CTA Tax Credits and Deductions 1 — Questions and Answers
Question 1: The Earned Income Tax Credit (EITC) is available to taxpayers who:
- Have investment income above $10,000
- Have earned income below certain thresholds and meet other eligibility requirements (Correct answer)
- Are retired with Social Security income
- Have capital gains from stock sales
Correct answer: Have earned income below certain thresholds and meet other eligibility requirements
The EITC is a refundable credit available to low-to-moderate income workers with earned income and investment income below specified limits.
Question 2: Which of the following credits directly reduces the tax liability dollar-for-dollar?
- Tax deduction
- Tax exclusion
- Tax credit (Correct answer)
- Tax deferral
Correct answer: Tax credit
A tax credit reduces the actual tax liability dollar-for-dollar, making it more valuable than a deduction of the same amount.
Question 3: The American Opportunity Tax Credit (AOTC) provides a maximum credit of how much per eligible student?
- $1,500
- $2,000
- $2,500 (Correct answer)
- $4,000
Correct answer: $2,500
The AOTC provides a maximum credit of $2,500 per eligible student for the first four years of post-secondary education.
Question 4: Which deduction allows taxpayers to deduct up to $300 ($600 MFJ) for charitable contributions without itemizing?
- Standard deduction add-on for charity
- Above-the-line charitable deduction for cash contributions (Correct answer)
- Charitable mileage deduction
- Schedule A miscellaneous deduction
Correct answer: Above-the-line charitable deduction for cash contributions
A temporary above-the-line deduction allowed non-itemizers to deduct cash charitable contributions, though its permanent status has varied by year.
Question 5: The Child and Dependent Care Credit provides a credit based on what percentage of qualifying expenses?
- 10-15% depending on income
- 20-35% depending on AGI (Correct answer)
- 50% for all taxpayers
- 25% with a phase-out
Correct answer: 20-35% depending on AGI
The Child and Dependent Care Credit is 20-35% of qualifying expenses up to $3,000 for one qualifying person, with the percentage decreasing as AGI increases.
Question 6: Home mortgage interest is deductible on a taxpayer's primary and secondary residence on debt up to what limit (post-2017)?
- $500,000
- $750,000 (Correct answer)
- $1,000,000
- $1,500,000
Correct answer: $750,000
Under the TCJA, mortgage interest deductibility is limited to acquisition debt of up to $750,000 for loans taken after December 15, 2017.
CTA Tax Credits and Deductions 1
The Earned Income Tax Credit (EITC) is available to taxpayers who: