taxation final

property that is classified as personalty is subject to cost recovery true or false

true

if a taxpayer does not claim any cost recovery for an asset during a particular year, what will be the impact on the basis of the asset?

the basis of the asset must be reduced by the amount of cost recovery that should have been deducted

does the acquisition of real property enter into the 40% test to determine whether the midquarter convention must be used?

no. real property does not enter into the 40% test to determine whether the midquarter convention must be used.

which is true about the computation of cost recovery in the year of sale of an asset when the mid-quarter convetion is being used.

if the midquarter convention applies, the property is treated as though it were disposed of at the midpoint of the quarter

orange corporation acquired new office furniture on aug 15, 2011 for $130,000. orandge did not elect immediate expensing under #179. orange elects not to take additional first year depreciation.
what class of property is the office furniture for MACRS?
or

seven year
cost recovery deduction
macrs cost recovery {$130000 x 14.29 (table 8.1)}= $18577

weston acuires a used office machine (seven year class asset) on november 2, 2011. for $75,000. this is the only asset acuired by Weston during the year. he does not elect immediate expensing under #179. on sept 15, 2012, weston sells the machine
what mac

answer - midquarter
2011 cost recovery is (macrs cost recovery [75000 x 0.0357 (table 8.2)]
$2678
2012
macrs cost recovery [$75,000 x (.2755 x (2.5/4))]
$12914

which of the following assets would be subject to cost recovery
a. An antique vase in a doctor's waiting room.
b. A painting by Picasso hanging on a doctor's office wall.
c. Stock in the doctor's LLC.
d. a., b., and c.
e. None of the above.

e none of the above

Tan Company acquires a new machine (ten-year property) on January 15, 2011, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2011, at a cost of $40,000. No election is made to use the straight-line method.

a. $25,716.

Alice purchased office furniture on September 20, 2011, for $100,000. On October 10, she purchased business computers for $80,000. Alice did not elect to expense any of the assets under � 179, nor did she elect straight-line cost recovery. She elects not

$14,710
macrs cost recovery
office (100000 x 14.29)=14290
computer (80000 x .25)=

chapter 10

yep

which of the following expenses can roberta include as medical expenses when she computes her medical expense deduction? check all that apply
health club dues, contact lenses, travel expenses to obtain treatment at the mayo clinic in minnesota, fees for a

contact lenses, travel expenses to obtain treatment at the mayo clinic, fees for an alcohol rehabilitation program, medical insurance premiums.
code defines medical expenses as expenditures for the diagnosis, cure, mitigation, treatment, or prevention of

david, the sole proprietor of a bookstore, pays $7500 premium for medical insurance for himself and his family. joan, an employee of a small firm that doesn't provide her with medical insurance, pays medical insurance premiums of $8000 for herself.
how do

david deducts 100% of the premium for agi, whereas joan includes the premiums in computing her itemized medical expense deduction.

Julia owns a principal residence in California, a condo in nyc, and a houseboat in florida. all of the properties have mortgages on which julia pays interest.
a) for which residence can julia deduct mortgage interest?
b. what strategy should julia conside

a. her principal residence plus one of the other residences
b. consolidating the three mortgages into two mortgages

to dissuade his pastor from resigning and taking a position with a larger church, michael, an ardent leader of the congregation, gives the pastor a new car.
is the cost of the car deductible by Michael as a charitable contribution?

No

paula contributed orange corporation common stock to united way, a qualified charitable organizaiton. in addition, she contributed tables and chairs from her proprietorship's inventory to the high school in her city. should paula's chartiable contributin

A) a capital asset, the fiar market value
B) ordinary income property, her basis in

doug and karen are married and together have AG
I of $80000 in 2011. They have two dependents and file a joint return. They pay $3000 for a high deductible health insurance policy and contribute $2400 to a qualified health savings account (HSA). during th

a. $2400 ( the $2400 contributed to a qualifed health savings account)
b. $4100
Physician bills, dentist bills, and hospital expenses 7500
less reiumbursement (2100)
equals unreiumbursed expenses $5400
health insurance premiums $3000
prescription medicine

Dylan is a self employed, calender year taxpayer. he reports on a cash basis. dylan made the following estimated state income tax payments.
jan 18, 2011 $1800 (4th payment for 2010)
apr 15, 2011 $2250 (1st payment for 2011)
june 15, 2011 $2250 (2nd paymen

a. included overpayment, jan 2011, april 2011, june 15, 2011, sept 15 2011, sept 2011.
not included Jan 2012.
b. 1800+2250+2250+2250+1200 = $9750

in 2002, Roland, who is single, purchased a personal residence for $340000 and took out a mortgage of $200000 on the property. In May of the current year, when the residence had a fmv of $440000 and roland owed $140000 on the mortgage, he took a home equi

a) yes
b.) no
c) $240,000?

