Itemized Deductions Flashcards
Can you deduct personal investment activities?
Not under 162 (business expenses), but in 2026 under S 212 as an itemized deduction
S 212 primarily deals with dividends and interest
(1) Production or collection of income,
(2) Management, conservation, or maintenance of income, and
(3) Determination or collection of tax refunds
Business A sues Business B over title to Property that A rightfully owns. A wins in court. Are A’s attorney fees deductible?
No. No deduction for expenses for defending or perfecting title to property (Reg 1.212-1(k) and Bowers v. Lumpkin)
Investor gives money directly to a business committee in hopes of increasing the gains from his investment in said business. The business succeeds in improving. Deductible?
This is deductible as an ordinary and necessary “non-business” expense under S 212, according to Surasky.
- Lower court ruled proximate cause was needed, but
- fifth circuit said no. It is sufficient that taxpayer exercised “reasonable business judgment.”
IRS maintains proximate cause is necessary between expenditure and
(1) production/collection of income, or
(2) management, conservation, or maintenance of property held for the production of income
What is the Golsen rule?
The tax court will follow its own law unless the taxpayer is from a district that has conflicting precedent, then that precedent will be followed.
implicated by surasky, proximate cause not/is necessary argument between 5th circuit and IRS
3 types of interest deductions
(1) mortgage,
(2) investment, and
(3) business interest
Are loan origination fees deductible?
Deductible if
(1) The fees are solely for the use or forbearance of money, and
(2) Taxpayer did not initially obtain the funds to pay this fee from the lender
What are the limits on indebtedness, as applied to the interest deduction for mortgage interest?
The amount of indebtedness can’t exceed
(1) $500,000 for individuals,
(2) $750,000 for married filing jointly, and
(3) $375,000 for married filing separately
How does the deduction for investment interest work?
- deductible to the extent the taxpayer has investment income
- carryover disallowed amounts
investment income = income from property - expenses + gains from any sale
How does the business interest deduction work?
Deduct up to net “business interest income” plus 30% of adjustable taxable income
What is explicitly ineligible for interest deductions?
indebtedness incurred or continued to purchase or carry tax-exempt obligations (ex. municipal bonds) (S 265(a)(2))
Is there a deduction for federal income taxes?
No, but you can deduct state and local taxes. (only up to $10g through 2025)
What taxes are deductible under S 164?
(1) State, local, and foreign, real property taxes
(2) State and local personal property taxes
(3) State, local, and foreign: income, war profits, and excess profits taxes
(4) The GST tax imposed on income distributions.
(b)(6)(B) State and local tax deductions have a limit of 10 grand through 2025
What is required for a taxpayer to be able to deduct real property taxes?
Real property taxes are deductible only by the person upon whom the taxes are imposed
upon who are real property taxes imposed?
The owner and the occupant (A relative owning the property or you taking care of the property does not count) (Cramer)
What is required of property taxes in the event of a sale?
They need to be prorated between the buyer and seller.
If someone else pays the property taxes, can the person upon who they are imposed deduct them?
Under Cramer, no.
However, you could argue that the substance of the transaction was a gift to taxpayer and that the taxpayer then paid, making the taxes deductible
What happens if the purchaser offers to pay the property taxes?
They are included in seller’s amount realized as a discharge of indebtedness
Can you deduct state and local sales or income taxes?
State and local income taxes are automatically deductible. You can elect to deduct sales tax instead, but not both.
Can you deduct assessments?
No.
No deduction for “taxes” assessed against local benefits “of a kind tending to increase the value of the property assessed”
Two types of itemized deductions
Non miscellaneous expenses (listed in the code), and
Miscellaneous expenses
- Not currently deductible
- Only deductible to the extent greater than 2% of AGI
What is the standard deduction?
12g - single individual (married filing separately)
18g - head of household
24g - married filing jointly
when is the standard deduction limited?
If someone claims you as a dependent, the standard deduction is the greater of
- $500, or
- The sum of $250 and your earned income
investment income is not earned income
Are personal exemptions available right now?
Not available until 2026
The dependency exemption
Exemption of $2g for
Qualifying child
(1) Son, daughter, step, adopted, niece/nephew
(2) Same principal place of abode for more than 6 months (If full time student, presumed to live at home)
(3) Under 19, or student under 24
(4) Provide half of support
Qualifying relative
(1) Not a qualifying child
(2) Specified relatives and non-relatives in the household
(3) GI less than the exemption amount
Are scholarships taken into account for the dependency exemption?
NO
Can you take a dependency exemption for a married dependent that is filing jointly?
No, they must file separately.
Old age exemption
- $750 additional deduction if over 65, and
- $750 if blind
If taxpayer’s 65th birthday is in the taxable year they are “over 65” for the taxable year for purposes of the exemption.
Reg 1.151-1(c )(2) for purposes of the old age exemption, turn 65 on Dec. 31 the year preceding actual 65th birthday
