R1 M3 - Gross Income: Part II Flashcards
Excess Business loss limitation rules?
- Net operating loss (NOL) before 2018
- Net operating loss (NOL) after 2017
- Net operating loss (NOL) starting 2021
- Net operating loss (NOL) before 2018
Carryforward - 100% of future taxable income for just 20 years. - Net operating loss (NOL) after 2017
Carry forward - forever (indefinitely)
100% of taxable income 2019 and 2020, - Starting in 2021
Any net loss can’t be carried back but can be carried forward forever.
Only 80% offset
Hunter has a loss of $50,000 from his landscaping business in 2024. He reports the loss on Schedule C of his Form 1040. After deducting the loss against his other sources of income, he has a remaining business loss of $10,000. What are Hunter’s options regarding the remaining $10,000 business loss?
A. He can carry the loss back five years and forward 20 years. B. He can carry the loss back two years and forward 20 years. C. He cannot carry the loss back but he can carry it forward indefinitely. D. He can carry the loss back five years and forward indefinitely.
Explanation
Choice “C” is correct. For tax years beginning after December 31, 2020, a net operating loss cannot be carried back but can be carried forward indefinitely.
Choice’s “A”, “B”, and “D” are incorrect. These are different carryback and carryforward provisions for tax years before 2021.
How do you calculate net income from self-employment computed on Schedule C?
What are non-deductible expenses in Sch C of Sel-employment tax
- Federal income tax expense
- Personal Use expense on automobile, meals
- Entertainment expense
- Bad debt expense
- Charitable Contribution –> Sch A.
- Salaries paid to a sole proprietor is considered a withdrawal (paying yourself)
Adams owns a second residence that is used for both personal and rental purposes. During the current year, Adams used the second residence for 50 days and rented the residence for 200 days. Which of the following statements is correct?
A. Utilities and maintenance on the property must be divided between personal and rental use. B. A rental loss may be deducted if rental-related expenses exceed rental income. C. Depreciation may not be deducted on the property under any circumstances. D. All mortgage interest and taxes on the property will be deducted to determine the property's net income or loss.
Choice “A” is correct. The second residence is treated as a personal/rental residence and expenses must be prorated between personal and rental use.
A residence is treated as a personal/rental residence if it is rented for more than 14 days, and is used for personal purposes for the greater of (1) more than 14 days, or (2) more than 10 percent of the rental days. In this case, 10 percent of the rental days is 20 days (200 rental days × 10 percent). The 200 rental days are more than 14 days and the 50 personal use days are more than 20 days (10 percent of the rental days), so the requirements for personal/rental residence are met.
Choice “B” is incorrect. Rental use expenses are only deductible to the extent of rental income.
Choice “C” is incorrect. A deduction is allowed for depreciation, which is allocated to rental use based on the rental period/total annual usage (200 rental days/250 total days). The deduction for depreciation is limited to net rental income after deduction of other rental expenses.
Choice “D” is incorrect. Only an allocated portion of mortgage interest and taxes are deductible as rental expenses. Mortgage interest and taxes are allocated to rental use based on the rental period/total annual period (200 rental days/365 total days). The remaining mortgage interest and taxes may be deducted on Schedule A if the taxpayer itemizes deductions.
