TCP

Question 1

What is the Homeowner exclusion amount for 2024

Answer 1

Homeowner Exclusion is 250,000 single and 500,000 Marriage

Question 2

What is the amount of net Capital loss that can de deduct from individuals against ordinary income in each years.

Answer 2

3,000

Question 3

Is Gain or loss recognized on a condemnation of property if the taxpayer reinvests the condemnation proceeds in property that is similar or related in service.

Answer 3

No gain is recognized on a condemnation of property if the taxpayer reinvests the condemnation proceeds in property that is similar or related in service or use within three years after the close of the tax year in which the gain was realized. The basis of the replacement property is the cost of the property reduced by the amount of any gain realized that is not recognized (deferred).

Question 4

What is the taxpayer’s basis in the new real property received?

Answer 4

to calculated the basis you have to do a three step process of first calculating the Gain/loss Realized, Gain/loss recognized and Gain deferred before calculating Basis in new Property.

Gain/loss realized= (FMV of new property + boot received or ) - NBV old property

Gain/loss Recognized = The lesser of realized gain or boot received

Gain deferred = gain realized – gain recognized)

Basis of new property =
FMV of property received – Deferred gain + Deferred loss

Question 5

what is Boot

Answer 5

Boot can be:
Boot received-
Relief from liability
other FMV of equipment give up
Cash

Question 6

What is the amount of the gain recognized in the second year under the installment method?

Answer 6

Under the installment method, the taxpayer recognizes the gain on the sale of the property as installment payments are received. The gain recognized is the amount of the installment payment multiplied by the gross profit percentage, which is the gross profit divided by the sales price.

Question 7

Is Inventory sale eligible for Installment method

Answer 7

NO, it is not Eligible

Question 8

What is the 3 step in calculating Installment Sales.

Answer 8

Installment sale:
Step 1) Gain=Sales $ - NBV
Step 2) Gross profit % =Gross profit/sales prices
Step 3) Gain = Cash * GP%

Question 9

Can you use Installment sales for losses

Answer 9

No, Losses are Not eligible for the installment method.

Losses are recognized in the full in the year of the loss

Question 10

What is section 351?

Answer 10

Section 351 Gain Deferral: must meet both: Property for Stock
and 80% control after formation.

If 351 is met, usually no gain or loss recognized upon formation however be careful with liability Assumption.

If Liabilities involved, corporation’s basis is Greater of:
1) Basis of contributing party or
2) Liability assumed by corporation

Question 11

4 Partnership Contribution rules that you must know.

Answer 11

1. When forming a partnership, if someone exchanges property for a partnership interest, no gain or loss is recognized.
2. Partner’s basis in partnership interest = NBV of property contributed - liabilities assumed by other partners
3. Partnership’s basis in contributed property = NBV of property contributed
4. If FMV of contributed property not equal NBV, the gain or loss when sold will be attributed to the contributing partner (build-in-gain)

** General Rule: Built-in allocated only to contributing partner. any excess spread ratably.

Question 12

Annual gift tax Exclusion

Answer 12

Single $18,000 Married $36,000
Unlimited exclusion:
Spouses
Charity
Hospitals
Universities

Annual exclusion is applied per gift not overall gifts.

Question 13

Name the 4 categories of income for foreign tax credit limitation purposes:

Answer 13

The 4 Categories are:
1. General category income
2. Passive category income
3.Foreign Branch income
4. Global Intangible low-taxed income (GILTI)

Question 14

What is Foreign-derived intangible income (FDII).

Answer 14

FDII is income that comes from exporting goods associated with intangible assets.

Question 15

What amount of the trustee fees can the trust deduct in calculating trust.

Answer 15

If a trust has nontaxable income, then a portion of the trustee fees is also nondeductible. The nondeductible portion of the trustee fee is the ratio of tax-exempt income to total trust accounting income. Trust accounting income includes all taxable and nontaxable income and expenses other than capital gains and trust administrative expenses allocated to corpus.