Kelsey, who is a head of household with one dependent, had AGI of $315,000 for 2011. Heincurred the following expenses and losses during the year:
medical expenses before 7.5% of agi limitation $25,000
state and local income taxes $4300
state sales tax 12

a.
medical expenses [25000 - (7.5% x 315000)] 1375
state and local income taxes 4300
real estate taxes 3705
home mortgage interest 4400
charitable contributions 3800
casualty loss [38000 - (10% x 315000)] 800
equals total itemized deductions = $24880

chapter 14

chapter 14

I. Rationale for Separate Reporting of Capital Gains & Losses

� Capital v. Ordinary

II. Capital Gains and Losses

�Short term - held one year or less: taxed as ordinary gain
�Long term - held > one year: taxed at 5/15%
�Must net s/t items together and l/t items together.
� If s/t and l/t gain, tax as indicated above
� If s/t gain and l/t loss, net together. If net re

III. Capital Assets - Examples: personal use assets and investments (car, home, stock)

� DEFINITION: none in code - go to 1221(a) which defines what is NOT a capital asset
� Inventory or property held primarily for sale to customers in the ordinary course of business
� A/R and Notes Receivable
� Depreciable property or real estate used in a

IV. Holding Period

� Acquired asset as a gift - carryover basis - tack on holding period of original owner
� Acquired asset via inheritance - basis = FMV at date of death - holding period = long term
� Asset in like-kind exchange - tack on holding period of original asset

V. Qualified Dividend Income

� Taxed as l/t capital gains: 5/15%

VII. Section 1231 & Recapture Rules

dunno

final review

final review

during 2011, green corp purchased 179 equipment costing $200,000 and qualifying leashold improvement property costing $350000. Green has no other asset purchases during 2011 and is not subject to the taxable income limitation. the maxium 179 deduction gre

$450000 [200000 with respect to the equipment and $250000 with respect to the qualifying leasehold improvements]

amortization deduction

the tax deduction for the cost or other basis of an intangible asset over the asset's estimated useful life.
examples of amortable intangibles include patents, coprights, and leasehold interests. the intangible goodwill can be amortized for income tax pur

depletion

the process by which the cost or other basis of a natural resource is recovered upon extraction and sale of the resource.
The two ways to determine the depletion allowance are the cost and percentage methods. under cost depletion, each unit of production

chapter 9

chapter 9

Employee vs. Self-Employed

Business expenses for self-employed persons are deductible for AGI
Unreimbursed business expenses for employees are generally deductible from AGI subject to 2% of AGI floor
Person is classified as an employee if:
Subject to will and control of another wit

Employee Expenses Transportation Expenses

Fall into one of the following categories:
Transportation
Travel
Moving
Education
Entertainment
Other
Transportation expense defined
Very limited, only from job site to job site and commuting to/from temporary work place
Commuting from home to work and ba

Travel Expenses

Travel expense defined
Expenses while "away from tax home" overnight on business
Includes transportation, lodging, 50% meals, and miscellaneous expenses
Travel expense defined
Restrictions on Travel Expenses
Convention travel expenses
No deduction for tra

Moving Expenses

Deductible for moves in connection with the commencement of work at a new principal place of work
Two tests must be met for moving expenses to be deductible
Distance test
Time test
Distance from old home to new job must be at least 50 miles farther than f

Deductible Moving Expenses

''Qualified'' moving expenses include reasonable expenses of:
Moving household goods and personal effects to new locationUnreimbursed moving expenses are deductible for AGI
Reimbursement or payment by employer:
For qualified moving expenses, amount is exc

The Big Picture - Example 28 Moving Expenses

Even though this is her first job, Morgan will be entitled to a moving expense deduction.
This presumes that she is not reimbursed by Kite Corporation for these expenses. Education expenses of an employee are deductible if they are incurred:
To maintain o

Education Expenses

Education expenses include:
Tuition
Books
Supplies
Transportation
Travel (including lodging and 50% meals)
A deduction is allowed for AGI for qualified tuition and related expenses involving higher education (i.e., postsecondary)

Deduction For Qualified Tuition and Related Expenses

Qualified tuition and related expenses include whatever is required for enrollment
Usually, student activity fees, books, room and board are not included
Expenses need not be work related
Deduction is not available for married persons filing separately
Af

Entertainment Expenses

Deductions are very restricted due to abuse possibilities
Deductible amount allowed:
50% of meals and entertainment costs including related taxes, tips, cover charges, parking fees, and room rental fees....100% of transportation costs
Amounts cannot be la

Restrictions on Entertainment Expenses

Club dues
Generally not deductible
Exception: Clubs formed for public service and community volunteerism (e.g., Kiwanis, Rotary)Business gifts
Business gifts of tangible personalty with a value of $25 or less per person per year are deductible
Incidental

