Income Tax

Question 1

Section 1244 qualified small business stock

Answer 1

Only applies to the first million of stock initially issued. Loss of 100k per year joint 50k otherwise is ordinary loss no capital loss

Question 2

Calculation of gain on installment sale

Answer 2

Profit or the gain realized on the sale/
Total contract price = gross profit.

Them you take GP and multiply it by the first years income to see what is taxable at LTCG
ex 900/1m= 90% GP
.90x 100k = 90,000 LTCG

Question 3

Refundable credit

Answer 3

Child tax credit and earned income credit both refundable up to 1700

Question 4

Section 197 intangible

Answer 4

Can be amortized over a 15 year period with straight line deprecation

Question 5

179 deduction

Answer 5

Up to 1,220,000 or tangible personal property 1245 property. Can’t create a loss

Question 6

Active participants for real estate activity

Answer 6

Can deduct your to 25k per year of net losses from their active or portfolio income. The deduction is phased out for people between 100k and 150k agi on a $2 for $1 basis

Question 7

Rental of principal residence, not normally a business

Answer 7

Fewer than 15days (so 14) during the taxable year rental income is excludable from income
No deductions to the rental use are allowed

Question 8

Renting your vacation home (normally a business)

Answer 8

You can stay in your vacation rental but it cannot exceed the longer of 14 days or 10% of the rental use.

Question 9

Low income housing credit

Answer 9

Credit is allowed annually over a 10 year credit period
Deprecation is straight line over 27.5 years

Question 10

Charity bargain sale

Answer 10

Sold to charity for less than FMV

Sale/ FMV then multiply this figure by basis. This gives you adjusted basis then you subtract the sale from adjusted basis to get the taxable gain.

Question 11

No alimony paid in third year

Answer 11

Add together the first two years and subtract 37,500. This is what has to be recaptured

Question 12

Foreign tax credit

Answer 12

You can choose yearly between doing a credit or deduction

Question 13

Hobby loss rules

Answer 13

Income is reportable, have to have generated net income three out of 5 years to be a business not hobby
For horses profit is necessary in only 2 out of 7 consecutive years

Question 14

Divorced on December 31?

Answer 14

Can’t file MFJ
December 31st tells you what to file as

Question 15

Deduction vs credit

Answer 15

Credit worth more to lower income
Deduction worth more to higher income

Question 16

Qualified business income

Answer 16

Got to be a pass through income so no c corp

Deduct 20% on their pass through income

Question 17

Corporate accumulated earnings tax

Answer 17

Regular corporation can accumulate 250 PSC is 150 without establishing a business need. This is intended to make corporations pay out dividends 20% tax.

Question 18

Simple vs complex trust

Answer 18

Simple kicks out all income, benes pay taxes on the income at their rates, no distribution of corpus, no charitable gift

Complex trust may kick out the income (taxed to bene)or may be accumulated (taxed to trust) corpus can be distributed, may make charitable gifts

Question 19

Distributable net income (dni)

Answer 19

Limits what the trust or benes have to report for income tax purposes. Can either claim a deduction for amount distributed or limit the portion of the distribution that is taxable to benes or ensure distributions remain the same for bene as it was for trust.

The deduction is equal to the lesser of the amount distributed to the benes or the dni

Complex trust has 300 exemption if it is required to kick out income 100 if not.

Question 20

Macrs and straight line

Answer 20

5year 7 year 5year 7 year
1 20%. 14.29%. 10%. 7.14%
2 32%. 24.49%. 20%. 14.29%
Macrs. Straight line

Question 21

Deprecation recapture CRDs

Answer 21

1245 property recaptured at ordinary income rates
Any excess over that is 1231 capital gain

1250 property deduct at ordinary rates and recapture at 25%