Chapter 8                           Deductions:                       Itemized Deductions©2012 CCH. All Rights Reserved.40...
Chapter 8 Exhibits    1.   Medical Expenses    2.   Medical Care—Capital Expenditures    3.   Medical Transportation and L...
Chapter 8 Exhibits   10.   Other Interest   11.   Charitable Contributions   12.   Charitable Organizations   13.   Charit...
Medical Expenses      Medical expenses in excess of 7.5% of AGI are allowed as an       itemized deduction.      The ded...
Medical Care—Capital Expenditures  Qualified expenditures for home improvements and additions may be  deductible to the ex...
Medical Care—Capital Expenditures     Capital expenditures may qualify for an immediate medical     deduction (subject to ...
Medical Transportation and Lodging      Mileage - If mileage was primarily for and essential to      medical care, the tax...
Medical Transportation and Lodging   Nondiscretionary lodging during travel - A medical   expense deduction is allowed for...
Medical Care       The cost of in-patient (overnight) hospital care, including        meals and lodging, is an allowable ...
Medical Insurance Premiums        A medical expense deduction is allowed for medical insurance         premiums.        ...
Property Taxes       State, local or foreign real property taxes and personal        property taxes are allowed as an ite...
Income Taxes        State or local income taxes are deductible as an itemized         deduction in the year they are paid...
Interest      Personal interest is NOT deductible. Thus, interest on       consumer debt, such as car loans and credit ca...
Qualified Residence Interest      Interest on home loans secured by a first or second home is allowed as an      itemized ...
Other Interest       Investment Interest—Interest on investment property (stocks, bonds,        raw land, for instance)  ...
Charitable Contributions           Charitable contributions are subject to limitations based on            adjusted gross...
Charitable Contributions  Donations can consist of either cash or property. The type of property  donated determines which...
Charitable Organizations     Qualified charitable organizations are divided into 2 categories: public     charities and pr...
Charitable Contribution Limitations       Contributions are allocated to the appropriate limitations as follows:     % of...
Charitable Contribution Valuations          Category       Valuation       Property Donated          50% public     Cash  ...
Personal Casualty and Theft Losses         Personal casualty and theft losses are allowed as itemized         deductions. ...
Netting Personal-Use Casualty and Theft                       Gains and LossesChapter 8, Exhibit 16    CCH Federal Taxatio...
Special Disaster Election        In a Presidentially declared disaster area, taxpayers may        elect to deduct the loss...
Miscellaneous Itemized Deductions    Miscellaneous itemized deductions are generally grouped together on a    tax return a...
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2013 cch basic principles ch08

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2013 cch basic principles ch08

  1. 1. Chapter 8 Deductions: Itemized Deductions©2012 CCH. All Rights Reserved.4025 W. Peterson Ave.Chicago, IL 60646-60851 800 248 3248www.CCHGroup.com
  2. 2. Chapter 8 Exhibits 1. Medical Expenses 2. Medical Care—Capital Expenditures 3. Medical Transportation and Lodging 4. Medical Care 5. Medical Insurance Premiums 6. Property Taxes 7. Income Taxes 8. Interest 9. Qualified Residence InterestChapter 8, Exhibit Contents A CCH Federal Taxation Basic Principles 2 of 24
  3. 3. Chapter 8 Exhibits 10. Other Interest 11. Charitable Contributions 12. Charitable Organizations 13. Charitable Contribution Limitations 14. Charitable Contribution Valuations 15. Personal Casualty and Theft Losses 16. Netting Personal-Use Casualty and Theft Gains and Losses 17. Special Disaster Election 18. Miscellaneous Itemized DeductionsChapter 8, Exhibit Contents B CCH Federal Taxation Basic Principles 3 of 24
  4. 4. Medical Expenses  Medical expenses in excess of 7.5% of AGI are allowed as an itemized deduction.  The deduction is allowed only for medical expenses actually paid during the year.  Medical expenses must be for medical care of the taxpayer, spouse or a dependent of the taxpayer. A child of divorced parents is treated as the dependent of both parents for purposes of the medical expense deduction. Also, the gross income requirement for the dependency exemption is waived for the purpose of the medical expense deduction.Chapter 8, Exhibit 1 CCH Federal Taxation Basic Principles 4 of 24
  5. 5. Medical Care—Capital Expenditures Qualified expenditures for home improvements and additions may be deductible to the extent that their costs exceed any increase in the fair market value of the existing structure. Examples:  Adding wheelchair ramps  Widening doorways to create wheelchair access  Adding a swimming pool prescribed by a physician to alleviate some ailment such as partial paralysis  Installing an elevator to provide handicap access between floorsChapter 8, Exhibit 2a CCH Federal Taxation Basic Principles 5 of 24
