- What amount of the points may she deduct on her 2025 Schedule A?
Answer: $1,167
IRC §461(g) treats points as prepaid interest, and §461(g)(2) permits a current deduction for points on debt incurred to improve a principal residence if the applicable requirements are met. Points paid on a refinancing are generally amortized ratably over the term of the new loan. Here, the currently deductible improvement portion is $6,000 × ($50,000/$300,000) = $1,000. The remaining $5,000 is amortized over the 30-year loan term, giving $5,000 ÷ 30 = $166.67 for 2025 because the loan was outstanding for the full year. Total = $1,166.67, rounded to $1,167; Choice C is correct. Choice A would deduct all $6,000 currently, ignoring the refinancing amortization rule. Choice B includes only the current improvement portion and omits the 2025 amortization of the remaining points. Choice D would amortize the entire $6,000 over 30 years, ignoring the currently deductible improvement portion.
- Which of the following is correct regarding the deduction for interest on a qualified passenger vehicle loan for 2025?
Answer: The deduction is limited to $10,000 per return and is reduced by $200 for each $1,000 by which a single taxpayer's MAGI exceeds $100,000 ($200,000 for married taxpayers filing jointly).
The governing authority is the 2025 Form 1040, Schedule 1-A instructions, which implement the qualified passenger vehicle loan interest deduction added by the One Big Beautiful Bill Act (P.L. 119-21). For 2025 the deduction is capped at $10,000 per return and is reduced by $200 for each $1,000 by which MAGI exceeds $100,000 for single taxpayers ($200,000 for married taxpayers filing jointly). Choice D states the correct cap and phase-out. Choice A misstates the phase-out: the $100 reduction per $1,000 of MAGI over $150,000/$300,000 is the phase-out used for the qualified tips and qualified overtime deductions, not for the car loan interest deduction. Choice B misstates the cap: $25,000 per return is the maximum deduction for qualified tips, whereas the car loan interest deduction is capped at $10,000. Choice C drops the phase-out: the deduction is reduced for MAGI in excess of the applicable threshold, rather than being unlimited.
- What amount may she deduct for state and local taxes on Schedule A for 2025?
Answer: $10,000
IRC §164 generally allows state and local income, real property, and personal property taxes as itemized deductions, but IRC §164(b)(6) limits the combined deduction. For 2025 the base limit is $40,000 for a single taxpayer. Because MAGI exceeds $500,000 by $100,000, the cap is reduced by 30% of that excess, or $30,000, down to the $10,000 floor. Total taxes are $51,200, so only the reduced cap of $10,000 is deductible. Choice A ignores the SALT cap; Choice B ignores the high-income reduction; Choice C subtracts the MAGI-based reduction from the taxes themselves rather than from the cap.
- What amount may they deduct as qualified residence interest on Schedule A for 2025?
Answer: $32,927
IRC §163(h)(3) allows a deduction for interest on acquisition indebtedness, but for debt incurred after December 15, 2017, the limit is $750,000 for a married couple filing jointly. Only 750,000/820,000 of the $36,000 first-mortgage interest is deductible, or $32,927. The home-equity loan, although secured by the home, was not used to buy, build, or substantially improve the home, so its interest is not deductible as qualified residence interest. Choice A deducts both debts with no limit; Choice C deducts all first-mortgage interest but ignores the cap; Choice D incorrectly treats the home-equity loan as acquisition debt and applies the cap to the combined debt.
- What amount may she deduct for interest on her 2025 return?
