Tax Preparation Deductions and Credits 2 — Questions and Answers
Question 1: Which of the following is NOT deductible as a mortgage interest deduction?
- Interest on a first mortgage of $700,000
- Points paid to obtain a mortgage on a primary home
- Interest on a home equity loan used for home improvement
- Interest on a mortgage for a vacation home above the $750,000 limit (Correct answer)
Correct answer: Interest on a mortgage for a vacation home above the $750,000 limit
Under the TCJA, mortgage interest is deductible on acquisition debt up to $750,000 combined for primary and secondary homes; amounts over this limit are not deductible.
Question 2: A taxpayer contributes $3,000 to a traditional IRA. They are covered by a workplace retirement plan and have an AGI that exceeds the phase-out range. What is the IRA deduction?
- $3,000
- $1,500
- $0 (Correct answer)
- $6,000
Correct answer: $0
If a taxpayer is covered by a workplace plan and their AGI exceeds the phase-out range, no deduction is allowed for traditional IRA contributions.
Question 3: What is the 2024 maximum contribution to a Health Savings Account (HSA) for self-only coverage?
- $3,200
- $3,850
- $4,150 (Correct answer)
- $7,750
Correct answer: $4,150
For 2024, the HSA contribution limit for self-only HDHP coverage is $4,150.
Question 4: The Child and Dependent Care Credit is calculated as a percentage of which amount?
- Total childcare costs paid
- The lesser of actual expenses or $3,000 ($6,000 for 2+) (Correct answer)
- The taxpayer's earned income
- The dependent's income
Correct answer: The lesser of actual expenses or $3,000 ($6,000 for 2+)
The credit is based on qualifying expenses up to $3,000 for one dependent or $6,000 for two or more, multiplied by a credit percentage.
Question 5: Charitable cash contributions to qualified organizations are generally limited to what percentage of AGI?
- 30%
- 50%
- 60% (Correct answer)
- 100%
Correct answer: 60%
Cash contributions to public charities are generally limited to 60% of AGI; any excess can be carried forward for five years.
Question 6: The Lifetime Learning Credit (LLC) provides a maximum annual credit of:
- $1,000
- $2,000 (Correct answer)
- $2,500
- $4,000
Correct answer: $2,000
The LLC provides a credit of 20% of up to $10,000 in qualifying education expenses, for a maximum of $2,000 per return.
Tax Preparation Deductions and Credits 2
Which of the following is NOT deductible as a mortgage interest deduction?