Chapter 8 - Other deductions, penalties & loss disallowance Flashcards

1
Q

9 Factors in hobby determination

A
  1. Manner activity is managed
  2. Time and effort expended
  3. Expertise of taxpayer and advisors
  4. Taxpayer’s success in similar activities
  5. History of profit/loss in similar activities
  6. Amount of occasional profits generated
  7. Expectation that assets will increase in value
  8. Financial status of taxpayer
  9. Whether personal pleasure dictates involvement
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2
Q

Presumption that taxpayer has a profit motive

A

Profit in 3 out of 5 years (2 out of 7 years for horses)

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3
Q

For profit activity

A

deduct expenses above the line

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4
Q

Hobby activity

A

income included above the line and expenses before 2018 and after 2025 below the line only to the extent of income subject to 2% AGI limitation

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5
Q

Order of deduction

A

Tier 1 - mortgage interest, property taxes, casualty losses
Tier 2 - other non depreciation expenses
Tier 3 - cost recovery - depreciation

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6
Q

3 types of rental real estate

A

Non-taxable rental use
Primarily rental use
Mixed use

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7
Q

Non-taxable rental use

A

rented less than 15 days non taxable - no expenses may be claimed

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8
Q

Primarily rental use

A

Property is used by the owner for less than the greater of 14 days or 10% of rental days - income is recognized, expenses are deductible

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9
Q

Mixed use

A

Property is used by owner for more than the greater of 14 days or 10% of rental days - income is recognized, expenses are deductible, hobby loss expenses tier rules apply, unused expenses carried forward

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10
Q

Section 1244 stock

A

held by original purchaser
initial capitalization of $1,000,000 or less

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11
Q

1244 tax treatment

A

First $50,000 ($100k MFJ) each year is treated as ordinary loss
Excess losses follow normal capital loss ($3,000)
Does not apply to capital gains

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12
Q

Net operating loss (NOL)

A

Above the line deduction and can offset future income
Can be carried forward indefinitely
Carryovers are allowed to be claimed in a taxable year up to the lesser of: carryover amount or 80% of taxable income determined without regard to the deduction or NOLs

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