Unreimbursed Employee Expenses

Expenses are deductible from AGI as miscellaneous itemized deductions subject to the 2% of AGI limitation
If employee could have received, but did not seek, reimbursement for whatever reason, none of the employment-related expenses are deductible

Miscellaneous Itemized Deductions

Miscellaneous itemized deductions subject to the 2% of AGI limitation
Certain miscellaneous expenses must be added together and the amount in excess of 2% of taxpayer's AGI is deductible from AGI (i.e., itemized deduction reported on Sch. A)
Examples of M

Chapter 8 Depreciation

Dr. Cliff Payne purchases and places in service in his dental practice the following fixed assets during the current year:In addition, during the current year, Dr. Payne purchased another personal residence for $300,000
He converts his original residence

Cost Recovery

Recovery of the cost of business or income-producing assets is through:
Cost recovery or depreciation: tangible assets
Amortization: intangible assets
Depletion: natural resources
Basis in an asset is reduced by the amount of cost recovery that is allowed

MACRS-Personalty

MACRS characteristics:
MACRS Personalty .
Statutory lives: 3, 5, 7, 10 yrs 15, 20 yrs
Method: 200% DB 150% DB
Convention: Half Yr or Mid-Quarter
DB = declining balance with switch to straight-line
Straight-line depreciation may be elected

Half-Year Convention

General rule for personalty
Assets treated as if placed in service (or disposed of) in the middle of taxable year regardless of when actually placed in service (or disposed of)
Example Purchased and placed an asset in service on March 15 (Tax year end is

Additional First-Year Depreciation

50% additional first-year depreciation has been allowed for several years
The Small Business Jobs Act of 2010 extended additional first-year depreciation for one more year
Effective for qualified property acquired and placed in service before January 1, 2

Mid-Quarter Convention

Applies when more than 40% of personalty is placed in service during last quarter of year
Assets treated as if placed into service (or disposed of) in the middle of the quarter in which they were actually placed in service (or disposed of)
Business with 1

MACRS-Realty

MACRS characteristics:
MACRS Realty
Residential Rental Nonresid. Realty
Statutory lives: 27.5 yrs 31.5 yrs or 39 yrs
Method: Straight-line
Convention: Mid-month
Residential rental real estate
Includes property where 80% or more of gross rental revenues ar

Straight-line Election

May elect straight-line rather than accelerated depreciation on personalty placed in service during year
Use the class life of the asset for the recovery period
Use half-year or mid-quarter convention as applicable
Election is made annually by class of pr

Unreimbursed Employee Expenses

Expenses are deductible from AGI as miscellaneous itemized deductions subject to the 2% of AGI limitation
If employee could have received, but did not seek, reimbursement for whatever reason, none of the employment-related expenses are deductible

Examples of Miscellaneous Itemized Deductions Subject to 2% Floor

Most reimbursed expenses under a nonaccountable plan
Unreimbursed employee expenses
Section 212 expenses not related to rents and royalties
Tax return preparation fee
Hobby expenses
Investment expenses (except interest and taxes)

1.Joey, who is single, is not covered by another qualified plan earns $109,000 (AGI is also $109,000) in 2011. In 2011, he can contribute _____ to traditional IRA or _____ to Roth IRA.

Answer: Contribution ceiling is the smaller of $5000 (or $10,000 for spousal IRA) or 100% of compensation. However if the tax paper is an active participant in qualified plan, the traditional IRA deduction limitation is phase out proportionately between c

Deductible as Itemized.

Gambling loss and Uniform dry cleaning
Expense incurred in applying for the CFO position of a grocery chain. Taxpayer, an auditor with a CPA firm, did not get the job
Cost of Visual Aid prepared by a college professor for use in a graduate seminar

Deductible for AGI

Cost of safety shoes Taxpayer is self -employed
Expense incurred by the taxpayer, a member of the Vermont National Guard, two day training

Not Deductible

Club Dues for the Coronado Club Taxpayer a Lawyer uses the luncheon club exclusively for business, Cost noncredit for CPA review program taxpayer is Graduate from the business school.

Home to first job is 20 miles -First job to Second job is 18 miles -Home to second job 29miles
Judith works 48 weeks during the year. The deductible mileage is _____. Explanation: the Expense of getting from one job to another is deductible

48 week x 5 days = 240 days x 18 miles = 4,320.

