REG07

Question 1

Is portfolio income of an activity (e.g., interest, or dividend) treated as passive income from the activity?

Answer 1

No, it is not included in passive income.

Question 2

Does unemployment compensation qualify as earned income for the Earned Income Credit?

Answer 2

No, it does not include interest and dividends, welfare benefits, veterans’ benefits, pensions or annuities, alimony, Social Security benefits, workers’ compensation, unemployment compensation, or taxable scholarships or fellowships.

Question 3

Is rental real estate activities income include Social Security benefits, IRA contributions, and passive losses?

Answer 3

No, the $25,000 allowance is determined without regard to Social Security benefits, IRA contributions, and passive losses.

Question 4

What is the credit equal to for an individual who has attained age 65 or is disabled?

Answer 4

Is allowed a credit equal to 15% of the individual’s reduced base amount. Single = initial base amount is $5,000, reduced by Social Security benefits or otherwise excluded from gross income.
The base amount is also reduced by 1/2 of the excess of AGI over $7,500 (Single).
Initial base amount of $5,000 - (GI - $7,500) * 50%) - SS benefits = Reduced base amount x 15% = credit for the elderly

Question 5

Are Loan origination fees and other fees amortized over the life of the loan for tax purposes?

Answer 5

Yes

Question 6

A Lifetime Learning Credit is limited to what % of tuition paid?

Answer 6

Limited to 20% of the first $10,000 of tuition paid. The Lifetime Learning Credit is available in years the American Opportunity Credit is not claimed. The credit phaseout for MFJ starts when modified AGI is $114,000 and ends at $134,000.

Question 7

Do losses resulting from progressive deterioration, such as insect damage qualify as casualty losses?

Answer 7

No, do not qualify as casualty losses and are not deductible.
A casualty loss arises from a sudden, unexpected, or unusual event caused by an external force.

Question 8

Would business inventory destroyed in an earthquake. if it is not a federally declared disaster be deductible?

Answer 8

Personal casualty and theft losses only apply to federally declared disasters. But, business casualty losses are allowed.

Question 9

How do you figure the Lifetime Learning Credit?

Answer 9

It is 20% of qualified expenses. Expenses are limited to $10,000. The credit phases out for a Single with AGI between $57,000 and $67,000. Can be reduced LIMIT = (AGI - $57,000) ÷ $10,000.
(Expenses × 20%) - Limit

Question 10

Is a taxpayer still allowed a retirement savings contribution credit equal to 50% of $2,000 if AGI is below the $28,500 threshold for HoH, despite taking the above-the-line deduction for the contribution to the IRA?

Answer 10

Yes

Question 11

Are qualified employers able to take the Work Opportunity Tax Credit (WOTC) equal to 40% of the first $10,000 of wages paid to LT family assistance recipients who work at least 400 hours?

Answer 11

Yes, may take the WOTC = 40% of the first $10,000 of wages paid to LT family assistance recipients who work at least 400 hours. Generally, the credit is 40% of the first $6,000 wages paid to qualifying employees

Question 12

What is the maximum adoption credit amount and what is the credit for a special-needs child?

Answer 12

Max adoption credit amount is $13,810 and is allowed regardless of the actual expenses paid or incurred in the year the adoption becomes final for a special-needs child.

Question 13

What is the child tax credit per child and the phase out amount?

Answer 13

Taxpayers who have qualifying children are entitled to the child tax credit of $2,000 per child. The credit for Single begins to phase out by $50 per $1,000 in excess of $200,000.
(AGI – $200,000) ÷ $1,000 x $50 = LIMIT
$2,000 - LIMIT = Credit

Question 14

What are the Earned Income %?

Answer 14

0 QC = 7.65% EI = $6,670
1 QC = 34% EI = $10,000
2 QC = 40% EI = $14,040
3 or more QC = 45% EI = $14,040

Question 15

A net operating loss can be carried back and forward and is limited to what %?

