Individual Taxation Paper 13

(b) The requirement is to determine Lewis’ charitable contribution deduction. The donation of appreciated stock held more than twelve months is a contribution of intangible, longterm capital gain appreciated property. The amount of contribution is the stock’s FMV of $70,000, but is limited in deductibility for 2012 to 30% of AGI. Thus, the 2012 deduction is $100,000 × 30% = $30,000. The amount of contribution in excess of the 30% limitation ($70,000 – $30,000 = $40,000) can be carried forward for up to five years, subject to the 30% limitation in the carryforward years.

(b) The requirement is to determine the amount of contributions deductible in 2012. Charitable contributions are generally deductible in the year actually paid. The $500 charge to his bank credit card made on December 15, 2012, is considered a payment, and is deductible for 2012. The $1,000 promissory note delivered on November 1, 2012, is not considered a contribution until payment of the note upon maturity in 2013.

(b) The requirement is to determine the amount of student expenses deductible as a charitable contribution. A taxpayer may deduct as a charitable contribution up to $50 per school month of unreimbursed expenses incurred to maintain a student (in the 12th or lower grade) in the taxpayer’s home pursuant to a written agreement with a qualified organization. Since the student started school in September, the amount deductible as a charitable contribution is $50 × 4 = $200.

(a) Vincent Tally is not entitled to a deduction for contributions in 2012 because he did not give up his entire interest in the book collection. By reserving the right to use and possess the book collection for his lifetime, Vincent Tally has not made a completed gift. Therefore, no deduction is available. The contribution will be deductible when his entire interest in the books is transferred to the art museum.

(b) The requirement is to determine the maximum amount of charitable contribution allowable as an itemized deduction on Jimet’s 2012 income tax return. If appreciated property is contributed, the amount of contribution is generally the property’s FMV if the property would result in a long-term capital gain if sold. If not, the amount of contribution for appreciated property is generally limited to the property’s basis. Here, the stock worth $3,000 was purchased for $1,500 just four months earlier. Since its holding period did not exceed twelve months, a sale of the stock would result in a short-term capital gain, and the amount of allowable contribution deduction is limited to the stock’s basis of $1,500. Additionally, to be deductible, a contribution must be made to a qualifying organization. As a result, the $2,000 cash given directly to a needy family is not deductible.

(a) The requirement is to determine the maximum amount of charitable contribution deductible as an itemized deduction on Taylor’s tax return for 2012. The donation of appreciated land purchased for investment and held for more than twelve months is a contribution of real capital gain property (property that would result in long-term capital gain if sold). The amount of contribution is the land’s FMV of $25,000, limited in deductibility for the current year to 30% of AGI. In this case, since 30% of AGI would be 30% × $90,000 = $27,000, the full amount of the land contribution ($25,000) is deductible for 2012.

(a) The requirement is to determine the amount of the fire loss to her personal residence that Frazer can claim as an itemized deduction. The amount of a personal casualty loss is computed as the lesser of (1) the adjusted basis of the property ($130,000), or (2) the decline in the property’s fair market value resulting from the casualty ($130,000 – $0 = $130,000); reduced by any insurance recovery ($120,000), and a $100 floor. Since Frazer had no casualty gains during the year, the net casualty loss is then deductible as an itemized deduction to the extent that it exceeds 10% of adjusted gross income.
Fire loss $ 130,000
Insurance proceeds (120,000)
$100 floor (100)
10% of $70,000 AGI (7,000)
Casualty loss itemized deduction $ 2,900

(a) The requirement is to determine the amount the Burgs should deduct for the casualty loss (repair of glass vase accidentally broken by their dog) in their itemized deductions. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Deductible casualty losses may result from earthquakes, tornadoes, floods, fires, vandalism, auto accidents, etc. However, a loss due to the accidental breakage of household articles such as glassware or china under normal conditions is not a casualty loss. Neither is a loss due to damage caused by a family pet.

(d) The requirement is to determine the proper treatment of the $490 casualty insurance premium. Casualty insurance premiums on an individual’s personal residence are considered nondeductible personal expenses. Even though a casualty is actually incurred during the year, no deduction is available for personal casualty insurance premiums.

(d) The requirement is to determine which item is not a miscellaneous itemized deduction. A legal fee for tax advice related to a divorce, IRA trustee’s fees that are separately billed and paid, and an appraisal fee for valuing a charitable contribution qualify as miscellaneous itemized deductions subject to the 2% of AGI floor. On the other hand, the check writing fees for a personal checking account are a personal expense and not deductible.