Below Line Deductions (From AGI)

Question 1

Itemized Deductions (Sch A or Below the Line)

Answer 1

Charitable contributions

Medical expenses in excess 7.5% of AGI

Interest on mortgage & investments, subject to limitations

State/Local & Use Taxes, capped at $10,000

Limited Casualty Losses

Limited Miscellaneous

Qualified Business income deduction

Question 2

Casualty Losses

Answer 2

Below the Line

Only for Federally declared disaster areas

Not available for erosion or termite damage

Loss equal to Lesser of
Decline in FMV or Adjusted Taxable Basis;
Less $100 per incident

Subject to 10% of AGI floor

Question 3

Miscellaneous Itemized Deductions: NOT Subject to 2% AGI threshold

Answer 3

Income in Respect of Decedent

Gambling losses to extend of winnings

Impairment Related Work Expenses for Handicapped

Annuity Losses for Decedent Annuitant

Question 4

Itemized Deductions - Mortgage Interest

Answer 4

Interest on up to $750k of indebtedness on primary residence and other property financed after 12/15/2017 (was $1M before 12/15/2017)

No Home equity interest is deductible unless used the home equity loan to improve the property

Question 5

Itemized Deductions - Investment Interest

Answer 5

Deductible to extent of Net Investment Income (think the interest charged on using margin account)

 - Net Invest Income does NOT include Qualified Dividends and LT Cap Gains

Question 6

Below Line Deduction: Taxes

Answer 6

State Income Tax OR Sales & Use Tax

City Income tax

Ad valorem taxes - Property taxes (house/vehicles)

Deduction when paid
(cash basis)

NO Foreign taxes are deductible

All of these are Capped at a total of $10k

Question 7

Below Line - Charity Contributions using Cash

Answer 7

Public, Private Operating Foundations, & Certain Private Non-Operating Foundations:

Deduct up to 60% of your AGI

Other Private Non-Operating Foundations: capped at 30% of your AGI

Question 8

Below Line Charity Contributions - Using Long-Term Cap Gain Property

Answer 8

Intangible (stock, bonds)
Real Property
Tangible Property (related use)

Either use FMV OR adjusted Basis

Public, Private Operating:
30% of AGI if FMV
50% if Basis

Other Private Non-Operating Foundations: 20% Must use Basis

Question 9

Charity Example: Make Cash donation of $100k to Red Cross. AGI is $150k. How much can you deduct?

Answer 9

Can deduct 60% of AGI when it’s a cash contribution.

$150k x 60% = $90k deduction this year and carry forward remaining $10k

Question 10

Charity Example: You donated $100k (FMV) worth of medical supplies (LTCG Tangible Use) to Red Cross. AGI is $150k. How much can you deduct?

Answer 10

Limited to 30% AGI

$150k x 30% = $45k this year, can carry remaining $55,000 forward up to 5 years

Question 11

Pass Through Entities

Answer 11

20% Deduction based on Qualified Biz Income (QBI)

Reduces Taxable Income, NOT AGI

Threshold $182,100 Single; $364,200 MFJ

Question 12

Taxable Income Flow Through Entities: At Risk Rules

Answer 12

Active
Passive
Portfolio

Losses can only be deducted to extent of property/money that’s at risk

Passive Losses can only offset passive income/gains

Question 13

Passive Activity Defined

Answer 13

No material participation

Rental Activities - even with material participation

Exception: Real estate Dealers are NOT considered a passive activity

Question 14

Taxable Income Flow Through Entities: Material Participation Rules?

Answer 14

Greater than 500 hours per year

OR

Greater than 100 hours & the most of any participant

Question 15

How much can you deduct if the Real Estate is actively managed?

Answer 15

Up to $25k from ordinary income with phaseout of $1 for every $2 of AGI above $100k

Question 16

Suspended Losses at Risk

Answer 16

If suspended losses are from “At Risk” activity, they’re NOT Deductible until At Risk amount is positive from additions or income

If losses are suspended under passive activity rules, the losses are deductible upon disposition

Question 17

Anna has 2 investments: Limited Partnership in A & B. Does NOT materially participate in either. Her basis is: LLP A - $50k basis; Gain of $75k this year. LLP B - $25k basis; $100k loss this year. What’s net gain or loss for the 2 that’ll be recognized this year?

Answer 17

B: - $100k + $25k = -$75k loss we can suspend to future years. Can take $25k as deduction since that’s the basis/at-risk amount.

A: Gain of $75k

Net Gain is $75k - $25k (B)
= $50,000 gain recognized this year.

Question 18

Publicly Traded Limited Partnership: Are Gains/Income treated as Active or Passive gains/income?

Answer 18

They’re in the Active bucket

Question 19

Publicly traded Limited Partnership A: $10k Loss
Publicly Traded LP B: $15k income/gain.
Non-Publicly traded LP C: $22k Loss.
Non-Publicly Traded LP D: $16k Income/gain.
He doesn’t materially participate. What’s total suspended loss for this year?

Answer 19

Non-publicly traded C & D: -$22,000 - $16,000=
$6,000 suspended loss

Add Publciy traded LP A’s loss of $10,000

= -$6,000 + ( -$10,000)
= -$16,000 Suspended Loss

We don’t include publicly traded LP’s that have Income/gains

Question 20

Section 179: Election to Expense Assets

Answer 20

Can expense up to $1,160,000 of business tangible property placed in service during the year

Election to expense can NOT exceed taxable income of taxpayer’s business.
(It Can’t create a loss)

• Excess of limitation over taxable income limit can be carried over to following years
• Amount carried over still reduces basis currently

Section 179 applies before MACRS

Question 21

Section 179: Election to Expense Assets: Expense Limit amount and how it’s handled above the limit?

Answer 21

The $1,160,000 limit is reduced by amount of property placed in service that year that exceeds $2,890,000

Result is a dollar-for-dollar reduction

Question 22

Section 179: Adam placed $2,970,000 worth of section 179 property into service. His taxable income was $5,000,000. How much can he expense?

Answer 22

$1,160,000 - ($2,970,000 - $2,890,000)

= $1,160,000 - $80,000

= $1,080,000

Since he placed more than $2,890,000 into service, his expense limit is reduced.