Mod 35: Individual Taxation Pt. 3 Flashcards
Mortgage points:
If you used the loan to buy, build or improve your home you…
Can deduct whole loan that year
Qualified residence interest:
Home equity indebtedness is the lesser of…2
1 $100,000 interest or
2 FMV - acquisition indebtedness
Investment interest exp, define
Borrow money to buy investments
Investment interest expense can be…
Deducted up to net investment income
Where are gross investment income expenses deducted?
Miscellaneous expenses (excess of 2% of AGI)
Qualified dividends and net long term capital gains are not considered…
2) unless…
Net investment income
2) elect to tax them at ordinary rate
For a charitable contribution in cash or property of $250 or more, to get deduction you must…
Get written acknowledge,net stating what they got from you
Cost of appraisal for charitable contribution can be…
Deducted under miscellaneous 2% itemized deductions
Charitable contributions:
Cash amounts donated…
Cannot exceed 50% of AGI
Charitable contributions:
Donate securities held over 12 months, your deduction is…
FMV up to 30% of AGI
Charitable contributions:
Donate securities held 12 months or less, your deduction is…
Adjusted basis limited to to 50% of AGI
Charitable contributions:
Donate securities declined in value, your deduction is…
Adjusted basis limited to 50% of AGI
Charitable contributions:
Tangible personal property (art), in which LT capital gain and donated to related industry (art museum) your deduction is…
FMV = 30% of AGI
Charitable contributions:
Tangible personal property (art), in which LT capital gain and donated to unrelated industry (Salvation Army) your deduction is…
Adjusted basis limited to 50% of AGI
If you elect adjusted basis, your limit will…
Go from 30% of AGI to 50% of AGI
Any charitable deduction that remains after maximum deduction is taken is…
Carried forward up to 5 years
Mortgage points:
If you did not use the money to buy, build or improve your home you must…
Amortize loan amount over its useful life
No deduction is used for prepaid interest, it must be…
Amortized and deducted over future periods
Personal interest…
No deduction is allowed for personal interest
Credit card interest, deductibility 2
1 not deductible for personal purchases
2 deductible for interest expenses
Qualified residence interest
Can deduct interest on primary and secondary residence
2 types of qualified residence interest
1 acquisition indebtedness
2 home equity indebtedness
Under Acquisition indebtedness, interest is…
Deductible up to $1 million
Acquisition indebtedness is interest of loans secured by residence if loans were used to…3
1 acquire
2 construct
3 substantially improve the home
Home equity indebtedness, interest is…
2) what is the use of this loan?
Deductible up to $100,000
2) loan can be used for anything
Net investment income includes…5
1 interest
2 rents
3 dividends (other than qualified dividends)
4 royalties in excess of any related expenses
5 ST capital gains
Investment expenses remaining after 2% AGI limitation used in computing net investment income. 3
1 rental fees for safety deposit box rental
2 investment counseling fees
3 subscriptions to investment periodicals
Charitable contributions:
A pledge is…
Not a payment
Charitable contributions:
Charging the contribution on credit card…
Does constitute a payment
Charitable contributions:
No deduction will be allowed for contributions of cash, checks or other monetary gifts unless the donor maintains a cancelled check, receipt or letter or other written communication from…
Donee
Charitable contributions:
No deduction will be allowed for contributions unless donor has written documentation from donee indicating…3
1 donee’s name
2 contribution date
3 amount
No charitable deduction is allowed for any contribution of $250 or more unless donor obtains written acknowledgement of contribution from donee organization including a good faith estimate of the value of any goods or services…
Provided to donor in exchange for contribution
A canceled check is not sufficient substantiation for…
Contribution of $250 or more
For any noncash property donation exceeding $500 in value, the tax payer must maintain a written record containing…2
1 date and manner of acquisition of property
2 cost or other basis of property if held less than 12 months
For any noncash property donation exceeding $500 in value, the tax payer must include in the tax return…
A description of the donated property
If donated noncash property exceeds $5,000 in value, the taxpayer is required to…2
1 obtain qualified appraisal
2 attach summary of appraisal to return
If donated noncash property exceeds $500,000 in value, the taxpayer is required to…
Attach qualified appraisal to the return
Political contributions are…
Nondeductible
For a casualty loss calculation:
FMV BEFORE - FMV AFTER = Decrease in FMV, next you use…
The lesser of decrease in FMV or adjusted basis
For a casualty loss calculation:
After starting from decrease in FMV or adjusted basis what is subtracted…3
