Individual Taxation Flashcards
What is the 2013 IRA AGI Phase-out limits?
$95,000 - $115,000
What is the maximum dollar amount contribution for IRA’s in 2013?
$5,500
In 2013, Evan set up Coverdell education saving accounts for each of his 4 grandchildren, aged 7, 9, 14 and 16. He would like to contribute the annual maximum to each savings account when he usually makes other annual-election gifts every year on December, 31. The annual maximum for 2013 is $2,000. How much can he contribute in total to the Coverdell education savings accounts in 2013 and each of the next four years?
$32,000 Contributions for Coverdells must be made before the account beneficiary turns 18. Therefore, 7 yr old = 5 yrs X $2,000 = $10,000 9 yr old = 5 years X $2,000 = $10,000 14 yr old = 4 years X $2,000 = $8,000 16 yr old = 2 years X $2,000 = $4,000 Total = $32,000
Mel purchased 100 shares of common stock in X Corp for $1,000. X distributed a nontaxable stock dividend and Mel rec’d 20 shares of preferred stock as a result. On the date of the dividend, the commons stock had a value of $19 per share and the preferred had a value of $5 per share. After the distribution of the preferred stock, Mel’s bases for the stock held in X corp?
$950 common and $50 preferred.
Because the stock dividend was nontaxable, the original $1,000 common stock must be allocated between the common stock and preferred stock shares based on their relative FMV. Common stock has a value of $1,900 (100 x $19) and preferred has a value of $100 (20x$5).
$1,000 x (1,900/2,000) = $950 basis of the common stock. $1,000 x (100/2000) = $50 basis of preferred stock
Johnson worked for ABC Co and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Johnson’s salary. The annual IRS established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?
$100,414 $100,000 x 2 (twice his salary) = $200,000 $200,000 - $50,000 = $150,000 $150,000/$1,000 = $15,000 x $2.76 = $414 $414 + $100,000
Tom, an individual taxpayer, paid interest on a $10,000 home equity line of credit that was secured by his personal residence. Tome used the proceeds of the $10,000 loan to purchase a sailboat. At the time of the $10,000 loan, Tom’s outstanding mortgage on the residence was $78,000 and the FMV of the residence was $80,000. On how much of the $10,000 loan amount may Tom deduct interest charges for on his 2013 tax return (assuming that he can fully itemize and deduct all such charges)?
$2,000
In general, home eq indebtness is any indebtness, other than acquisition indebtness, that is secured by a qualified residence of the TP. The proceeds of the loan may be used for any purpose (with one exception) as long as the loan is secured by the TP’s qualified residence. The one exception is if securities or certificated are purchased.
Home equity indebtness is limited to the lesser of:
1. FMV of the qual residence, in excess of the acquisition indebtness w/respect to the residence or
2. $100.000 ($50,000 if MFS)
In this case, Tom is limited to $2,000 FMV - outstanding loan amount
Hal and Joy are married and filing a joint return. Hal had no income, Joy earned $100,000. Neither spouse was a member of a qualified retirement plan. What is the max allowable traditional IRA deduction if both are age 64?
$13,000
Since neither is involved in a qualified pension plan, there is no max income limitation. Since both are at least 50 years old, the can contribute $6,500 in stead of $5,000
Smith, single, has AGI of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of rental losses may Smith deduct in determining taxable income?
$15,000
Indiv may offset $25,000 of ordinary income w/losses from RE activities. This exemption is reduced (not below zero) by 50% of the amount by which the ADI of the TP exceeds $100,000.
$25,000 - (($120,000-$100,000)x.5) = $15,000 deduction
Lane, a single TP, received $160,000 in salary, $15,000 in income for an S-Corp in which Lane does not materially participate and $35,000 passive loss from a RE rental activity in which Lane materially participated. Lane’s modified AGI was $160,000. What amount of the RE rental activity loss was deductible?
