Income Tax Flashcards
What do refundable credits do?
They can generate a tax refund
Can a business with a net operating loss (NOL) carry the losses back to prior years?
No, net operating losses cannot be carried back to prior years, but may be carried forward indefinitely
Do bank loans count towards basis for general partnerships? What about corporations?
Bank loans count towards basis for general partnerships. They do not count towards basis for S corporations
In an S corporation how much losses can an owner take?
An owner can take losses up to their basis. Anything remaining can be carried forward to the next year and definitely.
What factors can increase the basis of an asset?
- Legal fees
- Commissions
- Sales tax
- Freight
- Improvements
What does not increase the basis of an asset?
- Repairs
- Real estate taxes
- Normal business operating expenses
What is the cost basis?
The basis increased by incidental costs
What must improvements do to the basis?
Improvements must be capitalized
How are repairs treated in terms of expenses?
Repairs are always deducted as expenses
What are cost recovery deductions?
Allowances for the exhaustion and wear and tear of property used in a trade or business or held for the production of income
Fill in the blank: Basis is increased by _______.
[legal fees, commissions, sales tax, freight, improvements]
True or False: Repairs increase the basis of an asset.
False
What is the purpose of cost-recovery deductions (CRDs)?
An allowance for the exhaustion and wear and tear of property used in a trade or business.
List the property classes under MACRS.
- 5-year (1245 property): Computers, Autos, and light duty Trucks
- 7-year (1245 property): Office equipment except computers
- 27½ year (1250 property): Residential rental property
- 39-year (1250 property): Nonresidential real property
What is the §179 deduction?
An election to expense up to $1,220,000 (2024) of qualifying property in the year of acquisition.
True or False: The §179 deduction can create a loss.
False.
Fill in the blank: MACRS applies to all recovery property except _______.
[land or intangibles]
What is the property class for office equipment except computers under MACRS?
7-year (1245 property).
What is the property class for residential rental property under MACRS?
27½ year (1250 property).
What is the property class for nonresidential real property under MACRS?
39-year (1250 property).
What type of property is referred to as 1245 property?
Tangible personal property.
What is the significance of the §179 deduction in tax planning?
It allows for immediate expensing of qualifying property in the year of acquisition.
How many days a year can you rent a principal residence and not incur any income tax consequences?
Up to 14 days a year
How much can qualifying taxpayers deduct per year from active participation losses?
Qualifying taxpayers may deduct up to $25,000 per year of net losses from real estate activity from their active or portfolio income. This deduction is phased out for taxpayers with AGIs between 100,000 and $150,000 on a two dollar for one dollar basis
What is the rule for netting losses and gains on non-publicly traded partnerships?
PALS up to PIGS
Can you net gains and losses from different publicly traded partnerships? MLP:
No
How our losses from a publicly traded partner (PTP) used?
Losses from a PTP may not be used to offset passive income from other sources net losses from a PTP must be carried forward and used ONLY against the future income from the SAME partnership. The loss in the top PTP cannot escape the circle. It is carried forward until used against income in that same partnership or sold. To take a loss from a PTP there must be a complete disposition.
What are the rules for renting your vacation home (normally a business)?
Personal use cannot exceed the longer of 14 days or 10% of the rental use.
The low income housing credit is spread over how many years?
10 years
What is the maximum amount a taxpayer can deduct via charitable contributions?
60% of AGI shown on the tax return. Any contribution in excess of such limit is carried forward as an itemized deduction for up to five years, or if sooner, death.
When donating gifts of appreciated property (generally stock or real estate) what amount can a taxpayer deduct?
When valuing gifts at FMV, the individual can only deduct 30% of AGI. 3 letters, 30%.
When valuing gifts at basis, the individual can deduct 50% of AGI . 5 letters, 50%.
When donating an item such as an art object or collectible to a charity, what value of the object is used (FMV or basis) in what situations?
Fair market value, if used by the charity in its charitable activity. Otherwise, use basis.
What is the AGI phaseout for active participation loss?
$150,000
What is the deduction-equivalent tax credit maximum for low-income housing programs?
Low income housing programs that are held as passive activity may generate a deduction equivalent tax credit up to $25,000. There is no income phase out.
Ex: if someone wasn’t is in the 37% tax bracket multiply 25,000 times 37% to get a credit of $9250
What are the property classes for MACRS?
5-year, 7-year, 27½-year, 39-year
What types of property fall under 5-year MACRS?
Computers, autos, and light duty trucks (1245 property)
1245 property includes certain tangible personal property.
What type of property is classified as 27½-year MACRS?
Residential rental property (1250 property)
1250 property includes residential rental buildings.
What type of property is classified as 39-year MACRS?
Nonresidential real property (1250 property)
1250 property includes nonresidential buildings.
What are the recovery percentages for 5-year MACRS in year 1 and year 2?
Year 1: 20%, Year 2: 32%
What are the recovery percentages for 7-year MACRS in year 1 and year 2?
Year 1: 14.29%, Year 2: 24.49%
What are the straight-line recovery percentages for 5-year depreciation in year 1 and year 2?
Year 1: 10%, Year 2: 20%
What are the straight-line recovery percentages for 7-year depreciation in year 1 and year 2?
Year 1: 7.14%, Year 2: 14.29%
How do you calculate a charitable bargain sale?
1) sale/FMV x basis = adjusted basis
2) sale - adjusted basis = taxable gain
What is the mid-quarter conversion rule?
The mid Quarter conversion applies if more than 40% of the property is placed in service by a taxpayer during the last quarter of the year
What is the threshold for using the cash accounting method?
No more than 29 million in revenue
Are revocable trust tax neutral to the grantor?
Yes. Revocable trust trust. Anything that happens in a rev trust is the grantors tax
Is a tax credit more valuable to a low bracket tax payer or a high bracket payer?
A credit is more valuable to a low bracket taxpayer than a deduction would be.
Do gift taxes paid add to the basis of a Donny for gifted property
Yes
Are qualified dividends in long-term capital gains part of AGI?
Yes. Qualified dividends and long-term gains are part of AGI. They are taxed differently, but are included in AGI.
