ch7part 1 individual from AGI deductions Flashcards
1
Q
From AGI tax deductions
A
Medical
Taxes
Interest
Charitable contributions
Miscellaneous
2
Q
1 Medical Expenses
A
- Taxpayers may deduct medical expenses incurred to treat themselves, their spouse, and their dependents
- Qualifying medical expenses include
unreimbursed payments for care, prevention,
diagnosis, or cure of injury, disease, or bodily
function - E.g., prescription medicine, insulin, glasses, visiting the doctor, transportation, hospital stay, long-term care, health insurance premiums (not life insurance)
3
Q
Medical Expenses
A
- Costs of medical care are deductible whether
the care is provided at hospitals, other long-
term care facilities, or at home if provided by
home care worker - Transportation and travel costs for medical
care are deductible - If driving personal vehicle, may deduct a standard mileage allowance in lieu of actual costs
Medical
4
Q
Medical Expenses Deduction
Limitation
A
- Deduction is limited to the amount of
unreimbursed qualifying medical expenses paid
during the year reduced by 7.5% of the
taxpayer’s AGI - Deduction = Qualifying expenses minus (7.5% x AGI)
- Ex: AGI is $50,000 and had medical expenses of
$1,500. Can you take deduction? - aka “Floor limitation”
5
Q
2 Taxes
A
- Deductible taxes paid:
- State, local, and foreign income taxes
- State and local real estate taxes on property held for personal or investment purposes
- State and local personal property taxes that are
assessed on the value of the specific property (ad valorem) - Sales tax deduction
- State and local sales taxes can be deducted in lieu of state and local income taxes
- Deduction limited to $10,000 ($5,000 MFS)
- Limit does not apply to foreign income taxes
6
Q
3 Interest Expense
A
- Home mortgage interest deduction
- May deduct interest on acquisition indebtedness up to $750,000 incurred after December 15, 2017
- Before 12/15/2017: $1M limit
- Applies to principal residence and one other residence (second home/vacation home)
- “Acquisition indebtedness”: debt secured by qualified residence that is incurred in acquiring, constructing, or substantially improving the residence
- May also deduct interest on home equity loan if proceeds are used on the home
- Can’t use funds for other purposes!
- In total cannot exceed $750K debt limit
7
Q
Interest Expense
A
- Investment interest expense
- Interest you pay on loans used to purchase
investment assets (like stocks, bonds, land) - Deduction limited to your investment income
- Carryforward any excess
- No deduction if loans used to purchase assets
generating tax-free income!
8
Q
- No deduction if loans used to purchase assets
generating tax-free income!
A
9
Q
4 Charitable Contributions
A
- Contribution of money or property must be
made to a qualified domestic charity (not a
political party or campaign) - Cash: take deduction in the year you donate
- Includes cash, check, credit card, etc.
- Special rules apply to charitable contributions
of property depending on the type of property: - Capital gain property
- Ordinary income property
10
Q
Charitable Contributions
A
- Capital gain property: deduct FMV of property
- Appreciated property that would have generated
LTCG if you sold it (stock, bonds, personal-use
asset, etc.) - Exception: tangible personal property that the
charity doesn’t use in operations (can only
deduct adjusted basis) - Example: Donate painting to Habitat for Humanity
silent auction vs. Phoenix Art Museum - Ordinary income property: deduct lesser of
FMV or adjusted basis - Property that would’ve generated ordinary income if you sold it (inventory, short-term assets, assets that declined in value, etc.)
- Examples:
- Donate your used furniture to Goodwill
- You sell customized printed t-shirts and donate last season’s inventory to the Salvation Army
11
Q
5 Other Itemized Deductions
A
- Gambling losses and expenses to the extent of
gambling income - Casualty and theft losses on investment and
personal-use assets - Unrecovered cost of a life annuity at death
12
Q
tax formula
A
Economic Income
Less: Exclusions
Deferrals
Equals: Gross Income
Less: FOR AGI Deductions
Equals: Adjusted Gross Income
Less: FROM AGI Deductions
Less: Flow through deduction
13
Q
Six FROM AGI Deductions
A
1) Medical Expenses
2) Taxes
3) Interest
4) Charitable Contributions
5) Casualty and Theft Losses on Assets
6) Miscellaneous
14
Q
Medical Expenses
A
- Medical care includes amounts paid for:
- Medicine and drugs ONLY if prescribed drug
- The diagnosis, cure, mitigation, treatment, or prevention of disease
- Qualified long-term care services
- Insurance premiums for medical care
- Cost of travel for medical purposes
- Exception: §213(d)(9) Medical care does NOT include cosmetic surgery
- Exception to the exception: UNLESS the surgery or procedure is necessary to:
- Ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease
15
Q
Charitable Contributions
A
- Cash: deduct FMV
- Examples: Cash, credit card, check
- Capital gain property: deduct FMV of property
- Examples: stocks owned, bonds, land held for
investment, personal property (all owned for more
than 1 year) - Exception: tangible personal property that the charity doesn’t use in operations (can only deduct adjusted basis)
- Exception: if you anticipate related use, then
deduct at FMV
