worth of clothing to the Salvation Army for which substantiation was not obtained.

117. Alberta and Archie (wife and husband) had water damage in their home during 2025, which ruined the furniture in their basement. This was in a federal disaster area. The following items were completely destroyed and not salvageable.

Damaged items	Fair market value just prior to damage	Original item cost
Antique bed frame	$5,000	$ 4,000
Pool table	8,000	10,000
Large-screen TV	700	2,500

Their homeowner’s insurance policy had a $10,000 deductible for the personal property, which was deducted from their insurance reimbursement of $12,700. Their adjusted gross income for 2025 was $30,000. What is the amount of casualty loss that Alberta and Archie can claim on their joint return for 2025?

$10,600

$3,400

$6,900

118. In 2025, the U.S. President declared a federal disaster due to flooding in West Virginia. Lisa lives in that area and lost her home in the flood. What choice does she have regarding when she can claim the loss on her tax return?

It must be claimed in 2024 if the return has not been filed by the date of the loss.

It must be claimed in 2025 if the loss is greater than the modified adjusted gross income.

It may be claimed in 2026 if an election is filed with the 2025 return.

It may be claimed in 2024 or 2025.

119. Frank and Melody’s home was completely destroyed by fire in a federally declared disaster. They had no insurance. On which of the following forms would they report their loss?

Form 4684, Casualties and Thefts, and Form 1040, U.S. Individual Income Tax Return, as an adjustment to gross income.

Schedule A, Itemized Deductions, only.

Form 4684, Casualties and Thefts, and Schedule A, Itemized Deductions.

Form 4684, Casualties and Thefts, only.

120. In 2025, Jorge’s pleasure boat was destroyed by a flood (a federally declared disaster). He had purchased the boat in 2023 for $30,000. His insurance policy had lapsed at the time of the flood. On what form(s) will Jorge report this loss?

Schedule A, Itemized Deductions, and Form 4684, Casualties and Thefts.

Schedule D, Capital Gains and Losses, and Form 4684, Casualties and Thefts.

Schedule D, Capital Gains and Losses, and Form 4797, Sales of Business Property and Involuntary Conversions.

On the first page of Form 1040.

121. Alona is a student, and her personal car disappeared during a hurricane in September of 2025 (a federally declared disaster). It was found several days later severely damaged. The decrease in fair market value (less than her adjusted basis) was $3,500. In addition, a personal laptop computer in the car at the time was never recovered (fair market value $500, also less than her adjusted basis). What is the amount and treatment of the casualty loss after considering the $100 minimum floor but before the AGI limitation?

Schedule A loss of $3,800 for the car and computer.

Schedule D loss of $3,500 for the car and a Schedule A loss of $500 for the computer.

Schedule A loss of $3,900 for the car and the computer.

Schedule D loss of $4,000 for the car and the computer.

122. Which of the following statements about losses in federally declared disaster areas is NOT true?

The taxpayer has the option of deducting the loss on the return for the year immediately preceding the year in which the disaster actually occurred.

If the taxpayer’s home is located in a federally declared disaster area, and the state government orders that it be torn down, the taxpayer may be able to treat the loss in value as a casualty loss from a disaster.

Disaster area loss deductions are figured using a $100 floor.

Once made, the election to deduct the loss on the prior-year return cannot be revoked.

123. On March 28, 2026, Rita sustained a loss to her personal property due to an earthquake. The property was in an area declared by the President of the United States to be eligible for federal disaster assistance. Based on the following facts, what is the maximum amount of Rita’s casualty loss, if elected, that can be deducted on her 2025 tax return, due April 15, 2026?

Fair market value before the earthquake	$23,000
Fair market value after the earthquake	6,300
Cost basis	30,000
Disaster relief funds received to replace
lost property	2,300
Adjusted gross income for 2025	27,000

$30,000

$16,700

$14,400

$11,600

124. On December 10, 2025, Mr. and Mrs. Anchor’s personally owned yacht was wrecked in a federally declared disaster. Based on the following information, what is the amount of loss Mr. and Mrs. Anchor can deduct for 2025?