$15,000
Individual may offset up to $25,00 ($50,000 MFJ) of ordinary income w/rental RE activities. This exemption is reduced by 50% of the amount by which the AGI exceeds $100,000
1. First, the passive activities are netted $15,000 S-corp income - $35,000 rental = ($20,000)
2. Second, the salary of $160,000 is decreased by the net $20,000 passive activity loss for a MAGI before limitation of $140,000
3. The $140,000 that exceeds $100,000 is multiplies by 50% = $20,000
4. the rental loss of $35,000 is decreased by the $20,000 limitation leaving an allowable deduction of $15,000
Mary, single, owned rental RE which generated a tax loss of $60,00(0 for 2013. Mary materially participated in the rental activity. Mary’s AGI before considering the $60,000 loss was $130,000. What amount of the loss can offset income from nonpassive sources?
$10,000
$25,000 - (($130,000-$100,000) x 50%)
Dole, the sole owner of Enson Corp, transferred a building to Enson. The building had an adjusted tax basis of $35,000 and a FMV of $100,000. In exchange for the building, Dole received $40,000 cash and Enson common stock with a FMV of $40,000. What amount of gain did Dole recognize?
$40,000
Under IRC 351, transfer of appreciated property to a controlled corp (80%) are tax free to the extent they are exchange solely in exchange for stock in the corp. If cash or other property is received, gain is recognized equal to the cash and FMV of other property rec’d, limited by the amount of appreciation in the property transferred to the corp.
Dole was the sole owner of Enson, so he meets the control test. He transferred a building w/basis of $35,000 and FMV of $100,000, so the building has appreciated of $65,000. Dole rec’d cash of $40,000 and Enson stock worth $60,000 in exchange for the building. Since he received cash, the exchange is not completely tax free.
The amt taxable is the lesser of cash rec’d ($40,000) or the appreciation ($65,000), so Dole is taxed on the $40,000
Mintee Corp, an accrual-basis calendar-year C corp, had no corp SH when it liquidated in 2013. Mintee Corp distributed land held as an investment to its SH. At the time of the distribution, the land had an adj basis to the corp or $300,000 and a FMV of $400,000. The land was subject to a liability of $425,000. What is Mintee’s gain or loss on the distribution of the land?
$125,000 gain The general rule for a liquidation distribution by a corp is that a corp recognizes a gain or loss on the distribution of property in a complete liquidation. The property is treated as if it were sold at its FMV. When a liability is held on the property, the amount realized (deemed FMV) from the "as if" sale cannot be less than the amount of the liability. In this case, the gain would be computed as follows: Deemed FMV $425,000 Adj basis of land ($300,000) Realize gain $1250,000
Patty Cake owned real estate that was condemned by the state. Patty had purchased the property for $30,000 and received $50,000 from the state as a result of the condemnation. Patty purchased replacement real estate for $52,000. Patty’s basis in the new real estate is?
$32,000
Patty’s basis is the cost of the replacement property less the deferred gain ($52,000 - $20,000 = $32,000
Gene and Olive are married filing MFJ for 2013. They are both active participation in qualified retirement plans. They have AGI of $105,000 and each contributed $5,500 to a tradition IRA. What is the deduction for IRA contributions in 2013?
$5,500
In 2013, the phaseout of the IRA deduction for MFJ participating in another pension plan for AGI between $95,000 and $115,000. Since their AGI is halfway between, only half of the $11,000 is deductible.
Rita is an active participant in a company retirement plan. Her husband, John, age 45, works for a company that does not have a retirement plan. They have AGI for 2013 of $182,000. John contributed to an IRA for himself. How much of this $4,000 can they deduct on their 2013 joint return?
$3,200
Beginning in 1998, indiv are not considered participants in a company retirement plan simply because their spouses are. However, the max deductible IRA contrib for a nonparticipant spouse is phased out for couples with AGI between $178,000 and $188,000. In this case, their AGI is $4,000 over the beginning of the $10,000 phase out so their max $4,000 deduction is reduced by $800. ($4,000x2/10)
