Exam 2 Flashcards
Are short/long term capital losses deductible?
Yes
- both capital loss types can be used to offset capital gains
- after that they can be deductible to taxable income (max $3,000)
- everything over $3,000 will be carried over to future years and used the same
Holding period dates
Exclude date acquired + include date disposed
G/L Calc
Amount Realized (SP)
- Adjusted Basis (BV)
———————————-
+Gain or -Loss
Amount Realized formula
Cash received
+ FMV of prop./services received
+ Liabilities assumed by the buyer
- Selling expense paid by the seller
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Amount Realized
Adjusted Basis Calc
Original Cost
+Sales tax, closing costs, freight, testing, realtor, etc.
+Capital improvements
- Acc. Depr
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Adjusted Basis
If you sell a personal home that you have lived in for at least 2 of the last 5 years: how much is excludable?
$250,000 for single. $500,000 for MFJ
Passive Gains/Losses
Passive gains are taxable at capital gain rates (0%, 15%, 20%)
Passive losses are offset against passive gains but not deductible past that. If passive losses are greater than passive gains, then those losses are suspended to future tax years that can be used to offset future passive gains
Passive loss from real estate
This is the only loss type of passive income that is actually deductible (but only up to $25,000)
Federal Income Tax
Is NOT DEDUCTIBLE
Self employed Health Insurance
Deductible FOR AGI on form 1040
Maximum annual contribution per TP
$6,500
Or $7,500 is TP is >50 yrs old
Maximum annual contribution per TP
$6,500
Or $7,500 is TP is >50 yrs old
What are the limits for how much you can deduct for interest on student loan interest and mortgage debt interest
$2,500 for student loan interest
375,000 or 750k for mortgage debt interest
Educator Expenses
Teachers can deduct up to $300/yr on schoolroom supplies (600 if married)
It is FOR AGI
For chapter 6, all you need to know is:
The book uses GAAP (Generally Accepted Accounting Principles)
Tax uses IRC (Internal Revenue Code)
Tax Reduction vs. Tax Credit
Tax Reduction - reduces taxable income on which taxable liability is based
Tax Credit - Reduce tax liability $ for $
Nonrefundable tax credit vs refundable tax credit
Nonrefundable can only reduce liability to 0 but can’t initiate a refund.
Refundable (if credit is > liability) can reduce liability past 0, which would initiate a refund
Child Tax Credit
QC < 17, then it is $2,000 per kid
Other dependents, tax credit is $500 a person
What’s the difference between Personalty and Realty
Realty is real estate
Ex. Land, Building
Personalty is everything else
What is property classified by?
- Type
(Personalty vs Realty) - Use
(Personal vs Business)
Why is personal and business use separated?
Because Business property depreciates.
&
Personal property doesn’t depreciate.
When should you use Mid Quarter Convention over Half year Convention
When Personalty in Q4/Total Personalty that year = More than 40%
MQ Disposal formula
Qtr disposed - .5
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4
Self-employment tax rate
15.3%
Social Security - 12.4%
+
Medicare - 2.9%
ALSO: only calculate tax on 92.35% of self employed income
3 categories of income
1.) Active - wages, self employment income
2.) Portfolio - interest and dividends
3.) Passive - rental real estate, limited partner in partnership
Does Land depreciate?
NO
How much medical and dental expense do you deduct
Only the amount that exceeds 7.5% of AGI
Things that don’t qualify for Mental and dental expense
Unnecessary cosmetic surgery, supplements, vitamins, Over the Counter meds
Are contributions deductible FOR AGI
In traditional IRA, but in ROTH IRA, they are not deductible
Are distributions (money you get from insurance) taxable?
Under traditional IRA, yes they are taxable. Under ROTH IRA, they are not taxable
three types of capitalizations
Betterment, adaptation, and restoration