Answer: $7,000
IRC § 163(h)(4), as added by the OBBBA (qualified passenger vehicle loan interest), and the Schedule 1-A (Form 1040) instructions, Part IV; IRC § 163(h)(1) (personal interest disallowance). The deduction is first limited to the smaller of the qualified interest paid or $10,000 (Schedule 1-A line 24): the smaller of $9,000 or $10,000 is $9,000. That amount is then reduced by $200 for each $1,000 (or part of $1,000) by which MAGI exceeds $100,000. MAGI exceeds $100,000 by $10,000, so the reduction is 10 x $200 = $2,000, and the deduction is $9,000 - $2,000 = $7,000 (Schedule 1-A line 30), which is Choice A. The $900 of furniture-loan interest is nondeductible personal interest. The car-loan deduction is taken on Schedule 1-A and is allowed even though she claims the standard deduction. Choice B ($7,900) adds the $900 of unsecured personal-loan interest, which is nondeductible personal interest. Choice C ($8,000) subtracts the $2,000 reduction from the $10,000 dollar cap instead of from the $9,000 amount otherwise allowable. Choice D ($9,000) ignores the MAGI reduction.
- What amount may she deduct under the qualified passenger vehicle loan interest rules for 2025?
Answer: $7,400
IRC § 163(h)(4) creates the qualified passenger vehicle loan interest deduction for 2025. The deduction is limited to the smaller of the interest paid or $10,000, and that amount is reduced by $200 for each $1,000 (or part) of MAGI over $100,000 for a single taxpayer. The smaller of $11,200 or $10,000 is $10,000. MAGI exceeds $100,000 by $12,300, which counts as 13 $1,000 units, so the reduction is 13 × $200 = $2,600 and the deduction is $10,000 − $2,600 = $7,400. This deduction is claimed on Schedule 1-A after AGI and is not part of Schedule A. Choice A ignores the cap and phase-out; Choice C subtracts the $2,600 reduction from the $11,200 of interest before applying the $10,000 limit; Choice D fails to round the MAGI excess up.
- What amount may he deduct for investment interest for 2025, and how much carries over to 2026?
Answer: Deduct $7,500; carry over $4,500.
IRC § 163(d) limits the deduction for investment interest, available here because the taxpayer will itemize, to net investment income for the year. Current-year margin interest ($9,000) and the 2024 carryover, which is treated as investment interest paid in 2025 ($3,000), together total $12,000. Net investment income is taxable interest ($5,500) plus nonqualified dividends ($2,000), with no investment expenses to subtract, or $7,500. Therefore, the taxpayer may deduct $7,500 and carries the remaining $4,500 to 2026. Choice A would deduct the full current-year interest and leave the prior carryover unused, failing to apply the $7,500 limit to the combined total. Choice B applies the limit only to current-year interest, yielding a $1,500 carryover and ignoring the prior carryover. Choice C excludes nonqualified dividends from net investment income; that would make the limit $5,500 and the carryover $6,500. Choice D is correct.
- Which of the following is correct regarding the deductibility of points paid on a home mortgage in 2025?
Answer: Points paid to acquire or improve a principal residence may be currently deducted in the year paid if the qualifying requirements are met; points paid to refinance are generally deducted ratably over the loan term.
The governing authority is IRC § 461(g). Points are prepaid interest and generally must be deducted ratably over the loan term. Under § 461(g)(2), points paid to acquire or improve a taxpayer's principal residence may be currently deducted in the year paid if they are charges for the use of money and the requirements of the exception are met. Choice B states both the exception for qualifying acquisition or improvement points and the general ratable treatment of refinancing points. Choice A misstates the scope of the exception: the current deduction is limited to points on a loan secured by the taxpayer's principal residence, so points on a second home are amortized ratably. Choice C misstates the exception as unavailable; qualifying points on a principal-residence purchase are currently deductible. Choice D misstates the treatment of refinancing points: points on a refinancing are generally deducted ratably over the term of the new loan, not fully in the year paid.
- For regular income tax purposes, what amount may she deduct as medical expenses on Schedule A?
