Chapter 2 - Individual Adjustments, Deductions, Credits Flashcards
What is allowed as a deduction for a personal residence with no rent?
Mortgage interest and property tax
Explain Casualty loss calculation.
Loss is lesser of cost loss vs. Decline in FMV (limited to Basis if FMV was greater than basis). Reduced by any reimbursements and $100. It is then reduced by 10% of AGI.
Note: if 10% of AGI is greater, then there is no casualty loss.
How long does donated artwork need to be held to deduct the FMV?
More than one year. Otherwise use purchase basis.
How much can you deduct from IRA contributions?
Up to $5,500
What makes up the Adjustments to AGI?
ISH - MOSS - IAAD
IRA Student Loan Interest Expenses Health Savings Account Moving Expenses One Half (1/2) of Self Employment FICA Self-Employment Health Insurance Self-Employment Retirement Interest Withdrawal Penalty Alimony Paid Attorney fees for discrimination cases Domestic product activity deductions
What makes up the Itemized Deductions from AGI?
(MCTI - COM) -Schedule A
Medical expenses (in excess of 10% AGI or 7.5% if >65 )
Charity (up to 50% of AGI)
Taxes (state/local)
Interest Expense (Home & Investment)
Casualty loss
Other Miscellaneous
Miscellaneous (in excess of 2%)
What makes up the other Itemized Deductions NOT subject to the 2% limit?
Gambling Losses
Federal Income Tax paid on Income in Respect to a Decedent
Describe the 3 Charitable deductions and limitations
Overall Charitable Deductions limit = 50% of AGI
A) Cash limit = 50% of AGI
B) Generally Property = lessor of Basis or FMV
C) Appreciated Long Term Property = Lessor of 30% of AGI OR Remaining amount to reach 50% after cash deductions
D) TP may deduct full value (FMV) of Appreciated long term property
IRA Phase out rules and limits
No IRA deduction if TP is both:
1) Too Rich
2) Active participant in another plan
If one of two phase out as follows
For too rich
I) Single or HH - $60k to $70k
II) MFJ - $96k to $116k
For active participant (not if spouse is)
I) $181k to $191k
Divide excess AGI in phase out range by total phase out range. Then multiply percentage by deduction ($5,500)
What is the additional standard deduction amount for elderly (65 years or older) and/or blind people?
If Single - 65 OR Blind - $1,550
If Single - 65 AND Blind - $3,100
If MFJ & 65 OR Blind (For one person) $1,200
If MFJ & 65 AND Blind (For one spouse) $2,400
If MFJ & 65 OR Blind (For both spouses) $2,400
If MFJ & 65 AND Blinde (For both Spouses) $4,800
What taxes are deductible for Itemized deductions? (ROiPS)
1) Real Estate Taxes
2) State, Local, Foreign Income Taxes
3) Personal State and Local Property Taxes
4) Sales Tax
What interest expenses is deductible? (HIPPE)
1) Home Mortgage Interest
1a) Acquisition Indebtedness Interest ($1M for MFJ $500k for MFS) - Incurred to “Buy, Construct, Improve” Principal or 2nd residence
1b) Home Equity Indebtedness ($100k MFJ, $50K MFS) - “Not to buy, construct, improve”
2) Investment Interest Expense (Limited to invest income)
2a) Investment Expense excluded
- Any interest expense for passive activity and rental real estate
2b) Investment Income excluded
- Interest exp used to buy tax-free bonds
3) Personal Consumer Interest NOT DEDUCTIBLE
4) Prepaid Interest - deduct when incurred and paid
5) Education Loan interest - (Adjustment not Item. Ded)
5a) Limit of $2,500
What expenditures are deductible as an adjustment for Moving Expenses? And what ARE NOT?
Direct Moving expenses ARE DEDUCTIBLE
1) Travel and along-the-way lodging
2) Transportation to new place
NOT DEDUCTIBLE?
1) Temporary living expenses at the new location
2) Along-the-way meals
what Tax Credits are Refundable?
1) Child Tax Credit
2) Earned Income Credit
3) WIthholdings Tax (W2)
4) Excess Social Security Paid
5) American Opportunity Credit (40% Refundable)
What Tax Credits are Non-Refundable? (MOST IMPORTANT)
Personal Tax Credits
1) Child and Dependent Care
2) Elderly and Permanent Disabled Credit
3) Lifetime Learning Credit
4) Retirement Savings contributions credit
5) Foreign Tax Credit
6) General Business
7) Adoption Credit