  6. 6. Medical Care—Capital Expenditures Capital expenditures may qualify for an immediate medical deduction (subject to the 7.5% floor) if prescribed by a physician to alleviate a physical or mental defect or illness. Examples:  Seeing eye dogs  Wheelchairs  Eyeglasses  DenturesChapter 8, Exhibit 2b CCH Federal Taxation Basic Principles 6 of 24
  7. 7. Medical Transportation and Lodging Mileage - If mileage was primarily for and essential to medical care, the taxpayer may choose between  the standard mileage allowance of 23 cents, plus parking and tolls, or  actual expenditures. Meals - Meals consumed during medical-related transportation are NOT deductible even if the transportation is primarily for and essential to the rendition of medical care.Chapter 8, Exhibit 3a CCH Federal Taxation Basic Principles 7 of 24
  8. 8. Medical Transportation and Lodging Nondiscretionary lodging during travel - A medical expense deduction is allowed for lodging (but not meals) while away from home primarily for and essential to medical care. This lodging cannot exceed $50 per night for each individual. The deduction may also be claimed for a person who must accompany the individual seeking medical care. Discretionary lodging during travel - If a doctor prescribes an operation or other medical care and the taxpayer chooses, purely for personal considerations, to travel to an out-of-town locality for medical treatment, the lodging is not deductible.Chapter 8, Exhibit 3b CCH Federal Taxation Basic Principles 8 of 24
  9. 9. Medical Care  The cost of in-patient (overnight) hospital care, including meals and lodging, is an allowable deduction Meals consumed by patients during hospital stays are not subject to the 50% reduction.  All medicines and drugs except for insulin require a prescription to be deductible. Cosmetics and toiletries are not considered medicine and drugs.Chapter 8, Exhibit 4 CCH Federal Taxation Basic Principles 9 of 24
  10. 10. Medical Insurance Premiums  A medical expense deduction is allowed for medical insurance premiums.  Premiums paid by the taxpayer for long term care insurance are allowed as medical expense deduction, subject to limitation. In 2012, the maximum deduction for prepaid long term care insurance premiums ranges from $350 for a taxpayer age 40 or less to $4,370 for a taxpayer over age 70.  Self-employed taxpayers are allowed to deduct 100% of medical insurance premiums “FOR” AGI.Chapter 8, Exhibit 5 CCH Federal Taxation Basic Principles 10 of 24
  11. 11. Property Taxes  State, local or foreign real property taxes and personal property taxes are allowed as an itemized deduction.  If real property is sold during the year, the tax deduction must be allocated between the buyer and seller based on the number of days each party held the property. This method is required regardless of which party actually pays the property taxes.  Personal property taxes must be ad valorem (based on the value of the property) in order to be deductible.Chapter 8, Exhibit 6 CCH Federal Taxation Basic Principles 11 of 24
  12. 12. Income Taxes  State or local income taxes are deductible as an itemized deduction in the year they are paid.  For years through 2011, taxpayers can elect to deduct state and local sales taxes rather than state and local income taxes.  Taxpayers may also deduct state and local income taxes withheld from their salary.  If a taxpayer receives a refund of state or local income taxes in a later year, the refund may need to be included in gross income (if there was a tax benefit from the original deduction).Chapter 8, Exhibit 7 CCH Federal Taxation Basic Principles 12 of 24
  13. 13. Interest  Personal interest is NOT deductible. Thus, interest on consumer debt, such as car loans and credit card debt, is not deductible.  Qualified education loan interest of up to $2,500 may be deducted FOR AGI. The deduction is phased out for single taxpayers with AGI of $60,000 ($125,000 for married taxpayers).Chapter 8, Exhibit 8 CCH Federal Taxation Basic Principles 13 of 24
  14. 14. Qualified Residence Interest Interest on home loans secured by a first or second home is allowed as an itemized deduction. The home must be a qualified residence. A qualified residence is  A principal residence or  Any second residence that is for personal use A deduction is allowed for qualified residence interest on up to $1 million of debt to acquire, construct or substantially improve a qualified residence. If the acquisition indebtedness is larger than $1 million, up to $100,000 of the excess can qualify as home equity indebtedness. Interest on the remainder is not deductible. A taxpayer may borrow up to the lesser of (1) $100,000 or (2) the equity in the home in the form of a home equity loan and deduct the interest on the loan.Chapter 8, Exhibit 9 CCH Federal Taxation Basic Principles 14 of 24
  15. 15. Other Interest  Investment Interest—Interest on investment property (stocks, bonds, raw land, for instance)  Deductible only up to net investment income—Investment income (interest, royalties, short-term capital gains) minus investment expenses  Dividends and long-term capital gains are also included by election if the special tax rate (0/15%) is given up  Prepaid interest (including “points”)—allocated over the period to which it applies  Exception—points on a mortgage on a principal residenceChapter 8, Exhibit 10 CCH Federal Taxation Basic Principles 15 of 24
