Reg - Individual Tax 2

Question 1

Rental of vacation home

Answer 1

a. If there is any personal use, the amount deductible is

(1) No. of days rented
Total days used × Total expenses = Amount deductible

(2) Personal use is by taxpayer or any other person to whom a fair rent is not charged.

Question 2

Rent of vacation home if used as a residence

Answer 2

amount deductible is further limited to rental income less deductions otherwise allowable for interest, taxes, and casualty losses.

(1) Used as a residence if personal use exceeds greater of fourteen days or 10% of number of days rented
(2) These limitations do not apply if rented or held for rental for a continuous twelve­month period with no personal use.

Question 3

Rent of action home if used as a residence and is rented for less than 15 days per year

Answer 3

ncome therefrom is not reported and rental expense deductions are not allowed.

Question 4

Treatment of rental income and expenses for a dwelling unit that is also used for purposes:

Answer 4

depends on whether the taxpayer uses it as a home. A dwelling unit is used as a home if personal use exceeds the greater of 14 days, or 10% of the number of days rented. If a dwelling unit is used as a home and it is rented for less than 15 days during the tax year, rental income is excluded from gross income and expenses are not deductible as rental expenses.

Of course the real estate taxes will be deductible as an itemized deduction from AGI if Barkley itemizes deductions.

Question 5

AMT is computed as the

Answer 5

Excess of the tentative AMT over the regular tax

Question 6

Is prepaid interest deductible?

Answer 6

No. No advance deduction for interest expense is allowed. Instead, interest expense must be amortized over the period to which it relates.

Question 7

When must a cash method taxpayer capitalize a payment?

Answer 7

1. when the benefit extends beyond 12 months after the first date that the benefit is received.
2. the benefit extends beyond the end of the taxable year following the taxable year in which the payment is made

** The 12 month rule in (1) above does not apply to prepaid interest, which generally must be deducted over the loan period to which it is allocated

Question 8

What taxes are deductible as a tax in year paid?

Answer 8

Income tax (state, local, foreign)

1. the deduction includes amounts withheld from salary, estimated payments made during the year, and payments made during the year on a tax for a prior year.
2. a refund of a prior year’s taxes is not offset against the current year’s deduction, but is generally included in income under the tax benefit rule

Question 9

Maximum contribution and deduction to a defined-contribution self-employed retirement plan for 2015 is the lesser of:

Answer 9

(1) $53,000, or 100% of earned income

(2) the definition of “earned income” includes the retirement plan and self-employment tax deductions

Question 10

How to compute the unreimbursed medical expenses deduction?

Answer 10

Deducted to the extent in excess of 10% of AGI

ex: AGI = 30,000
10% = 3,000

Medical expenses = 9,450

Deduction = 9,450 - 3,000 = 6,450

Question 11

For 2015, the maximum deduction for an individual’s contributions to an IRA is

Answer 11

The lesser of:

a) $5,500 per spouse
(b) 100% of compensation (including alimony

Question 12

MACRS 5 year property classification

Answer 12

autos and taxis, light and heavy general-purpose trucks, calculators, copiers, computers, and peripheral equipment

Question 13

MACRS 7 year property classification

Answer 13

office furniture, fixtures, and equipment including agricultural machinery

Question 14

What is the tax liability associated with a traditional IRA withdrawal before age 59 1/2?

Answer 14

Distributions are fully taxable as ordinary income plus a 10% penalty tax for early distributions.

Question 15

Sec. 179 expense election

Answer 15

a taxpayer (other than a trust or estate) may annually elect to treat the cost of qualifying depreciable property as an expense rather than a capital expenditure

The maximum cost that can be expensed is $500,000 for 2015, but is reduced dollar-for-dollar by the cost of qualifying property that is placed in service during the taxable year that exceeds $2 million.

Question 16

are assessments for improvements (e.g. special assessments for streets, sewers, sidewalks, curbing, etc.) deductible?

Answer 16

generally no, but must be added to the basis of the property

Question 17

when must a taxpayer file a claim for refund?

Answer 17

within 3 years from the date a return was filed, or 2 years from the date of payment of tax, whichever is later

Question 18

tax benefit rule

Answer 18

a recovery of an item deducted in an earlier year must be included in gross income to the extent that a tax benefit was derived from the prior deduction of the recovered item

Question 19

minimum tax credit

Answer 19

the amount of AMT (net of exclusion preferences) is allowed as a credit against regular tax liability in future years; can be carried forward indefinitely, but not carried back.

the AMT credit can only be used to reduce regular tax liability, not future AMT liability

Question 20

Deductibility of miscellaneous expenses

Answer 20

deductible only to the extent they exceed 2% of AGI