Trust accounting income:
-Taxable interest income
-Tax-exempt interest income
-(Trustee Fees)
= trust accounting income

Tax-exempt income/trust accounting income= (nondeductible portion of trustee fees)

(100%- nondeductible portion of trustee fees)=

Question 16

General Rule:

Answer 16

-FMV of property is a dividend to extent of positive current & accumulated E&P ONLY!
Property distributions happened at -FMV(which may increase E&P before distribution)
Gain recognized on distribution increase E&P

Question 17

What is unrelated business income.

Answer 17

Unrelated business income is:
1. Derived from an activity that constitutes a trade or business,
2. is regularly carried on, and
3. is not substantially related to the organization’s tax-exempt purpose.

Question 18

What is section 1231 depreciation recapture?

Question 19

What is the difference between inside and outside basis?

Answer 19

There are two bases for partnerships(P/S), the inside basis is a P/S basis in its assets, and outside basis is the partner basis in the P/S.

Question 20

How does a loan affect a partnership interest or adjusted basis?

Question 21

What is considered a valid 754 election?

Answer 21

A valid section 754 election is done to eliminate the basis disparity when a P/S interest is sold. when making this election, the P/S must adjust its insides basis in P/S assets to the new partner’s share of the inside basis equals their outside basis ( ie purchase price)

Question 22

How does partnership report short-term gain on stock?

Question 23

What is the difference between liquidating and nonliquidating distribution and recognized gain or loss?

Answer 23

In a liquidating distribution, a partner basis for a partnership interest is first reduced by the amount of the cash received and by the partnership’s basis for any unrealized receivables and inventory received. Any remaining basis is then allocated to other property received.

Question 24

Can a partnership elect to amortized cost and what the max amount.

Answer 24

A P/S may elect to immediately deduct up to $5,000 of organization costs. The remaining costs are amortized ratably, using the straight-line method, over 180 months beginning in the month the entity’s business starts. The $5,000 immediate deduction must be reduced by the amount by which the organizational expenses exceed $50,000

Question 25

What cost are consider organizational cost.

Answer 25

Examples of organizational costs are legal and accounting services incidental to the creation of the P/S, such as the preparation of the P/S agreement and state registration and filing fees.  No immediate deduction or amortization is allowed for marketing and selling of P/S interests (syndication costs); instead, these costs are capitalized.  Therefore, costs for accounting fees to prepare the representations in offering materials for P/S interests are not deductible.

Question 26

A partnerships is considered terminated for income tax purposed when.

Answer 26

​​​​​​​For tax purposes, a partnership terminates when no part of its business, financial operations, or venture is carried on by any of its partners in the form of a partnership.

Question 27

When should gain or loss be reported in a partnership distribution.

Answer 27

In general, a liquidating partnership distribution is a nontaxable return of a partner's capital.  However, if cash distributions exceed a partner's basis in the partnership, the amount above basis is a taxable capital gain.  Conversely, property distributions (eg, hot assets, capital assets) exceeding basis (after accounting for cash distributions) are nontaxable when distributed because the property's basis assumes the partner's remaining basis in the partnership, therefore deferring any gain/loss until the property is sold.

Question 28

How is guaranteed payments tax for partner's.

Answer 28

Guaranteed payments are based on a separate contractual relationship between a partner and a partnership (P/S) for services rendered by the partner (ie, resembling wages subject to self-employment tax) or use of the partner's capital (ie, resembling interest).  The payments are deductible as a separate expense on the P/S tax return and taxable as ordinary income to the partner receiving the payment

Question 29

What is the two exceptions to the gain or loss rule for liquidating distribution.

Answer 29

Because of the ordering rules and basis adjustment, no gain or loss is generally incurred in a liquidation.  However, there are two exceptions: - If a partner receives only cash (including markable securities) and the cash exceeds outside basis, a gain is reported for the excess - If a partner receives only cash and/or hot assets that total less than outside basis, a loss is recognized.  Because a P/S interest is a capital asset, the gain (loss) is taxed as a capital gain (loss)

Question 30

How is personal services perform for interest in a partnership treated.