1 insurance proceeds
2 $100/casualty
3 10% of AGI
If you have a casualty gain of $2,000 and a personal casualty loss (after a $100 floor), you do…
Not net them
Casualty insurance premium on personal residence is…2
1 personal expense
2 not deductible
If you pay appraisal fee to get insurance policy for casualty loss, the appraisal fee is…
Deductible as Misc. 2%
Mortgage insurance policy
If anything happens to you, insurance company will make your mortgage payments
Mortgage insurance premiums are considered…
Interest that you pay
Itemized deductions started to get phased out is…
2013
Casualty loss must be…3
1 identifiable
2 damaging to property
3 sudden, unexpected or unusual
Casualty loss that are deductible:
Includes damage from…5
1 fire 2 storm 3 accident 4 mine cave in 5 loss from vandalism
Casualty loss that are deductible:
Damage to trees and shrubs if there is a…
Decrease in total value of real estate
Casualty loss that are deductible:
Includes a loss on personal residence that has been rendered unsafe by reason of disaster…2
1 declared by president and
2 ordered demolished or relocated by state/local gov
Losses not deductible as casualties include…2
1 losses from breakage of China or glass ware through handling or family pet
2 disease, termite or moth damage
Unreimbursed employee expenses are…
Miscellaneous 2% deductions
Miscellaneous 2% AGI deduction:
Employee education expenses are deductible if incurred to…
Maintain or improve skills required in employee’s present job
Miscellaneous 2% AGI deduction:
Deductible employee education expenses include…5
1 unreimbursed transportation 2 travel 3 tuition 4 books 5 supplies
Miscellaneous 2% AGI deduction:
Education expenses are not deductible if…
Required to meet minimum educational requirements in employee’s
job
Miscellaneous 2% AGI deduction:
If education qualifies employee for new job, even if new job is not sought. This is…
2) give example
Not deductible
2) ex. CPA review course expense
Other deductible unreimbursed employee expenses (from 2% AGI):
Transportation and…2
1 transportation and travel = 100% deduction
2 meals and entertainment = 50% deduction
Other deductible unreimbursed employee expenses (from 2% AGI):
Uniforms…
Not adaptable to general use
Other deductible unreimbursed employee expenses (from 2% AGI):
Employment agency…
Employment agency fees to secure employment in same occupation
Other deductible unreimbursed employee expenses (from 2% AGI):
Subscription to…
Professional journals
Other deductible unreimbursed employee expenses (from 2% AGI):
Dues to…3
1 professional societies
2 union dues
3 initiation fees
Other deductible unreimbursed employee expenses (from 2% AGI):
Malpractice…
Insurance premiums
Other deductible unreimbursed employee expenses (from 2% AGI):
To deduct custodial fees of investment account…
You have to write out separate check
Other deductible unreimbursed employee expenses (from 2% AGI):
Tax related 3
1 tax council
2 assistance
3 tax return preparation fees
Other deductible unreimbursed employee expenses (from 2% AGI):
Expenses for production of income other than those incurred in trade or business or for production of rents and royalties. 3 examples
1 investment council fees
2 safe deposit box rent
3 legal fees to collect alimony
Legal fees to collect child support are…
Not deductible
Other deductible unreimbursed employee expenses (from 2% AGI):
If stock brokerage gets…
Fees for custody of stock certificate
Income in respect to decedent
Collect money for services performed before death
Following miscellaneous expenses are not subject to 2% floor and are fully deductible:
Gambling
Gambling losses to extent of gambling winnings
Following miscellaneous expenses are not subject to 2% floor and are fully deductible:
Estate tax related to…
Income with respect of decedent
Following miscellaneous expenses are not subject to 2% floor and are fully deductible:
Amortizable bond premium on bonds acquired…
Before October 23, 1986
Following miscellaneous expenses are not subject to 2% floor and are fully deductible:
Casualty and theft losses of…
Income producing property (business property)
Examples of no deductible expenses 5
1 fees and licenses 2 personal legal expenses 3 life insurance 4 burial expenses 5 political contributions
Nondeductible expenses:
Fees and licenses 3 examples
1 auto licenses
2 marriage licenses
3 dog tags
Nondeductible expenses:
Personal legal expenses example
Expenses to prepare a will
Itemized deductions subject to high income phase out reduction include…4
1 taxes
2 qualified residence interest
3 charitable contributions
4 miscellaneous itemized deductions
Itemized deductions not subject to high income phase out reduction include…4
1 medical
2 investment interest
3 casualty and theft losses
4 gambling losses
Husband and wife get personal exemptions, they are not…
Not Dependents
To be a qualifying relative, the cousin must…
Live with you for entire tax year
Qualifying relative neumonic
CRAIS
Qualifying relative neumonic:
What does CRAIS stand for?
