Round 2 Flashcards
If stock is bequethed to someone, what is the receivee’s basis in the stock?
the FMV at date of death
If one gifts stock to another, what is the receivee’s basis in the stock?
the same as the donor’s basis
Capital asset
property held for investment and personal use. also goodwill.Does not include ordinary and sec 1231 assets which includes depreciable property used in a trade/biz or realty
Ordinary asset
depreciable property used in a trade or biz and realty that have been owned for a year or less.
EX. Inventory, AR, copyrights and artistic works if held by artist
Section 1231 assets
depreciable property used in a trade or biz and realty that have been owned for more than one year.
Can losses on the sale of personal use assets be deducted?
No
Any gain from the sale of a personal asset is reported as….
a capital gain (long term or short term, based on 1 year)
what amount of net capital loss can be deducted by an individual per year?
$3,000
Are net capital losses that are carried back 3 years or forward 5 years, treated as long term or short term?
short term, regardless if the loss was short term when sustained.
What is a section 1231 gain treated as? (to the extent gains exceed losses)
as a long term capital gain (subject to a look back limit for the 5 prior years)
If section 1231 losses exceed gains, how are the losses treated?
deductible as an ordinary loss
If $75k section 1231 gains in CY are used to offset PY $25k losses, how is that treated?
$50k ($75k-25k) taxed as LTCG. $25k is taxed as ordinary income
What is gain on the sale of realty taxed at?
at a 25% rate to the extent of the straight line depr claimed on the asset. the remainder is taxed as section 1231 gain
Under section 1245 recapture, how are gains treated?
treated as ordinary income to the extent of depr claimed on asset
How is gain recognized for like-kind exchanges?
lesser of realized gain or boot received.
How are losses recognized for like-kind exchanges?
they arent.
Interest received is taxable except for what type of interest?
interest on state government obligations
How are dividends received from life insurance policies treated?
They are not taxable income, but is considered a reduction of the cost of the policy.
If alimony is paid directly to a college for the ex-spouses tuition, is this taxable income?
yes
what is the maximum amount of social security benefits that can be included in taxable income?
85%
Can partnerships use the cash method?
yes, as long as no partners are C corporations
Can retail stores use the cash method?
Only if their gross receipts do not exceed $1M
what amount of group-term life insurance provided by an emplorer is a tax-free fringe benefit?
the first $50,000
Is ER provided medical insurance coverage includible in a TPs gross income?
no
Is workers compensation and damages for injuries included in gross income?
NO
Are amounts received from an ER’s accident and health plan as reimbursement for medical expenses excluded from gross income
yes, so long as the expenses are not deducted as itemized deductions
Are EE death benefits that are given to a widow and her son, included in their gross income?
yes
Are life insurance proceeds paid after death taxable?
no
what amount of a net capital loss can be deducted?
up to 3k
If a TP receives an election to either receive distribution in either stock or in property, are either taxable?
yes
Can accrued interest on redeemed Series EE US savings bonds be excluded from gross income to the extent that the aggregate redemption proceeds are used to finance the higher education expenses of the TP, spouse, or dependent
Yes
What is the tax benefit rule?
if an itme deducted in a PY is recovered in the CY, the recovery is included in income only to the extent that the deduction provided a tax benefit in the year of deduction. EX. refund of state income taxes
What is the wash sales rule?
Losses are disallowed if you repurchase stock within 30 days of selling it.
At what rate is the TP distribution from a traditional IRA taxed at when distributed early.
the marginal rate + 10% penalty tax
what is earned income defined as for a self employed TP
net self-employed earnings less the deductible keogh contribution and one-half of the self-employment tax
What is the max deduction for contributions to a traditional IRA by an individual at least age 50 is the lesser of
$6,500 or 100% of income
Are gambling losses net against gambling winnings?
No, winnings must be included in gross income. losses are deducted from AGI as a misc itemized deduction limited in amount to the winnings included in gross income.
Where are state income taxes deducted on a tax return?
as an itemized deduction on schedule A
Are expenses of operating illegal bizs deductible?
ordinary, necessary, and reasonable expenses are permitted - as long as the expense itself if not against public policy
What is the max amount of student loan interest that is deductible each year
$2,500
what are included in deductible moving expenses
moving household goods and lodging on the way down
Are funeral/burial/cremation services deductible?
no
What percent of medical expenses are deductible?
Medical expenses in excess of 10% of AGI
Are assessments for public improvements that tend to increase the value of the TPs house deductible?
no. they can only be deducted to the extent that the TP can prove that the assessment is allocable to maintenance
in what year are medical expenses deductible?
in the year in which they are PAID
What amount of investment interest expense is deductible?
it is deductible to the extent of net investment income. Net investment income is inv income less noninterest inv income. it is deducible to that extent. the remainder is carried forward indefinitely
what is the deduction for inv indebtedness limited to?
TP net investment income
in what year are medical expenses paid by credit card deductible?
the year in which the charges are made
Is payment of personal property tax deductible?
yes in full
is interest paid on a home-equity line of credit deducitble?
yes in full
how long can you carry forward/back a NOL
2 back, 20 forward
What happens with passive losses
they can only offset passive income. any leftover passive loss is not deductible.
what happens in the year a passive activity is sold?
the suspended passive losses are released and can offset all types of income.
if a TP actively participates in rental real estate activity, can he deduct rental losses?
up to $25k of rental losses. However, this is reduced once AGI exceeds $100k (AGI of $120k - 100k = 20k excess AGI. ($20k x 50% = 10k. He loses 10k of the deduction so 25k - 10k = 15k. $40k losses, he can deduct 15k, so the remaining 25k of losses is suspended.
If a TP uses a residence for 50 days and rents for 200 days what does that mean
that the TP cannot deduct all the expenses bc the personal use exceeds the greater of 14 days or 10% of the days rented. Meaning, no rental loss can be deducted. All expenses related to the property including utilities and maintenance must be allocated between personal use and rental use.
Is a TP and his wife file separately, how can the TP take an exemption for her.
if she has no gross income and cannot be claimed as a dependent on another tp’s return
Can cousins and foster parents be claimed as qualifying relatives?
only if they are relatives of the TPs household
American Opp Credit
eligible if enrolled in first 4 years of college, up to $2,500. 100% credit allowed for the first $2k of tuition and fees and materials. 25% of up to $2k for the next $2k. (phased out for married filing jointly with AGI of $150k) must be enrolled at least half-time for one academic period
Lifetime learning credit
credit of 20% of tuition for years in which AOC dont apply. $2k per taxpayer (regardless of # of students)
what must be the TPs filing status to qualify for the earned income credit
married filing jointly
what is the amount/ AGI required for the child care credit
Individual taxpayers with adjusted gross income of $15,000 or less may claim a child care credit for 35 percent of employment related expenses. The credit is reduced by one percent of the expenses for each $2,000 of adjusted gross income over $15,000, but is not reduced to less than 20 percent of the expenses.
What is the work opportunity tax credit?
40% of the first $6k of wages per employee (max being $2,400)