Answer: $2,352
Governing authority: IRC §213(a), (b), (d)(1), (d)(9), and (d)(10). The medical expense deduction is allowed only to the extent unreimbursed qualifying medical expenses exceed 7.5% of AGI, and only if the taxpayer itemizes. AGI is $80,000, so the floor is $6,000. Health insurance premiums ($5,200), dental braces ($1,100), and medical transportation ($252) are qualifying medical care. Qualified long-term care premiums are qualifying only up to the age-based cap; at age 54 the cap is $1,800, so only $1,800 of the $2,400 premium counts. The over-the-counter medicine is not a prescribed drug and is excluded; the cosmetic surgery was not medically necessary and is excluded. Qualifying expenses total $8,352, and the deduction is $8,352 - $6,000 = $2,352. Because $2,352 + $14,200 = $16,552, which exceeds the 2025 single standard deduction of $15,750, itemizing is proper. Choice B ($2,952) incorrectly allows the full $2,400 long-term care premium. Choice C ($3,252) incorrectly includes the $900 over-the-counter medicine. Choice D ($5,352) incorrectly includes the $3,000 cosmetic surgery.
- For regular income tax purposes, what amount may they deduct for state and local taxes on Schedule A?
Answer: $25,000
Governing authority: IRC §164(a) and §164(b)(6), as amended by the OBBBA. State income tax and real property tax are deductible on Schedule A subject to the SALT cap. For 2025, the base cap for a joint return is $40,000. The cap is reduced by 30% of the amount by which MAGI exceeds $500,000. Here MAGI is $550,000, so the reduction is 30% x $50,000 = $15,000, leaving a $25,000 cap. The $48,000 of actual state and local taxes is therefore limited to $25,000; the $10,000 floor does not apply because the reduced cap is above it. Choice A ($10,000) applies the old pre-2025 $10,000 cap. Choice C ($40,000) ignores the high-income reduction. Choice D ($48,000) ignores the SALT cap entirely.
- Which of the following is correct regarding the deduction for medical and dental expenses for 2025?
Answer: A taxpayer who itemizes deductions may deduct unreimbursed medical expenses paid for the taxpayer, spouse, and dependents to the extent they exceed 7.5% of adjusted gross income, and the amount eligible may include qualified long-term care insurance premiums subject to the insured's age-based limit.
The governing authorities are IRC § 213(a) and § 213(d)(10). For 2025, unreimbursed medical and dental expenses are deductible on Schedule A only if the taxpayer itemizes, and only to the extent the total exceeds 7.5% of adjusted gross income. Under § 213(d)(10), qualified long-term care insurance premiums are treated as medical expenses, but only up to the age-based dollar limit for the insured. Choice D states the floor, the itemizing requirement, and the long-term care premium rule correctly. Choice A misstates the classification: the medical expense deduction is an itemized deduction, not an adjustment to gross income, so a non-itemizer receives no medical expense deduction. Choice B misstates the scope of deductible medical expenses: qualified long-term care insurance premiums are included in medical expenses, subject to the age-based limits. Choice C misstates the floor: for 2025 the floor is 7.5% of adjusted gross income; the 10% floor is a stale figure.
- Which of the following is correct regarding the qualified passenger vehicle loan interest deduction and the medical expense deduction for 2025?
Answer: Interest on a qualified passenger vehicle loan is deducted on Schedule 1-A after adjusted gross income is computed, so the deduction does not reduce adjusted gross income and does not lower the 7.5% floor for the medical expense deduction.
IRC § 163(h)(4) (qualified passenger vehicle loan interest, added by P.L. 119-21); IRC § 213(a); 2025 Schedule 1-A (Form 1040) instructions. The car loan interest deduction is claimed on Schedule 1-A and subtracted in computing taxable income after adjusted gross income is determined; it is available whether or not the taxpayer itemizes, and it is not an adjustment to gross income. Because the medical expense floor is 7.5% of adjusted gross income, a deduction that does not change adjusted gross income cannot lower that floor. Choice A is correct. Choice B is wrong because the deduction is not an itemized deduction on Schedule A and does not depend on itemizing. Choice C is wrong because the deduction is not an adjustment to gross income on Schedule 1 and does not reduce adjusted gross income. Choice D is wrong because medical expenses are deductible to the extent they exceed 7.5% of adjusted gross income, not 7.5% of taxable income.
- What amount may the taxpayer deduct as a medical expense on Schedule A for 2025?