  16. 16. Charitable Contributions  Charitable contributions are subject to limitations based on adjusted gross income.  Contributions are limited to 20%, 30% or 50% of AGI depending on the type of property donated and type of charity receiving the donated property.  The overall charitable contribution deduction is limited to 50% of AGI.  Unused charitable contributions may be carried forward up to 5 years, subject to the original %-of-AGI limitation in all future years.Chapter 8, Exhibit 11a CCH Federal Taxation Basic Principles 16 of 24
  17. 17. Charitable Contributions Donations can consist of either cash or property. The type of property donated determines which percentage limitation applies. Ordinary income property includes property held by the donor primarily for sale to customers in the ordinary course of the donor’s business and works of art created by the donor. The deduction for ordinary income property is limited to the basis of the property. Capital gains property is appreciated property that, if sold at fair market value, would result in a long-term capital gain. Depreciable property and land used in a trade or business is considered capital gains property for charitable contribution purposes. The deduction for capital gains property is either the property’s basis, fair market value, or a reduced amount in the case of depreciable property.Chapter 8, Exhibit 11b CCH Federal Taxation Basic Principles 17 of 24
  18. 18. Charitable Organizations Qualified charitable organizations are divided into 2 categories: public charities and private charities. Public charities include: Churches and hospitals  Educational organizations Organizations supported by the government Private operating foundations Private non-operating foundations that distribute all of their contributions to public charities Private charities are private non-operating foundations that do not distribute all of their contributions to public charities.Chapter 8, Exhibit 12 CCH Federal Taxation Basic Principles 18 of 24
  19. 19. Charitable Contribution Limitations  Contributions are allocated to the appropriate limitations as follows: % of AGI Types of Donations 50% Donations to public charities of cash, ordinary income property, and capital gains property with the reduced deduction election 30% Public Donations to public charities of capital gains property [including qualified appreciated stock and appreciated Section 1231 (depreciable) property] 30% Private Donations to private charities of cash and ordinary income property 20% Donations to private charities of capital gains property [including qualified appreciated stock and appreciated Section 1231 (depreciable) property]Chapter 8, Exhibit 13 CCH Federal Taxation Basic Principles 19 of 24
  20. 20. Charitable Contribution Valuations Category Valuation Property Donated 50% public Cash Cash Basis Ordinary income property Basis Capital gains property reduced contributions election 30% public FMV Capital gains property (including qualified appreciated stock) FMV-OI Section 1231 (depreciable) property 30% private Cash Cash Basis Ordinary income property 20% private Basis Capital gains property FMV Qualified appreciated stockChapter 8, Exhibit 14 CCH Federal Taxation Basic Principles 20 of 24
  21. 21. Personal Casualty and Theft Losses Personal casualty and theft losses are allowed as itemized deductions. As discussed in Chapter 7, business casualty and theft losses are deductible FOR AGI. The amount of loss is computed as the lesser of:  Adjusted basis  Decline in fair market value The loss must be reduced by insurance reimbursements received (or reasonably expected to be received).Chapter 8, Exhibit 15 CCH Federal Taxation Basic Principles 21 of 24
  22. 22. Netting Personal-Use Casualty and Theft Gains and LossesChapter 8, Exhibit 16 CCH Federal Taxation Basic Principles 22 of 24
  23. 23. Special Disaster Election In a Presidentially declared disaster area, taxpayers may elect to deduct the loss in the tax year immediately preceding the year in which the disaster occurred. Also, in Presidentially declared disaster areas, taxpayers will never have to recognize gain on the receipt of insurance proceeds for personal property contained in personal residences.Chapter 8, Exhibit 17 CCH Federal Taxation Basic Principles 23 of 24
  24. 24. Miscellaneous Itemized Deductions Miscellaneous itemized deductions are generally grouped together on a tax return and are deductible to the extent that the total of all miscellaneous itemized deductions exceeds 2% of adjusted gross income. Examples:  Unreimbursed employee expenses such as professional dues, subscriptions to professional journals, union dues and uniforms not suitable for everyday use.  Job-seeking and educational expenses.  Investment expenses such as safe deposit box rental, subscriptions to investment related publications, and legal and accounting fees related to investments.  Tax advice and tax return preparation.Chapter 8, Exhibit 18 CCH Federal Taxation Basic Principles 24 of 24
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