Gross income - Exclusions

Question 1

What is the general rule for prizes and rewards? Exceptions?

Answer 1

FMV included in gross income.
Exception:
If they are for civic, artistic, educational, scientific, or literary achievement and the recipient is;
*selected without action on her part AND
*not required to perform services AND
*the amount is paid directly to a tax-exempt or governmental organization

Question 2

When can scholarships for degree seeking students be excluded from income?

Answer 2

It is used for tuition, fees, books, supplies, and equipment required for courses.

Question 3

Scholarships: are amounts received for room and board taxable?

Answer 3

Yes.

Question 4

When can accelerated death benefits from a life insurance policy be excluded?

Answer 4

When the insured TP is terminally or chronically ill.

Question 5

Are gifts and inheritance taxable for the recipients?

Answer 5

No.

Question 6

How are gifts/inheritance determined to be gifts?

Answer 6

Intent of the donor (NOT donee).

Question 7

Can there be “gifts” between employer and employee?

Answer 7

No except for de minims rule.

Question 8

When the person who gets taxed shifts for property gifting? ex: rental income?

Answer 8

At the time of gifting.

Income accrued up to time of gift is taxed to donor, but after the gift is taxed to recipient.

Question 9

What is the general tax treatment for social security benefits (SSB)? Exception (formula)?

Answer 9

Not taxable.
If TP’s provisional income (PI) exceeds a specified amount, up to 85% can be taxed.
PI=AGI + Tax-exempt interest +50%(SSB).

Question 10

SSB taxable thresholds (must memorize) and amount taxed?

Answer 10

Married filing joint:

• If less than $32,000, not taxed.
• If more than $44,000, usually 85% of SSB taxed.
• Between, usually 50% of SSB taxed.

Single:

• If less than $25,000, not taxed.
• If more than $34,000, usually 85% of SSB taxed.
• Between, usually 50% of SSB taxed.

Question 11

Forgiveness of debt: general rule? 3 exceptions?

Answer 11

Taxable as income to the borrower.

• It’s a gift.
• A TP is bankrupt.
• A TP is insolvent, but not bankrupt, then can exclude it only to the extent of the insolvency (liabilities-assets).

Question 12

Forgiveness of debt: TP bankrupt/insolvent; tax consequences?

Answer 12

Forgiveness of debt not taxable, but must reduce tax attributes such as NOLs(net operating loss), credit carryovers, and the basis of property.

Question 13

Are foster child payments taxable? Welfare pmts?

Answer 13

No if they are for reimbursements for expenses occurred to care for the child.
No.

Question 14

When can gain excluded from income for selling a residence? Limit?

Answer 14

If a TP owned and occupied a residence as a principal residence for an aggregate of at least 2 of the 5 yrs preceding sale.
$250,000 for individuals.
$500,000 for married jointly.