TYPES OF DEDUCTIONS

Question 1

Deductions for vs from AGI

Answer 1

for = above the line
from = itemized deductions

Question 2

3 transactions split for deductions

Answer 2

1. Personal - cannot be deducted unless specifically provided by IRC (mortgage, charitable contributions)
2. Trade or business - if related to business operations and ordinary, necessary and reasonable (fines not ded.)
3. Investment - activities that produce income and deductible if ordinary, necessary and reasonable
   management/maintenance of property is deductible

Question 3

Qualifying Small Taxpayers

Answer 3

less than $10m average gross receipts
can deduct improvements made to an eligible building property only if it does not exceed lesser of $10,000 or 2% of building’s unadjusted basis

Question 4

Deductions FOR AGI

Answer 4

Alimony
Trade or business expenses
Rent or royalty
Losses
50% self-employment tax
100% medical insurance self-employed
Moving expenses
IRA & Keogh
Student loan interest limited to $2,500 of interest

Question 5

Moving Expense Requirements

Answer 5

• new job or first job requires you to move
• must add 50 miles to commute
• must have been at new job for 39 weeks for one year
• expenses to deduct- move possessions, transportation, lodging
• M&E is NOT deductible

Question 6

Standard deduction rule

Answer 6

deduct greater of standard deduction or itemized

Question 7

Allowable medical expenses

Answer 7

dental, doctor
prescriptions
medical equipment (wheelchair, eyeglasses)
transportation for med care
medical insurance premiums
rehab
cost of modifying home

Question 8

Medical expense deduction formula

Answer 8

Qualified expenses
- reimbursement from insurance
- AGI * 10%
= deduction

Question 9

What type of taxes can be itemized?

Answer 9

state, local and foreign

personal property taxes

Question 10

Deductible interest expenses?

Answer 10

home mortgage - limited to $1 million to purchase build or improve residence
loan interest
investment interest

Question 11

Rules for charitable contributions

Answer 11

• must be to qualifying organization (not a needy fam)
• cash or property only - NOT services at FMV
• deduction is limited to 50% of AGI
• if has to do with LT stock that has APPRECIATED = 30% of AGI
  i. e. AGI = 100; stock is 20, now worth 40 - can only deduct 30 of it
• C/O = 5 years; no carryback

Question 12

Casualty Losses & formula

Answer 12

must be sudden/unexpected
ded = lesser of decline in FMV or AB
Loss
- insurance reimbursement
- casualty floor
- 10% AGI
= deduction

Question 13

Gambling loss rule

Answer 13

can only be deducted up to the amount of winnings

Question 14

Itemized Deduction phase-out

Answer 14

if AGI = too high

lower of:
- 3% (AGI - Threshold)
or
- 80% * (taxes + mortgage interest + cc + 2% misc)

Question 15

What happens if property given to charity appreciated in value and held short-term?

Answer 15

Take FMV appreciated less short-term gain that would be recognized if property was sold

Question 16

Misc Itemized Deductions 2% over AGI

Answer 16

1. un-reimbursed employee expense if not apart of accountable plan
2. tax planning/preparation
3. investment/custodial management fees
4. safe deposit
5. union dues

Question 17

Deduct non-business bad debts

Answer 17

short-term capital loss in year it is determined to be COMPLETELY worthless

Question 18

Deduct business bad debts

Answer 18

Direct write-off method - only method allowed

deducted to the extent that it is partially worthless

Question 19

NOL rule

Answer 19

CB 2; CF 20
ONLY allowed for business losses and casulaty

When calculating NOL - find AGI, less deductions.

Then addback anything that is not business/work related i.e. capital loss, standard and personal deductions

Question 20

Hobby Losses

Answer 20

Losses are not deductible - considered personal
Expenses are deductible to the extent of income
Order (other items that would have been deducted, cash expenses, depreciation)

Income is on page 1 of 1040; deductions on 2% of AGI misc itemized

if profit making motive - not a hobby
If profit in 3 of the last 5 years presumed/assumed to NOT be a hobby

Question 21

Business use of home

Answer 21

1. must be principle place of business
2. sq ftg * 5 - limited to 1,500
3. deduct expenses up to income and CF indefinitely

Question 22

Vacation Home Rules

Answer 22

1. Less than 15 days rented = PERSONAL RESIDENCE
2. Used/rented more than 15 days; not personally used
   for greater of 14 days of 10% of the days rented = RENTAL
3. 15 days or more rented and used for both personal and rental = PRORATED (interest/taxes, cash expenses, depreciation)

Question 23

Passive Losses

Answer 23

Cannot offset earned income (wages) or portfolio income (investment, dividends, interest, royalties)

Taxpayer does not actively participate in passive activity - most rental activities and limited partnership interests

If actively participate in rental real estate, can offset $25,000 against portfolio income

25,000 is adjusted for 50% amount over 100,000 AGI limit