Income Tax

Question 1

Estimated tax

Answer 1

1. 90% of the current years tax liability
2. 100% of prior year (110% if the prior year’s adjusted gross income is greater then 150k)

Question 2

Low income housing credit

Answer 2

No phaseout. Multiply tax bracket by up to 25,000

Question 3

Loss deductibility from real estate activity

Answer 3

Can deduct up to 25k. Subject to phaseout between 100-150k AGI

Question 4

Passive income rules

Answer 4

1. Publicly traded MLP losses are not nettable
2. Publicly traded MLP income becomes portfolio income
3. Non publicly traded PALS loss can be take up to income
4. Non publicly traded PIGS income can be netted with losses

Question 5

How can a high income person pay less in taxes

Answer 5

General partner (exam likes of oil and gas) with losses
Low income housing credit

Question 6

Adjusted Basis

Answer 6

Legal fees, commissions, sales tax, freight and improvements increase adjusted basis

Cost recovery deductions decrease basis

Question 7

Calculating recognized gain on sale of house and purchase of new house

Answer 7

1. Sales price of old house minus selling expenses
2. Minus adjusted basis of old residence (improvements, fees etc)
3. = Realized Gain on sched D
4. Minus exclusion (250/500)
5. ** = recognized gain**

Question 8

Exception to the 250k/500k sale of house exclusion

Answer 8

If you move 50 miles because of a new job, you can live in the house less then 2 years and still get the exemption, but it is prorated

Ex// married couple moved 6 months bc of a job. Then they can exclude 125k ( Take months lived in it and divide by 24)

Question 9

Schedule A
Schedule B
Schedule C
Schedule D
Schedule E
Schedule H

Answer 9

A: Itemized deductions (allowable)
B: income from ordinary dividends/interest (income is beautiful
C: self employment income (career)
D: capital gains (gains are delightful)
E: real Estate, s-corp, partnerships
H: For household employees

Question 10

Alimony recapture

Answer 10

If there is no alimony paid in 3rd year, subtract $37,500 from total alimony (sum of what was paid year 1 and 2)

If alimony is paid in the 3rd year, double third year alimony and add to 37,500. Then take that new number and subtract from first and second year alimony

Question 11

Corporation Filing, employee, distribution forms

Answer 11

Filing: 1120
Employee: W-2
Distribution: 1099

Question 12

Self Employed Filing, employee, distribution forms

Answer 12

Filing: schedule C
Employee: schedule C
Distributions: N/A

Question 13

Partnership Filing, employee, distribution forms

Answer 13

Filing: 1065
Employee: W-2
Distributions: K-1

Question 14

S-Corporation Filing, employee, distribution forms

Answer 14

Filing: 1120S
Employee: W-2
Distributions: K-1 (unearned)

Question 15

1245 recapture steps

Answer 15

1. Original cost minus Cost recovery deductions = adjusted basis
2. Sale price minus adjusted basis= gain
3. Compare CRDs with Gain
   - whatever is less is the 1245 gain (at ordinary income)
   -1231 gain (capital gain) occurs when gain is larger then the CRD. The 1231 gain is Gain-CRD

Question 16

Installment Sale Recapture

Answer 16

1. Calculate using the steps for 1245 recapture
2. The 1245 recapture (lesser of CRD or gain) must be recognized in year of sale… yikes
3. The rest of the gain recognized over the installment period

Question 17

Step up in Basis

Answer 17

DO NOT RECEIVE STEP UP FOR GIFT OR DIVORCE

When INHERITING, in a non community property, take half of the value and add to half of the original basis (half step up)
Ex// home worth 500k when Mr.X dies. They had a 100k basis. MRS X. New basis would be 250k+50k= 300k

Question 18

How to calculate FICA tax

Answer 18

7.65% of income up to 160,200.

If above, then take 6.2% of 160,200 and add 1.45% of total W-2 income

Ex// 170k W-2 income
1. 160,200 X 0.062= 9932.4
2. 170,000 X 0.0145= 2465
3. 9932.4+ 2465= 12397 FICA tax