Question 1. Paul and Patty Black (both are age 66

1. Paul and Patty Black (both are age 66) are married and together have AGI of $140,000 in 2014. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.

a. In December 2014, the Blacks received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.

b. Assume instead that the Blacks received the $3,500 insurance reimbursement in February 2015. Determine the deduction allowable for medical expenses incurred in 2014.

c. Assume that the Blacks received the $3,500 insurance reimbursement in February 2015. Discuss whether the reimbursement will be included in their gross income for 2015.

2. Harry and Sally were divorced three years ago. In July of the current year, their son, Joe, broke his arm falling out of a tree. Joe lives with Sally and Sally claims him as a dependent on her tax return. Harry paid for the medical expenses related to Joe’s injury. Can Harry claim the medical expenses he paid for Joe on his tax return?

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3. For the past several years, Jeanne and her two sisters have taken turns claiming a dependency exemption deduction for their mother under a multiple support agreement. This year Jeanne will be entitled to the exemption, and her mother needs money for surgery and new eyeglasses. Should Jeanne pay for the medical expenses as her share of her mother’s expenses? How would this benefit Jeanne?

4. Linda is planning to buy Vicki’s home. They want to keep the transaction simple, so the sales agreement will not apportion the property taxes that Vicki has already paid on the home. Comment on the tax implications for Linda and Vicki.

5. Linda borrowed $60,000 from her parents for a down payment on a condominium. She paid interest of $5,500 in 2012, $0 in 2013, and $9,000 in 2014. The IRS disallowed the deduction. Can you offer any explanation for the disallowance?

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6. Diane contributed a parcel of land to the United Way. In addition, she contributed bibles and song books from her proprietorship’s book store inventory to First Church, a qualified charitable organization. Should Diane’s charitable contribution deduction for these contributions be determined by the basis or fair market value of the contributed items?

7. Joe, who is in the 33% tax bracket this year, expects to retire next year and be in the 25% tax bracket. He plans to donate $50,000 to his church. Because he will not have the cash available until next year, Joe donates land (long- term capital gain property) with a basis of $10,000 and fair market value of $50,000 to the church in December of the current year. He reacquires the land for $50,000 in February of next year. Discuss Joe’s tax objectives and all tax issues related to his actions.