R1 M2 - Gross Income: Part I Flashcards
When it comes to personal reputation or anything that does not cause death punitive damage and compensatory damages are taxable.
What items represents Taxable interest Income?
- Interest from federal bonds
- Interest from industrial development bonds
- Interest from corporate bonds
-Part of the proceeds from an installment sale is taxable as interest
-Interest paid by the federal or state government for late payment of tax refund is taxable
The items below represent taxable interest income:
What is reduces or is an offset to the interest received and a reduction to the bond’s basis?
The amortization of a bond premium is an offset (reduction to the interest received and a reduction to the bond’s basis.
The amortization of a bond discount is an addition to the interest received and an addition to the bond’s basis.
Which one of the following statements is correct with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?
A. The amortization is treated as an itemized deduction. B. The bond's basis is increased by the amortization. C. The bond's basis is reduced by the amortization. D. The amortization is not treated as a reduction of taxable income.
Choice “C” is correct. The bond’s basis is reduced by the amortization of the premium.
Choice “A” is incorrect. The amortization of the premium is an offset to interest income on the bond rather than a separate interest deduction.
Choice “B” is incorrect. The bond’s basis will be decreased by the amortization.
Choice “D” is incorrect. The amortization of the premium will reduce taxable income.
