NINJA Individual Taxation #2 Flashcards
What can be carryovers?
C - Charitable Contributions A - AMT Paid C - Capital Loss (Individual) P - Passive Activity Loss I - Investment Interest expense > Investment Income E - Excess 179 expenses
How can Passive Activity Loss be carried?
o No Carryback
o Carry Forward Indefinitely
How can Investment interest expense be carried?
Carry Forward Indefinitely
How can charitable contributions be carried?
Carry Forward 5 years
How can AMT paid be carried?
o Carry Forward Indefinitely
o Apply against future Income Tax only
Not against future AMT liabilities
How can capital losses (individuals) be carried?
o $3,000 Loss and Carry Forward rest Indefinitely
o Loss retains Character (STCL vs LTCL)
How can corp capital losses be carried?
- 3 years back /5 years forward
* Corp Carry Forward as a STCL only
What is the formula for contract price?
Contract Price = Sales Price – (Buyer Liability)
What is the treatment of home mortgage interest?
- Mortgage Interest deductible on loans up to $1M
- Home Equity Interest deductible on loans up to $100K
What types of business gifts (Sch C) are deductible?
- $25 per person is deductible
* Service awards up to $400 are deductible
How are business losses treated?
Business Losses only offset active Business Income
W2 wages are considered active Business Income
Passive Losses don’t offset active income
W2 wages = Active Income
Can’t be offset by Passive Losses
Ltd Partnership income = Passive Income
Can be offset by passive losses
Interest/dividend income = Portfolio Income
NOT PASSIVE
What is the treatment of business start-up costs?
Deduct up to $5,000 of Start-up costs
Reduced dollar-for-dollar by amount over $50,000
Remaining costs are amortized
What is the deductible treatment of medical expenses – Schedule A?
(New) Deductible once 10% AGI threshold is reached
o If your AGI is $100,000, your first $10,000 of medical expenses are not deductible
Accident/Disability insurance is not deductible
What types of medical expenses – paid on behalf of another treated?
Must be a Citizen of North America
If person is your mother/father or relative closer than a cousin, they don’t have to live with you
Otherwise, they must live with you
Must provide more than 50% support to individual
Are Foreign Income Tax – Deductible?
Yes
Are Foreign Real Estate Tax Deductible?
Yes
Are Foreign Personal Property Taxes Deductible?
No
Are Foreign Tax Assessments Deductible?
No, Add to Basis
How are investment interest expenses – Schedule A treated?
Deductible only the extent of Net Investment Income
Gross Investment Income
= Net Investment Income
Note: Investment expense doesn’t include Interest Expense. Investment interest expense on tax-free securities is not deductible
How are mortgage points – Schedule A treated?
Deductible if it represents prepaid interest on purchase of a new home or improving a home
Refinance points are amortized over the life of the mortgage
How are mortgage interest expenses – Schedule A treated?
If used to purchase a house (i.e. not to pay off credit cards) deductible on Schedule A on debt up to $1M
Refinance interest expense deductible up $100k of debt
How are charitable contributions – Schedule A treated?
LTCG Property + Property related to Charity
o Deduction for FMV of property
o Up to 30% of AGI
STCG Property + Property not related to Charity
o Deduction for Adjusted Basis in property
o Up to 50% of AGI
What is the treatment of Misc Schedule A deductions?
Must Exceed 2% of AGI Education - If required to keep your job Business travel expenses 50% of meals/entertainment Union Dues Tax prep fees Legal fees to collect alimony Appraisal Fees to Value o Casualty Loss o Charitable Contributions
What types of deductions are not subject to AGI phaseout?
Medical
Casualty
Gambling
Investment Interest Expense
How are casualty losses treated?
Decrease in FMV of property vs. Basis
Use the lower of the two numbers
Lower of above number
(Note – this was $500 in 2009 tax year)
=Deductible amount for casualty loss
Are expenses to repair damaged personal property deductible?
No
What is a qualifying child?
Must be resident of North America
Under age 19 or age 24, if student
What is a qualifying relative?
Must be citizen of North America
Same “relative” test as the test for medical expenses paid for another person
o If person is your mother/father or relative closer than a cousin, they don’t have to live with you
o Otherwise, they must live with you
o Must provide more than 50% support to individual
o Can’t earn more than the Personal Exemption
Social Security doesn’t count as income
Formula for minor income taxed at parent’s rate
Child’s unearned income
=Amount taxed at parents’ rate