Reg 4

Question 1

What is section 1244 stock

Answer 1

This is when you invest in a small business. It allows you to deduct a loss as an ordinary loss up to rather than as a capital loss

A decline in value of 1244 stock is considered an ordinary loss up to $50,000 single 100K Joint.

You can take this is you were sold the stock by the original purchaser - can’t take it if you inherited the stock.

Question 2

What is it called when you borrow money against your house to buy a car

Answer 2

qualified residence indebtedness

It is fully deductible up to 100,000 as long as the total debt does not exceed the fair value of the residence

Question 3

How do you contribute to a Keogh Plan

Answer 3

Up to 25% of Net self employment income after subtracting the contribution

Question 4

How do you account for passive losses in income

Answer 4

Passive losses can only be offset against passive income - not active income (wages or business income)
or portfolio income (interest and dividends)

The losses are then suspended to be used in the future to offset passive income

Question 5

Investment interest expense - what can be deducted

Answer 5

Investment interest is only deductible to the extent of investment income included on the taxpayer return.

Example - you have tax expense of 1000 but only have income of 100 - you can only deduct 100.

Question 6

What can you deduct when you sell illegal drugs vs a normal business

Answer 6

You can deduct COGS

You can not deduct business expenses which you normally can with a legal business

Question 7

What are the rules for a child an dependent care credit

Answer 7

This si when the taxpayer require care for their dependent or child in order to work

The credit is the smaller of:

• actual care expenses
• earned income
• $3,000 - single dependent $6,000 for multiple
• The credit is non refundable

Question 8

What can you deduct if you donate artwork t

Answer 8

You hold the artwork for longer than 1 year - you can take the FMV

If you hold it for less than 1 year - then it is the basis amount

Question 9

What do you do when you have to pay AMT related to the timing of when an item is taxed or deducted for AMT

Answer 9

AMT paid as a result of timing can be recovered in the future through a carry forward to offset against a future regular tax liability only

Question 10

What are some of the requirements of a qualified widower

Answer 10

They must maintain their residence for the entire year

The dependent must live with them for the entire year

Question 11

Which credit is refundable even if you have no income tax liability

Answer 11

EIC

Question 12

When do you need a qualified appraisal for real property donation

Answer 12

They are needed for properties valued above $500,000

Question 13

When do you need a written documentation for donations

Answer 13

When they are more than $250

Question 14

What is the limit on charitable contribution deduction for long-term appreciated stock

Answer 14

It is limited to 30% of AGI

Question 15

Can you deduct the loss on your personal residence

Answer 15

no -

Question 16

How much net capital loss can you deduct in a given year in ordinary income

Answer 16

3,000

The rest is carried forward

Question 17

What types of interest can you deduct as an itemized deduction

Answer 17

mortgage interest and investment interest expense ( this is interest that is paid on loan proceeds used to purchase investment or securities)

Question 18

What are the AMT Tax Preferences that are added back to get AMTI

Answer 18

PIE

Private activity Bond interest

Incentive Stock options for qualified

Excess depreciation

Question 19

Is there anything different you do when you rent property below market to a charity

Answer 19

Nope included in schedule E

Question 20

For this purpose, “earned income” is defined as net self-employment earnings reduced by the

Answer 20

Deductible Keogh contribution and one-half of the self-employment tax.