Fair market value of yacht before the wreck	$ 34,500
Fair market value of yacht after the wreck	0
Adjusted basis of yacht before wreck	40,000
Insurance reimbursement received 2/1/2026	19,500
Replacement cost	45,000
Adjusted gross income for 2025	100,000

$4,900

$40,000

$34,500

$34,000

125. A flood damaged an auto owned by Mr. and Mrs. Horton on June 15, 2025. The area of the flood was a federally declared disaster area. Based on the following facts, what is the amount of the Hortons’ casualty loss deduction for 2025 (assume an election was not made to file an amended return for 2024)?

Fair market value before the flood	$11,000
Fair market value after the flood	5,000
Cost basis	5,500
Insurance proceeds	1,500
Replacement property through disaster relief	200
Business use of auto	0
Adjusted gross income for 2025	25,000

$1,200

$3,300

$3,800

$2,700

126. On December 10, 2025, Mr. and Mrs. Brady’s personally owned yacht was wrecked in a federally declared disaster. Based on the following information, what is the amount of loss Mr. and Mrs. Brady can deduct for 2025?

Fair market value of the yacht before the wreck	$55,000
Fair market value of the yacht after the wreck	0
Adjusted basis of the yacht before the wreck	45,000
Insurance reimbursement received 2/1/2026	22,500
Replacement cost	45,000
Adjusted gross income for 2025	80,000

$14,400

$22,000

$24,400

$36,900

127. The following information pertains to Cole’s personal residence, which sustained federally declared disaster fire damage in the current year:

Adjusted basis	$150,000
Fair market value immediately before the fire	200,000
Fair market value immediately after the fire	180,000
Fire damage repairs paid for by Cole in the current year	10,000

The house was uninsured. Before consideration of any “floor” or other limitation on tax deductibility, the amount of the casualty loss was

$30,000

$20,000

$10,000

128. In 2017, Mr. P bought a residential lot for $8,000 and built a house on it at a cost of $52,000. He added an in-ground swimming pool costing $15,000 in 2019. The house was destroyed by fire in 2025 in a federally declared disaster, and he received a $45,000 insurance settlement. The fair market value of the property was determined to be $115,000 immediately before the fire and $25,000 immediately after. Mr. P’s adjusted gross income for 2025 was $65,000. What is the amount of his nonbusiness casualty loss deduction?

$68,400

$30,000

$23,400

$38,400

129. A calendar-year taxpayer’s home was destroyed by a flood in Year 2 and was located in a town declared a federal disaster area. A casualty loss of $10,000 was figured under the usual rules. On what return can the casualty loss be claimed?

Only on the Year 2 return.

Only on the Year 1 return.

On either the Year 2 or the Year 1 return.

Split the loss between Year 2 and Year 1.

130. Jane bought an old mountain cabin as a second home and began to remodel it. Immediately after she had removed the old appliances and cleaned the cabin, a fire destroyed it. The area was declared a federal disaster. The cost of the cabin was $100,000 (including $10,000 for the land). The fair market value (FMV) of the property before the fire was $120,000 ($105,000 for the building and $15,000 for the land). After the fire, the FMV was $15,000 (value of the land). Jane collected $85,000 from her insurance company. Her casualty loss (before applying any limits) is

$20,000

$5,000

$15,000

131. A flood completely destroyed Mr. and Mrs. Washington’s home on November 30, 2025. The home was located in a federally declared disaster area. They claimed the loss on their 2025 tax return. Based on the following facts, what is the amount of loss Mr. and Mrs. Washington can deduct for 2025?

Basis (contents not considered for this purpose)	$110,000
Fair market value before flood	150,000
Fair market value after flood	30,000
Insurance reimbursement received 2/15/2026	80,000
Replacement 2/1/2026 (property provided under disaster relief programs of government agencies)	8,000
Adjusted gross income for 2025	40,000

$17,900

$27,900

$35,900

132. A flood damaged an auto owned by Mr. and Mrs. Miller on June 15, 2025. The area of the flood was a federally declared disaster area. Based on the following facts, what is the amount of the Millers’ casualty loss deduction (assume an election was not made to file an amended return for the previous year)?

Fair market value before the flood	$ 9,000
Fair market value after the flood	1,300
Cost basis	10,500
Insurance proceeds	2,000
Replacement property through disaster relief	1,100
Business use of auto	0
Adjusted gross income for 2025	24,000

$2,100

$3,200

$3,300

$4,100

133. Which of the conditions below is NOT required for a taxpayer to claim a casualty loss deduction if his or her personal residence is demolished or relocated after a federally declared disaster?