Answer 15

A NOL is deductible when carried to a year in which there is taxable income, cannot be carried back. Is limited to 80% of that year’s taxable income.

Question 16

Do you have to recognize a capital gain on a distribution of capital after the basis in the stock is 0?

Answer 16

Yes, a return of capital is a tax-free distribution that reduces a stock’s basis by the amount of the distribution. If a shareholder’s basis is reduced to 0, any excess amounts received are treated as a capital gain.

Question 17

According to IRS Publication 551, what is the donor’s adjusted basis of property given and what is the donee’s basis?

Answer 17

If the FMV of the property is => the donor’s adjusted basis (AB), the donee’s basis is the donor’s AB at the time the donee received the gift.

Question 18

If the FMV on the date of the gift is < the donor’s basis, does the donee have a dual basis for the property and what happens?

Answer 18

Yes.
The FMV at the date of the gift is used if the property is later transferred at a loss.
The donor’s basis is used if the property is later transferred at a gain.
If the property is later transferred for more than FMV at the date of the gift but for < the donor’s basis at the date of the gift, no gain (loss) is recognized.

Question 19

What are capital assets?

Answer 19

Capital assets are all property held by a taxpayer not excluded by the IRC. Among the items excluded are accounts receivable, depreciable property, and real property used in a trade or business.

Question 20

If sold 100 shares of stock on July 28, and subsequently purchased 50 shares of the same corporation’s stock on August 10 would the capital loss deduction be allowed?

Answer 20

No, they are not eligible for the capital loss deduction because this would be considered a wash sale. Under Sec. 1091, a wash sale occurs when substantially the same securities are purchased within 30 days of being sold for a loss.

Question 21

Can there be a carryover from a decedent to his or her estate?

Answer 21

No, there can be no carryover from a decedent to his or her estate.

Question 22

What two things must a taxpayer have to use the uniform capitalization method?

Answer 22

A taxpayer that produces tangible personal property must capitalize all direct costs and an allocable share of indirect costs regardless of whether the property is sold or used in the trade or business. A retailer that acquires property for resale must capitalize the costs unless the taxpayer’s annual gross receipts for the 3 preceding years do not exceed $25 million.

Question 23

What is the period that the cost of certain intangibles acquired in connection with the conduct of a trade or business or income-producing activity be amortized over?

Answer 23

Is amortized over a 15-year period, beginning with the month in which the intangible is acquired. A franchise is a qualified intangible.

Question 24

What amount may a taxpayer treat the cost of Sec. 179 property acquired during 2018 as an expense rather than as a capital expenditure?

Answer 24

A taxpayer may treat up to $1,000,000.
The amount deductible must be reduced by the amount by which the cost exceeds $2,500,000.
Example, ($2,501,000 – $2,500,000). $1,000,000 is reduced by $1,000

Question 25

Under Sec. 1211, how can excess net long-term capital losses be applied?

Answer 25

May deduct the excess of the net LT capital loss over net ST capital gain, provided that such amount does not exceed $3,000. First offset against the LT capital gain, then the remaining net capital loss is applied against the net ST capital gain. Then apply $3K of OI.

Question 26

How do you figure the new basis in stock is there is a stock split?

Answer 26

The basis in the old stock is “split” and allocated to the new stock. Original purchase price / # of new shares (double original).

Question 27

What is the capital gains rate for Sec. 1202 stock?

Answer 27

28% rate basket because the asset was Sec. 1202 stock.

Question 28

How do you calculate an installment sale gain?

Answer 28

(Installment payment / sold price) x Gain

Question 29

Is the transfer of a franchise treated as a sale or exchange of a capital asset if the transferor retains significant power, rights, or continuing interest with respect to the franchise?

Answer 29

No, it is not treated as a sale or exchange of a capital asset. The transfer is not a sale but merely a licensing agreement and all fees are ordinary income.