Taxable Income and Tax Liability

Federal Income Taxation HW# 8
Name Course Instructor Date
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Please answer the following questions at the end of Chapter 10:2-3, 10-11, 13-14, 20, & 29
2 LO.2 Joe was in an accident and required cosmetic surgery for injuries to his nose. He also had the doctor do additional surgery to reshape his chin, which had not been injured. Will the cosmetic surgery to Joe’s nose qualify as a medical expense? Will the cosmetic surgery to Joe’s chin qualify as a medical expense? Explain.
“Cosmetic surgery is necessary—and, therefore, deductible—when it improves the effects of (1) a deformity arising from a congenital abnormality, (2) a personal injury, or (3) a disfiguring disease” (Maloney et al., 2021). Thus, cosmetic surgery to Joe’s nose qualifies as a medical expense. Unnecessary cosmetic surgery is nondeductible. Reshaping the chin is an unnecessary cosmetic surgery, and therefore, nondeductible.
3 Jerry and Ernie are comparing their tax situations. Both are paying all of the nursing home expenses of their parents. Jerry can include the expenses in computing his medical expense deduction, but Ernie cannot. What explanation can you offer for the difference?
A taxpayer is allowed deduct the medical expenses paid and incurred by you, their spouse or someone who is their dependent at the time. A dependent includes a child or other qualifying relative. Thus, Jerry’ parents are likely his dependents or underwent prescribed medical care. Weight loss costs may be included if they meet the IRS guidelines.
10 Commercial Bank has initiated an advertising campaign that encourages customers to take out loans secured by their home to pay for purchases of automobiles. Are there any tax advantages related to this type of borrowing? Explain.
Deductions reduce the taxable income and tax liability.
The proceeds from home equity loans can be used for personal purposes. The interest paid on a qualified residence loan is deductible as an itemized deduction if used to improve the principal residence. Home equity loans used for other personal purposes such as vacation and auto purchases, are not deductible. Since the interest paid on consumer loans is nondeductible as it is for the purchases of automobiles and not improving the primary residence or getting a second mortgage
11 Thomas purchased a personal residence from Rachel. To sell the residence,
Rachel agreed to pay $5,500 in points related to Thomas’s mortgage. Discuss the deductibility of ...