Question

QUESTION 31

1. Jose had $5,000 of qualifying medical expenses in 2019.  His AGI was $40,000. What is Jose's maximum allowable medical expense deduction?

   	a.	$2,500
   	b.	$3,000
   	c.	$2,000
   	d.	$5,000

QUESTION 32

1. Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss. Which of the following is correct?

   	a.	The taxpayer will have a net short-term capital loss.
   	b.	The $1,500 loss will first be offset by the $4,000 short-term gain.
   	c.	The $1,500 loss will first be offset by the $5,000 long-term gain.
   	d.	The $4,000 short-term gain will first be offset by the $5,000 long-term gain.

Answer 1

Ques 1 The correct answer is C i.e. $2,000

For the 2019 return, Jose can deduct only that amount of medical expenses which exceed 7.50% of his AGI

Thus, 7.50% of AGI = 7.50% x 40,000 = 3,000

Thus, amount allowed as deduction = 5,000 - 3,000 = $2,000 i.e. Option C

Ques 2 The correct answer is C i.e. "The $1,500 loss will first be offset by the $5,000 long-term gain."

Offestting of loss first occurs within the long-term gain than within the short-term gains. Hence, the loss of $1,500 will be offset by the $5,000 long term capital gain. After this netting off, there will be a $4,000 net STCG and a $3,500 [5,000 - 1,500] net LTCG.