Individual Taxes: Adjustments and Deductions to Arrive at Taxable Income Flashcards
Casualty Loss
The total amount of net casualty losses for the year must first be reduced by $100 for each event during the year that led to the casualties
above is casualty loss deduction before the 10% of AGI reduction
The Tax and Trade Relief Extension Act of 1998 (P.L. 105-277)
phased in the deduction for a self-employed person’s medical insurance premiums over several years and now permits a full deduction
medical expense deduction includes
The doctor fees the prescription drugs the annual physical the eye exams the eyeglasses/contact lenses
In determining the cost for maintaining a household with regards to more than 50% of care for a child includes
only paid costs should be considered costs can include mortgage/rent expense utility charges food consumed in the home repair and maintenance costs
itemized deductions not subject to phaseout are
medical expenses
investment interest
casualty losses
and gambling losses
Higher-income taxpayers may have to reduce their remaining itemized deductions, including charitable contributions, by the lesser of 3% of the excess of adjusted gross income over a certain amount or 80% of the certain amount otherwise allowable for the taxable year
The following are considered high-income taxpayers in 2015:
Single filers with income over $258,250
Head of household filers with income over $284,050
Married filing joint filers with income over $309,900
Married filing separate filers with income over $154,950
A cash payer paying a year’s worth of interest
can only deduct that month’s portion for that year.
A tax-free distribution must take place
after the 5-tax-year period that begins with the first tax year (2010) in which a contribution was made to a Roth IRA or rolled over from a non-Roth IRA to a Roth IRA
In general, home equity indebtedness is any indebtedness, other than acquisition indebtedness, that is secured by a qualified residence of the taxpayer. The one exception is that the taxpayer cannot deduct home mortgage interest if he or she uses the proceeds of the mortgage to purchase securities or certificates that produce tax-free income
Home equity indebtedness is limited to the lesser of:
the FMV of the qualified residence, in excess of the acquisition indebtedness with respect to that residence, or
$100,000 ($50,000 if married filing separate).
For this question, Tom is limited to deducting interest on indebtedness of $2,000 (i.e., the amount the fair market value of the property exceeds the outstanding mortgage (acquisition indebtedness)).
Payment for registration and licensing of a car may be deductible as a personal property tax only
if it is imposed annually and assessed in proportion to the value of the car.
Contributions to Coverdell education savings accounts must be made
before the account beneficiaries are 18 years old
Individual taxpayers may deduct
up to $2,500 of qualified student loan interest as an above-the-line deduction to arrive at AGI (subject to phase out)
An employee or self-employed individual who moves his residence because of a change in his principal place of work may deduct only the following as moving expense:
Moving household goods and personal effects from the old residence to the new residence, and traveling (including lodging) from the old residence to the new place of residence. Deductible moving expenses do not include meals. (IRC Section 217(b)(1))
The new principal place of work must be at least 50 miles farther from taxpayer’s old principal residence than was the old principal place of work.
There is no dollar limit on the amount of moving expenses which are deductible “above the line” or to arrive at adjusted gross income (AGI).
Taxes assessed against local improvements
are not deductible if they are of a nature that tends to increase the value of the property being assessed.
Maintenance, repair, or interest charges related to such assessments are deductible
In the case of nonbusiness casualty and theft losses, a taxpayer is able to deduct the loss as an itemized deduction, which is computed as follows:
1) Determine the adjusted basis in the property before the casualty or theft.
2) Determine the decrease in fair market value of the property as a result of the casualty or theft.
3) From the smaller of the amounts determined in the two prior calculations, subtract any insurance or other reimbursement received or expected to receive.