Answer: $7,142
IRC §213(a) allows unreimbursed medical expenses, including health insurance premiums, qualified long-term care premiums up to the age-based limit, prescription drugs, and medical transportation, to the extent they exceed 7.5% of AGI. The 2025 long-term care premium limit for a 54-year-old is $1,800, not the $2,600 paid. Qualifying expenses are $6,000 + $1,800 + $4,200 + $1,100 + $42 (200 miles at $0.21 per mile) = $13,142. The 7.5% floor is $6,000, leaving $7,142. Choice A omits the floor; Choice B uses the full $2,600 long-term care premium; Choice D applies a 10% floor rather than the current 7.5% floor.
- Which of the following is correct regarding the deduction for state and local taxes for 2025?
Answer: For a single taxpayer, the 2025 deduction for state and local income taxes (or general sales taxes) plus property taxes is capped at $40,000, and the cap is reduced by 30% of the amount by which MAGI exceeds $500,000, but not below $10,000.
The governing authority is IRC § 164(b)(6), as amended for 2025. The deduction for state and local property taxes plus state and local income taxes (or general sales taxes in lieu of income taxes) is capped at $40,000 ($20,000 for married taxpayers filing separately); the cap is reduced by 30% of the amount by which MAGI exceeds $500,000 ($250,000 for married filing separately), and the cap cannot fall below $10,000 ($5,000 for married filing separately). Choice C correctly states the single taxpayer's cap, reduction threshold, and floor. Choice A misstates the scope: the cap applies to the combined deduction for property taxes and income (or sales) taxes, not to property taxes alone. Choice B misstates the floor: the cap is reduced by 30% of the excess over $500,000 but cannot decline below $10,000. Choice D misstates the threshold: for married taxpayers filing separately, the 30% reduction applies to MAGI over $250,000, not $500,000.
- Which of the following correctly states the total amount of Dara's deductions that reduce her taxable income for 2025?
Answer: $30,000: $22,400 of itemized deductions on Schedule A, plus a $7,600 car loan interest deduction on Schedule 1-A.
IRC § 163(h)(4) and Schedule 1-A, Part IV. The qualified passenger vehicle loan interest deduction (added by the One Big Beautiful Bill Act, P.L. 119-21, for tax years 2025–2028) is claimed on Schedule 1-A and is available in addition to itemized deductions. The deduction is limited to the smaller of the qualified interest paid or $10,000, and that amount is reduced by $200 for each $1,000 (or part) of MAGI over $100,000. The smaller of $11,000 or $10,000 is $10,000. Dara's MAGI is $112,000, so the reduction is 12 × $200 = $2,400, and the deduction is $10,000 − $2,400 = $7,600. On Schedule A, under IRC § 213(a), medical expenses are deductible only to the extent they exceed 7.5% of AGI: 7.5% × $112,000 = $8,400, so the medical deduction is $9,000 − $8,400 = $600. Under IRC § 164(b)(6), the 2025 SALT cap is $40,000, so the full $6,500 + $5,200 = $11,700 of state and local taxes is deductible, and the additional SALT reduction for MAGI over $500,000 does not apply. Under IRC § 163(h)(3), the $10,100 of mortgage interest on $480,000 of acquisition debt is fully deductible because the debt is below the $750,000 limit. Choice A is correct. Itemized deductions total $600 + $11,700 + $10,100 = $22,400, which exceeds the 2025 single standard deduction of $15,750, so Dara itemizes. Her total deductions are $22,400 + $7,600 = $30,000. The car loan deduction is subtracted after AGI and does not reduce AGI, so the medical-expense floor is computed on the $112,000 AGI. Choice B is incorrect: it applies the $10,000 cap but omits the $2,400 MAGI phase-out. Choice C is incorrect: it uses the pre-2025 $10,000 SALT cap instead of the $40,000 cap in effect for 2025, understating itemized deductions by $1,700. Choice D is incorrect: it subtracts the $2,400 reduction from the $11,000 of interest before applying the $10,000 limit ($11,000 − $2,400 = $8,600); the reduction applies to the smaller of the interest or $10,000, so the deduction is $7,600, not $8,600.