Answer 30

An individual may perform services ( eg, engineering) in exchange for an interest in a partnership. When this occurs, the exchange is generally treated as if the partnership paid the partner for the services performed that are equal to the FMV of the Partnership interest received. If other property ( equipment, cash) is received for services performed in additional to the P/S interest, FMV of the additional property is also taxable as income.

Question 31

Partnership Tax year year-end options.

Answer 31

Partnership year-end options Default - Year end must be the same as that used by a majority of partners Section 444 election for different year end No valid business reason needed Deferral must not exceed 3 months Business purpose for different year end Must provide valid business reason (eg, ski resort's season ends in May) Deferral may exceed 3 months

Question 32

What are the two categories of trust for a grantor?

Answer 32

The two categories of trusts are revocable and irrevocable trust. A revocable trust exists when the grantor is permitted to revise (e.g. remove or add assets, changes beneficiaries) or terminate the trust during the grantor lifetime. Typically, individuals use revocable trust to provide income for the care of minor children or elderly parents. ​​​​​​​ In a revocable trust, the grantor retains control over—and claim to—the assets transferred.  Accordingly, the grantor may make changes to or even terminate the trust.  The trust income is taxable to the grantor (until trust assets pass to the beneficiaries at the grantor's death) Irrevocable trust is created when a grantor relinquishes control over the trust assets. An irrevocable trust continues until the end of its term, which is usually specified in the trust document.  Typical provisions for terminating an irrevocable trust specify that: A specific length of time has elapsed (eg, 15 years), An event has occurred (eg, the grantor's death), The trust's purpose has been accomplished (eg, charitable reason is no longer necessary), or The trustee, all those who may benefit from the trust, and a court have agreed to terminate it.

Question 33

What is the requirement for a simple trust

Answer 33

To qualify as a simple trust, a trust must 1. Make annual beneficiary distributions that are equal to distributable net income 2. not make charitable distributions 3. not distribute any corpus (ie principal)

Question 34

what is an complex trust

Answer 34

A complex trust is one that does or can do any of the following: 1. make annual beneficiary distributions that are below the trust trust's distributable net income 2. make distributions to a charity 3. distribute principal

Question 35

how do you calculate Trust taxable income

Answer 35

Trust gross income less ordinary deductions and expense less income distribution deduction less personal exemption = trust taxable income

Question 36

Which parties is responsible for filing an irrevocable trust tax return.

Answer 36

A trustee manages a trust's assets and is responsible for filing tax returns. A grantor establishes a trust by contributing assets to it, creating a trust agreement, and appointing a trustee.

Question 37

what is the personal exemption amount for simple and complex trust.

Answer 37

Personal exemption Simple Trust $300 Complex Trust $100

Question 38

What is the proper allocation order of the distributed assets accounted for by the distribute partner.

Answer 38

To prevent the avoidance of certain taxable distribution, assets are distributed in the following order . 1. Cash and marketable securities. 2. Hot Assets- e.g unrealized receivable, inventory, potential section 1245 or Section 1250 depreciation recapture. 3. All other assets

Question 39

What are the requirements for filing Gift Tax.

Answer 39

Gift Tax return must be file for the below: -Gifts of present interests exceeding available annual exclusion. -Any gifts of future interests -Ang gift made with gift-splitting election any gift generating guft or GST tax liability -any gift to a noncitizen spouse exceeding the yearly threshold.

Question 40

how do you calculate after-tax return on Investment?

Answer 40

(Profit-Tax)/Investments= after tax return on investment After-tax return on investment is the ratio of after-tax profit to the original investment.  When taxable bonds are issued at a discount, the discount is amortized as ordinary income over the life of the bond.  Capital gains are subject to ordinary income tax rates if the holding period is one year or less and to preferential rates if the holding period is more than one year.

Question 41

Is Tax-exempt status automatically given to an entity

Answer 41

Tax-exempt status is not automatically recognized. It is granted to a qualifying entity that has submitted an application to the IRS within 27 months from the ending of the month in which the entity was formed.

