Personal auto policy with liability limit

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1. Susan has a personal auto policy (PAP) with a liability limit of $500,000. She also has a personal umbrella policy with a limit of $1 million. Susan is involved in an auto accident where she is the at-fault driver. The person Susan hit is awarded $800,000 for her liability claim against Susan and Susan’s insurance company spends $100,000 in legal costs associated with the claim. How much will each policy pay?

A. The Auto Policy will pay nothing, and the umbrella policy will pay the $100,000 of legal costs and the judgement of $800,000

B .The Auto Policy will pay nothing, and the umbrella policy will pay the $800,000 legal judgement but not the $100,000 of legal costs

C. The Auto Policy will pay the $100,000 of legal costs plus the $500,000 for the legal judgement, and the umbrella policy will pay the remaining $300,000 for a total amount of $900,000

D. None of the above

2. Single Taxpayer, T, who graduated from law school, pays $3,000 of interest in the current year on qualified educational loans.

(a) If T has $40,000 of modified adjusted gross income in the current year, what amount of interest can T deduct?    

(b) Same as (a), above, except T is married and T and Spouse file a joint return and have $140,000 of modified adjusted gross income in the current year.    

(c) Same as (b), above, except that T and Spouse delay paying the $3,000 of interest (along with a $300 penalty) from the current year to succeeding year when their modified adjusted gross income is $80,000 (because Spouse ceases working) and when no other interest payments are made.

(d) ) Same as (a), above, except that F, T’s father makes the $3,000 payment. See Reg. Section 1.221-1(b)(4)(i), (ii) Ex. 2.

Reference no: EM131859491

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