Deductions FROM AGE (4) Flashcards
What are 5 Major Itemized Deductions?
- MEDICAL EXPENSES
- TAXES
- INTEREST
- CONTRIBUTIONS (Cannot > 50% of AGI)
- OTHER (Includes Casualty Losses, Emp Bus Exp, etc)
MEDICAL EXPENSES
What MUST the Medical Expenses be in order to be deductible?
- Paid for care of Taxpayer, Spouse, or Depenedent
2. Deductible Portion Must EXCEED 10% of AGI [for Taxpayers 65 OR OLDER the threshhold is 7.5%]
MEDICAL EXPENSES
What ‘Part’ of Medicare is included in Medical Expenses?
Medicare PART D
MEDICAL EXPENSES
What are some includable items for Medical Expenses?
- MEDICAL INS PAYMENTS
- DR & HOSPITAL BILLS
- PRESCRIPTION DRUGS
- DENTAL & EYE CARE (INCL CONTACTS)
- MAINTAINING/PUTING IN SPECIAL EQUIP (COULD BE PARTIAL)
- L-T CARE (COULD BE PARTIAL)
- MEDICARE PART D
- Necessary COSMETIC SURGURY (TO CORRECT INJURY, CONGENITAL DEFORMITY, ETC.)
- TRANSPORTATION & LODGING (.23/mile plus parking & tolls) Overnight Lodging allowed if Primarily for & essential to medical care; Medical care provided by Dr in Lic Hospital; Lodging cost Not lavish; NO element of Pers pleasure, Rec or vacation; CANNOT EXCEED $50/night)
- NURSING HOME & SPECIAL SCHOOLS
MEDICAL EXPENSES
What are some items that could be PARTIAL or LIMITED?
- CAPITAL EXPENDITURES
- WEIGHT LOSS (PRESCRIBED BY DR. - MORBIDLY OBESE, ETC.)
- L-T CARE
MEDICAL EXPENSES
What amount of CAPITAL EXPENDITURES could be deducted for MEDICAL EXPENSES?
(putting in Ramps, Elevators, etc.)
Deduction is the EXCESS Cost Over the INCREASE of FMV of Home/Build due to the improvement (Prior to and After capital expenditure)
[Cost of Appraisal (Before and After) NOT includable in med exp - Deduct under DETERMINATION OF TAX - Itemized Ded]
TAXES (ITEMIZED DEDUCTIONS)
What are types of taxes deductible?
- STATE & LOCAL TAXES
- REAL ESTATE TAXES
- PERSONAL PROPERTY TAXES (Based on value of property - i.e. FL tag renewal)
- FOREIGN TAXES (as a credit or deduction)
INTEREST DEDUCTION (ITEMIZED DEDUCTIONS) What represents a QUALIFIED RESIDENCE?
a QUALIFIED RESIDENCE represents the taxpayer’s principle residence plus any other one (Second could be a vacation home, etc - Can change the second one from year to year (if for instance had more than one vacation home))
INTEREST DEDUCTION (ITEMIZED DEDUCTIONS) What are the 2 types of indebtedness? What are brief definitions of each? What is the Max amount allowed on each type of loan for interest exp to be deducted?
- ACQUISITION INDEBTEDNESS: Includes cost of Acquiring, Constructing, Substantially improving residence of taxpayer - CANNOT EXCEED $1,000,000 (MFJ or SINGLE) or $500,000 (MFS) - Excess Int is Pers & NOT deductible
- HOME EQUITY INDEBTEDNESS - used for Personal/Non-deductible reasons such as College tuition, vacations, etc. - TO BE DEDUCTIBLE: a) Secured by Residence b)Limited to the lessor of $100,000 or FMV less ACQUISITION INDEBTEDNESS (Acquisition Indebted ness PLUS Home Equity Indebtedness MUST be no more than FMV)
INTEREST EXPENSE (ITEMIZED DEDUCTIONS) What are Points (in regards to loans) and how are they deductible?
POINTS are pre-payment of Interest Expense. They are a % of borrowing (i.e. 1 point on $100,000 loan would be $1,000).
They are FULLY Deductible in the year paid - For Acquisition Indebtedness (For Purch or Improvement) - NOT for Refinancing (for refinancing must deduct over life of loan)
INVESTMENT INTEREST EXPENSE (ITEMIZED DEDUCTIONS)
How much INVESTMENT INTEREST can be deducted?
What is Net Investment Income?
When can it NOT be deducted?
- Can be deducted UP TO Net Investment Income
- Net Investment Income is INVESTMENT INCOME less INVESTMENT EXPENSES (Invest. Exp. is the Excess over 2% of AGI - includes fees for ongoing advice etc.)
- NOT deductible when used to buy Tax Exempt Securities
CHARITABLE CONTRIBUTIONS (ITEMIZED DEDUCTIONS) What is the % limit for Charitable Contributions? (what is it limited by?)
CANNOT Exceed 50% of AGI
–For Organizations that are NOT “50% Organizations” (such as fraternal order, veteran’s organizations, etc.) CANNOT Exceed 30% of AGI - PROPERTY to a NON 50% Org CANNOT Exceed 20% of AGI)
CHARITABLE CONTRIBUTIONS (ITEMIZED DEDUCTIONS)
What are the Limitations for Cash vs. Property?
What value is used in calculating the deduction?
CASH = 50%
PROPERTY = 30% (IF Elect to deduct using COST instead of FMV, then rises back to 50%
- FMV is used
CHARITABLE CONTRIBUTIONS (ITEMIZED DEDUCTIONS)
What is the Hierarchy for Charitable Contributions? (what is used first)
How many Years can they be carried forward?
FIRST - 50% Contributions of CY THEN - 30% Contributions of CY THEN - 50% Contributions carryover THEN - 30% Contributions carryover --5 Years
CASUALTY LOSSES (ITEMIZED DEDUCTIONS) How is the deduction for CASUALTY LOSS Determined?
LESSOR of the DECREASE in the FMV or BASIS
LESS: ($100 Floor/Event)
LESS:(Amt received from Insurance)
ADD ALL Personal Casualties for the year
ALLOWABLE DEDUCTION is the EXCESS of 10% of AGI
(NOTE: Cost of Appraisal of property to assess prop value is deducted under Determination of Tax (MISC 2% ITEMIZED DEDUCTIONS))
