CIA Tax Planning & Compliance 5

Question 1

When an appraiser's valuation is used for insurance claims that result in a charitable deduction, the IRS requires the appraisal to be conducted no earlier than how many days before the contribution date?

Accepted Answer

60 days

Answer

A qualified appraisal for charitable contribution purposes must be conducted no more than 60 days before the date of contribution.

Question 2

State premium taxes paid by insurance companies are typically deductible at the federal level as:

Accepted Answer

An ordinary and necessary business expense

Answer

State premium taxes are ordinary and necessary business expenses for insurance companies and are deductible under IRC Section 162.

Question 3

An insured receives a lump-sum settlement that includes both compensation for property damage and punitive damages. How are the punitive damages taxed?

Accepted Answer

Fully taxable as ordinary income

Answer

Punitive damages are always includable in gross income as ordinary income, regardless of the nature of the underlying lawsuit.

Question 4

For a property insured under an actual cash value policy, what concept reduces the insurance payout and may also reduce the casualty loss deduction claimed on a tax return?

Accepted Answer

Depreciation

Answer

Actual cash value equals replacement cost minus depreciation, so accumulated depreciation reduces both the ACV payout and the insured's adjusted basis for tax loss calculations.

Question 5

A self-employed appraiser pays $6,000 annually in professional liability (E&O) insurance premiums. These premiums are most appropriately deducted on which schedule?

Accepted Answer

Schedule C (profit or loss from business)

Answer

Professional liability insurance premiums are an ordinary business expense for a self-employed appraiser, deductible in full on Schedule C.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Tax Planning & Compliance 5