The residence is damaged as a result of the disaster.

The residence is located in an area designated to warrant assistance under the Disaster Relief Act of 1974.

The residence has been rendered unsafe for use as a residence owing to the disaster.

Within 120 days of the disaster relief determination, the state or local government orders the residence demolished or relocated.

134. Casualty gains from the loss of personal property are considered to be

Ordinary.

Capital.

Nontaxable.

Ordinary for taxpayers who use the cash method and capital for taxpayers who use the accrual method.

135. Which of the following expenses related to casualty losses are deductible?

Appraisal of a casualty loss

Yes

Cost of insuring a personal asset

Yes

Appraisal of a casualty loss

Yes

Cost of insuring a personal asset

Appraisal of a casualty loss

Cost of insuring a personal asset

Yes

Appraisal of a casualty loss

Cost of insuring a personal asset

136. What is the proper method of calculating total personal casualty losses attributable to a federally declared disaster?

Aggregate the amount of each individual loss to the extent that they exceed $100 and 10% of AGI and deduct the total amount.

Aggregate then deduct the amount of each individual loss to the extent that they exceed 10% of AGI.

Aggregate the amount of each individual loss to the extent that they exceed $100 and deduct the total amount.

Deduct the total amount of each loss because personal losses are only deductible if due to federally declared disasters, which are not subject to limitations.

137. In order to deduct a personal casualty and theft loss that is a federal casualty loss, the loss must be

Related to a federally-declared disaster area.

Reduced by the amount of the taxpayer’s standard deduction.

Less than 10% of the taxpayer’s adjusted gross income.

Deducted over a three-year consecutive period.

138. Which of the following is correct regarding a personal casualty loss that is a federal casualty loss?

Property loss due to progressive deterioration is not deductible.

It is reduced by the amount of the taxpayer’s standard deduction.

It must be less than 10% of the taxpayer’s adjusted gross income.

It is deducted over a three-year consecutive period.

139. Paula won $5,000 in the lottery in 2025. She also won $200 playing bingo at her lodge hall. She is not a professional gambler. She kept meticulous records of the $6,550 she spent on gambling expenses. How much may she deduct on her Schedule A as an other deduction?

$200

$5,200

$6,550

140. Which of the following are NOT other itemized deductions?

Federal estate tax on income in respect of a decedent.

Gambling losses up to the amount of gambling winnings.

Impairment-related work expenses of persons with disabilities.

Safety deposit box expenses.

141. Which of the following is an other itemized deduction on Schedule A?

Home office expense.

Federal estate taxes on income in respect of a decedent.

Trade association dues.

Job hunting expenses.

142. Jack, age 50, had the following income in 2025:

$59,800 in wages
$200 in interest
$10,000 in gambling winnings
$5,000 in short-term capital gains

Jack filed a Schedule A, Itemized Deductions, for 2025. While preparing that schedule, Jack listed the following deduction items he had incurred during the year:

$2,500 in medical expenses
$8,000 of mortgage interest paid
$2,000 in real estate taxes
$1,600 in state taxes
$12,000 in gambling losses
$3,400 in employee business expenses

What is the total amount of Schedule A itemized deductions that Jack can report in 2025?

$27,500

$25,000

$21,600

$20,000

143. Which of the following expenses are deductible on Form 1040 Schedule A in 2025?

Gambling losses up to the amount of gambling winnings.

Fees paid to a broker to collect taxable bond interest or dividends on shares of stock.

Repayment of $3,000 of ordinary income that had been included in taxable income in an earlier year.

Damages paid to a former employer for breach of employment contract, when the damages are attributable to pay received from that employer.

144. Which of the following is an other itemized deduction reported on Schedule A?

Amortizable premium on taxable bonds.

Medical expenses.

Business start-up costs.

Business expenses of a taxpayer’s sole proprietorship.

145. Which of the following is NOT an itemized deduction reported on Schedule A?

Repayments of $5,000 under a claim of right.

Gambling losses up to the amount of gambling winnings.

Unrecovered investment in a pension.

Qualified business income.

146. Tax preparation fees are generally deductible for the current year as

A miscellaneous itemized deduction subject to the 2% limit.

An investment expense on Schedule A.

A tax credit on Schedule 1.

They are not deductible.

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