Income Tax Flashcards
All assets are capital assets except ACID
accounts receivable, copyrights and creative works, inventory, and depreciable property used in a trade or business
The holding period for inherited property capital gains:
always long-term
Only way to have Section 1231 Gain on Section 1245 Property?
to sell it for more than it was originally purchased for
Any sale amount in excess of the original purchase price of a Section 1245 asset is a:
section 1231 gain
Charitable deduction: Ordinary income property / STCG / All Loss:
lesser of adjusted basis or FMV. Limited to 50% AGI
Charitable deduction: cash:
60% AGI
Charitable deduction: LTCG / Stocks, Bonds / Real property / Tangible (related use):
FMV or adjusted basis. 30% AGI if FMV, 50% AGI if basis
Charitable deduction: LTCG tangible (unrelated use):
50% AGI
Child tax credit:
$2000 for each qualifying child under 17
Child and Dependent Care Credit
20% x eligible costs ($3000 for one child, $6000 for 2 max eligible costs)
Kidde tax:
only applies to “unearned income” in excess of $2300
3-year depreciation:
tractor, rent-to-own property
5-year depreciation:
autos, computers, office equipment
7-year depreciation:
office furniture and fixtures
27.5 year depreciation:
rental home
39 year depreciation:
office building
The gross income test is a requirement for a:
qualifying relative, not a qualifying child
A person who rents their home for less than 15 days:
is not required to include the income as it is considered personal property
The holding period for a gift utilizing the loss basis (where a double basis rule applies):
starts the holding period at the date of the gift
Primary advantage of using the section 179 deduction:
by deducting more currently, total tax liability is reduced and the present value of cash flows is increased
Transfers between divorcing spouses ALWAYS:
transfer their basis and holding period
A C Corp is not appropriate for a business expected to:
incur losses initially because the losses do not flow through to the owners
Section 1231 gain occurs when:
the sale price exceeds the original purchase price
Non-dividend distributions are taxable to the extent:
they exceed basis
The basis of personal property converted to business use will be the taxpayers:
adjusted basis as of the date of conversion or the FMV if lower
Section 1245 recapture is treated as:
ordinary income for the gain realized resulting from depreciation taken being greater than economic reality
MACRS:
provides the most depreciation, and will yield the greatest expense in the early portion of the assets life
Staight-line depreciation:
will provide the least depreciation expense for a given period
Flow-through taxation and limited liability:
LLC
S-Corps are prohibited from:
having more than one class of stock and may NOT have non-resident aliens as shareholders
The best source for gathering information about the intent of recent changes in tax law:
Congressional Committee reports
A cash basis taxpayer does not:
recognize income not received. Bad debt cannot be recognized as a loss or bad debt expense
The effective tax rate:
the average tax rate an individual pays
The IRS 3 classifications of income:
active, passive, & portfolio
The 5 elements of the qualified dependent test are:
gross income, support, member of household or family, citizenship, & joint return