Question 42

What is the amount for unrelated business income that will require filing for tax-exempt organization.

Answer 42

$1000 A tax-exempt organization is required to file a business income tax return if it has unrelated business income of $1,000 or more. Happy House will pay UBIT on its UBI less the standard specific deduction.  UBI consists of revenue of $340,000 and expenses that total $100,000 + $18,000 + $4,000 + $2,000 or $124,000 for net UBI of $216,000.  This will be reduced by the standard specific deduction of $1,000, giving taxable UBI of $215,000 and tax, at 34%, of $73,100.

Question 43

Types of income excluded from unrelated business income

Answer 43

1. Legal games of chance used to raise funds (eg bingo) 2. Activities performed only intermittently (eg annual charity auction) 3.Most investment income (unless from an S corporation0 4.Activities staffed entirely by volunteers working without compensation. 5.Sales of merchandise that was received as a gift or contribution 6.Revenue from activities performed for convenience of members, employees, or students (eg cafeteria, bookstore) 7. Business activities related to the organization's purpose

Question 44

The private foundation status of an exempt organization will terminate if it

Answer 44

An exempt organization must satisfy the requirements of the particular class into which it falls under the Internal Revenue Code.  A private foundation must receive less than 1/3 of its support from the general public.  A public charity receives more than 1/3 of its support from the general public, thereby violating the operating requirements of a private foundation.

Question 45

Loss of tax-exempt status under Section 501 c 3

Answer 45

1.Annual Reporting - failure to file a return for 3 consecutives years 2. Operating outside of exempt purpose - failure to operate toward stated exempt purpose 3.Private benefit - Acting to the private benefit of individual (eg executive) 4.Lobbying - Substantial lobbying for or against legislation 5.Political campaigns - Participating in political campaigns for or against any candidate

Question 46

A 501 c 3 tax-exempt organization may elect the expenditure test under section 501h of the IRS to measure?

Answer 46

To ensure that its lobbying activity does not rise to a level the IRS would consider substantial, 501(c)(3) organizations other than churches and private foundations may elect to use the expenditure test as defined by Section 501(h).  That test provides specific amounts spent on lobbying that qualify as substantial based on the amount of the organization's expenditures on its exempt purpose (eg, education).  The more an organization spends on its exempt purpose, the more it may spend on lobbying.

Question 47

Which income is subject to self-employment tax.

Question 48

When is Build in Gain recognized?

Answer 48

The built-in gains (BIG) tax applies if a C corporation elects S corporation status and the FMV of its assets held at the time of conversion exceeds their basis (ie, unrealized BIG).  The BIG tax applies only if the entity was previously a C corporation.

Question 49

How is the allocation of a S corporation short tax year allocated.

Answer 49

An S election termination can be effective on any day of the tax year.  This results in the need to allocate the income between the S corporation short year and the C corporation short year.  Absent an election, income is allocated on a daily basis between the two.

Question 50

Requirements for S corporation election

Answer 50

S Corporation Election -No more than 100 shareholders -Shareholders must be individuals -Shareholders must be residents or citizens of the U.S -Must be a domestic corporation -Only one class of stock is allowed

Question 51

What is the tax rate for a s corporation Build-in Gain

Answer 51

The built-in gains (BIG) tax applies if a C corporation elects S corporation status and the FMV of all assets held exceeds their basis (ie, net appreciated assets).  If the assets are sold within 5 years of the election, the unrealized BIG is subject to the BIG tax, assessed at the highest C corporation tax rate.

Question 52

Does owning an C corporation stock terminate your S corporation status.

Answer 52

​​​​​​​One of the requirements for an S corporation election is that all shareholders be individuals or certain estates and trusts.  Although the requirement excludes corporations as shareholders, there is nothing to prevent an S corporation from owning stock in a corporation.  If an S corporation violates any of the election requirements, an involuntary termination will occur. Termination for excess passive income occurs when an S corporation has passive investment income exceeding 25% of its gross receipts for each of 3 consecutive tax years.  For the rule to apply, the S corporation also must have accumulated C corporation earnings and profits.