1 Citizen or resident of US, Canada or Mexico 2 Relationship 3 Absence of join return 4 gross taxable Income 3,950 5 more than half their Support
There is no income limitation as far as…
Qualifying child
A husband and wife can file a joint return even if spouses have different accounting methods. Example 2
1 self employed schedule C with inventory uses accrual method
2 W-2 wages use cash method
Personal exemptions are similar to itemized deduction in that they are…
Deducted from adjusted gross income
Personal exemptions are allowed for taxpayer, spouse and dependent if dependent is…
A U.S. citizen or resident
Personal exemption for 2014 is
$3,950
A personal exemption is allowed for a dependent who is either a…
1 qualifying child or
2 qualifying relative
Exemption for a dependent:
Birth or death of dependent during year
A full exemption is allowed for year
To be a dependent an individual must be a citizen, national or resident of…
2) or a resident of…
The U.S.
2) Mexico or Canada
What additional tests must an individual satisfy to be classified as a qualifying child…4
1 relationship
2 age
3 abode
4 support
Qualifying Child:
Relationship 2
must be taxpayer’s child or adopted
Qualifying Child:
Age 2
1 must be younger than taxpayer and under age 19 or
2 must be full-time student at least 5 months during the year and
under age 24
Qualifying Child:
Abode 2
1 Must have same principal place of abode as taxpayer
2 for more than half of taxpayer’s tax year
Qualifying Child:
Support
Child must not have provided more than 1/2 of their own support
During calendar year
A qualifying child must not have…2
1 Filed a joint return with his or her spouse
2 unless filed solely for refund of tax withheld
A qualifying child can not be claimed as a dependent on…2
More than one return
2) even though child satisfies qualifying child test on more than
One taxpayer’s return
An individual must satisfy 5 additional tests to be classified as a qualifying relative:
Must not be…
a Qualifying child
An individual must satisfy 5 additional tests to be classified as a qualifying relative:
Joint return 2
1 Dependent can’t file a joint return
2 unless filed solely for refund of tax withheld
qualifying relative:
Member of household 2
1 Dependent must either live with taxpayer for entire year or
2 be relative (closer than cousin) to be related
Temporarily absent person meets member of household test for following 4 possible reasons
1 vacation
2 school
3 sickness
4 indefinitely confined in nursing home
qualifying relative:
Has gross income…
2) gross income does not include…
Less than $3,950
2) tax exempt income (nontaxable social security)
qualifying relative:
Support
Tax payer must furnish over 1/2 of support
qualifying relative:
Support from tax payer includes…6
1 food 2 clothing 3 FV of lodging 4 medical 5 education 6 recreation
qualifying relative:
Support from tax payer excludes…2
Excludes life insurance premiums and funeral expenses
Multiple support agreement may be used if…
No person furnishes more than 50% support of dependent
Multiple support agreement says that…
Only one supporter will claim person as a dependent
Multiple support agreement:
Person claimed as dependent on multiple support agreement is treated as…
Qualifying relative
Multiple support agreement:
The person can be treated as providing more than half the dependent’s support if…3
1 more than 10% of support provided
2 signed agreement by those who provided over 10%, that they
Won’t claim exemption
Filing status:
Married persons (married at end of year or time of death of spouse) can file…2
1 joint or
2 separate returns
Filing status:
Qualifying widow(re) with dependent children (surviving spouse) may use…
May use joint tax rates for 2 years following date spouse died
Surviving spouse requirements:
Surviving spouse must have been eligible to…
File joint return in year of spouse death
Surviving spouse requirements:
Dependent son, stepson, daughter or stepdaughter must…
Live in household with surviving spouse
Surviving spouse requirements:
Surviving spouse must provide…2
1 More than 50% of costs of maintaining a household
2 that was main home of child for entire year
Head of house hold status applies to…3
1 unmarried person
2 with dependent child
3 provides more than 50% of costs of maintaining household that
Is principal abode
3 people who qualify you for head of household
1 qualifying child
2 relative, where taxpayer entitled to dependency exemption
3 tax payer maintains parent’s household
Head of household qualifications:
Qualifying child must not…
Not be married by end of tax year
Head of household qualifications:
Parents need not live with tax payer, but parent’s household must be maintained by taxpayer (nursing home) and parents must…
Qualify as tax payer’s dependents
Costs of maintaining a household includes…7
1 rent 2 mortgage interest 3 taxes 4 insurance on home 5 repairs 6 utilities 7 food eaten at home
Cost of clothing, education, medical expenses, vacations, life insurance, transportation, rental value of home and value of taxpayer’s services are…
Excluded from cost of maintaining a hosuehold
