Intro to Tax Law Flashcards
What influences the manner in which real property transactions are structured?
Tax tax laws
The primary goal of a lawyer is to structure transactions to achieve the economic objectives of the parties.
Where are federal tax laws contained?
Internal Revenue Code of 1986
Federal tax laws are enacted by Congress.
What amendment to the U.S. Constitution is the origin of the modern tax system?
16th Amendment
Which department has the authority to promulgate regulations for federal tax law?
Treasury Department
What type of rulings does the IRS issue that can be relied on by all taxpayers?
Public revenue rulings
What is a private letter ruling?
An IRS ruling issued in response to an individual taxpayer’s request regarding tax consequences
It is only binding for the taxpayer to whom it is issued.
What happens if the IRS determines a taxpayer has not paid all owed taxes?
The IRS will assess a deficiency against the taxpayer.
Name the three courts of original jurisdiction for tax deficiency challenges.
- United States Tax Court
- United States District Courts
- United States Court of Federal Claims
What is federal income tax imposed on?
An individual’s taxable income
Define taxable income.
Gross income reduced by certain deductions.
What does gross income encompass?
Any economic benefit that increases the taxpayer’s wealth unless specifically excluded by the Code.
What are some examples of gross income?
- Rent
- Gains from dealings in property
What is a realization event?
A sale of property for money or an exchange of property for other property.
What does the basis of a property refer to?
The cost of the property.
What types of payments can be deducted from gross income?
- Business expenses
- Investment activities
- Certain interest payments
What are the deductible costs of owning a home?
- Real estate taxes actually paid
- Interest that qualifies as home mortgage interest
- Mortgage insurance premiums
What is the maximum annual deduction for real estate taxes starting in 2018?
$10,000
What is home mortgage interest?
Interest paid on a loan secured by your home.
What are the limits on home mortgage interest deduction?
Limited to interest on the part of the home loan not exceeding $750,000.
What is a home acquisition debt?
A loan taken out to buy, build, or substantially improve a qualified home.
What is the exclusion amount of gain from selling a main home?
$250,000 for single filers, $500,000 for married filing jointly.
What must be met to exclude gain on the sale of your home?
Ownership and residency requirements.
What is the adjusted basis of a home?
The original basis adjusted for improvements or other qualifying changes.
What cannot be deducted when selling a home?
Loss on the sale of your home.
What is the difference between repairs and improvements in relation to home basis?
Repairs do not add value and cannot be added to the basis; improvements do.
What does the amount realized from the sale of a home include?
Selling price minus selling expenses.
How is gain or loss from the sale of a home determined?
Compare the amount realized to the adjusted basis.