Question 53

How does S corporation and Partnerships report compensation to owners.

Answer 53

Shareholder of an S corporation -Reported as wages on form W-2 -Employment taxes (eg, FICA) are withheld -Deducted as employee wages on form 1120-S Partners in a Partnership -Considered guaranteed payments for services -reported as a deduction when calculating net business income/loss on form 1065 reported on the partner's Schedule K-1 -Subject to self-employment taxes

Question 54

What is Qualified business Income (QBI)

Answer 54

Individuals, trusts, and estates may deduct up to 20% of qualified business income, subject to criteria and limitations. QBI is net of income, deductions, gains and losses that flow through to a taxpayer from a qualified business and is includible in taxable income. Guaranteed payments received are not included in QBI when calculating the QBI deduction. Because guaranteed payments are deductible by the partnership, they reduce a partner's QBI in proportion to that partner's ownership percentage.

Question 55

Treatment of C corporation Net capital loss

Answer 55

Net capital losses incureed by a C corporation can be carried back 3 years and forward up to 5 years to offset capital gains ( not ordinary income) in a another year. These losses are applied in chronological order ( ie, earliest year first) and treated as short-term losses when netting against gains.

Question 56

NOL offsetting rules depending on year of lost.

Answer 56

​​​​​​​ Net operating losses (NOLs) incurred in one year may offset taxable income (TI) in previous or future years, depending on when they were incurred. NOLs incurred before 2018 are carried back up to two years, offsetting up to 100% of TI.  Any remaining NOLs can then be carried forward up to 20 years and offset up to 100% of TI NOLs incurred between 2018 and 2020 are carried back up to five years, offsetting up to 100% of TI.  Any remaining NOLs can then be carried forward indefinitely.  If applied to tax years 2021 or after, they are limited to offsetting 80% of TI NOLs incurred in tax years 2021 and after can be carried forward indefinitely to offset up to 80% of TI.  They cannot be carried back

Question 57

Calculate estimated tax payments for a C corporation in order to avoid underpayment penalties given a specific planning scenario.

Answer 57

Generally, to avoid a penalty for the underpayment of estimated taxes, a corporation’s quarterly estimated payments must be at least equal to the least of (1) 100% of the tax shown on the current year’s tax return, (2) 100% of the tax that would be due by placing income for specified monthly periods on an annualized basis, or (3) 100% of the tax shown on the corporation’s return for the preceding year, provided the preceding year showed a positive tax liability and consisted of 12 months.

Question 58

To minimize the present value of the the total tax due, should the corporation attempt to recognize income and deductions this year or next year.

Answer 58

​​​​​​​When future tax rates are expected to be lower than current tax rates, tax is minimized by accelerating deductions and delaying income, regardless of the discount rate.  When future tax rates are expected to be higher than current tax rates, PV calculations are necessary to determine which strategy minimizes total tax due.

Question 59

Allocation of nonbusiness income between different states.

Answer 59

-Rent/royalties from real property State where property is located -Rent/royalties from tangible personal property* State where property is used -Capital gains/losses from real estate or tangible personal property* State where property is located -Capital gains/losses from intangible personal property State where entity is domiciled -Interest and dividends State where receiving entity is domiciled -Royalties on patents* and copyrights* State where used by payer

Question 60

how do you calculate the time-adjusted difference in tax savings.

Answer 60

The time-adjusted future saving from a deduction is the future tax due (income*the future tax rate) divided by (1 + the discount rate) raised to the power of the number of periods.

Question 61

When does C corporation recognized Gain

Answer 61

As a general rule, a shareholder who contributes property to a corporation in exchange for common stock will not recognize gain or loss if immediately after the transaction when the transferring shareholders (there can be more than one transferor) own at least 80% of the corporation and the shareholder does not receive any boot. If boot is received Dole will recognize gain to the lesser of cash received or realized gain.