4. Moving expense Qualified and nonqualified
Upon losing his job as a plant manager, Anthony incurs $6,200 in job search expense. Having no success in finding new employment in the same type of work, Anthony moves to Clearwater and begins a charter boat b

Anthony can Deduct $6,200 all related expense to the job search from AGI (subject to a 2% AGI Limitation, and the Moving Expense $7,936 as deduction a FOR AGI
Packing and moving $7,100 + $380(Lodging) + $456 (Mileage 2400 miles * 0.19) = $7,936

5. Qualified tuitions and related expense under Section 222
Sophia is single and is employed as an architect. During 2011, she spends $3,900 in tuition to attend law school at night. Her MAGI is $64,000. Her Qualified tuition under section 222 is $3,900.

John is single and is employed as pharmacist. During 2011, he spends $2,300 ($2,100 for tuition and $200 for books) to take a course in herbal supplement at a local university. His MAGI is $70,000. Under section 222 qualifies a deduction is $2,000. Not al

Hailey spends $5,200 for tuition and $900 for books and supplies to pursuit an accounting degree. Her MAGI is $40,000 files separate tax returns. A Deduction for AGI under section 222 is o and no Section 222 is zero. Because no deduction is allowed under

6. Business Entertainment
Snipe associates paid $70,000 for a 20 seat skybox. Regular seats to these games cost $200 each. At one game, an employee of Snipes entertained 18 clients Snipes furnished food and beverage for the event at a cost of $1,000. The

7. Partially reimbursed expenses- Effect on AGI and itemized deductions
Audrey, age 38 and single, earns a salary of $59,000. She has interest income of $1600 and has a $2000 long-term capital loss from the sale of a stock investment. Audrey incurs the fo

...

carol and dave earch purchased 100 shares of stock of burgundy, inc. a publicly owned corporation, in July, and they each pay $10000. carol sells her stock on dec 31 for $8000. Sincy burgundy's stock is listed on a national exchange, dave is able to ascer

Yes. They are treated differently because the loss in value of Carol's stock is the result of a sale which qualifies as a disposition, but the loss in value of Dave's stock is simply a decline in value.

Robin inherits 1000 shares of Wal-mart stock from her aunt in 2011. According to the info received from the executor of her aunt's estate, Rboin's adjusted basis for the stock is $55000. Albert, Robin's fiance, receives 1000 shares of Wal-mart stock from

A. carryover
B. Fair market value
for property received by gift, there is a carryover basis. if no gift tax is paid, then albert's adjusted basis is the $7000.
For inherited property, the basis is a new basis. (fmv on the date of the decedent's death, unl

Samantha wants to retire, sell the house that she has occupied as her residence for 20 years, and travel. she would have a $120000 realized loss on the sale of the residence. She intends to use the net proceeds to fund her travels.
a)Can Samantha recogniz

A. No.
a taxpayers personal residence is a personal use asset, therefore a realized lss from the sale of a personal residence is not recognized. , since its a personal use asset, the realized loss on the sale is disallowed and cant be recognized.
B. satis

an individual taxpayer sells some used assets at a rummage sale. these assets are ____ asets. Losses on these assets ____ deductible and the proceeds of the sale are a return of capital, thus the transactions are not taxable.

Personal; are not

is an account receivable that arose in the ordinary course of a cash basis dentist's business a capital asset?

No

internal revenue code provisions play an important role in the definition of capital assets, because the code list categories of what ______ capital assets.

ARE NOT

after netting all her short term and long term capital gains and losses, minerva has a net short term capital gain and a net long term capital gain.
Can she net these against each other?

No.
She cannot net them against each other because they are both gains.

Nick inhertited 130 shares of BEIGE stock when his mother, cherie died. cherie had acuired the stock for a total of $300,000 on november 15, 2010. she died on august 10, 2011, and the shares were worth a total of $225,000 at thta time. Nick sold the share

answers: $11000; long term capital gain.
his gain of $11000 (236000-$225000) is a long term capital gain.

elaine case (single, no dependents) has the following transaction in 2011.
AGI (exclusive of capital gains and losses) 240000
long term capital gain 22000
long term capital loss (8000)
short term capital gain 19000
short term capital loss (23000)
Elaine h

elaine has a net long term capital gain of $14000 and a net short term capital loss of $4000. As a result, she has a net capital gain of $10000.
net long-term capital gain (22000 long term capital gain - 8000 long term loss) = 14000
net short term capital

dear ms case. the purpose of this letter is to discuss the result of your stock transactions for 2011. You had ____ of _____ capital gains and ____ of ____ capital losses. subtracting the ___ of losses from the ___ of ____ results in a ___ net ____ capita

dear ms case. the purpose of this letter is to discuss the result of your stock transactions for 2011. You had $14000 of longterm capital gains and $4000 of short term capital losses. subtracting the $4000 of losses from the $14000 of gains results in a $

tax deprecation and cost recovery chapter 8

Step 1 - Determine Classification of Property
� Classified by Recovery Period
� Personalty - 3, 5, 7, 10, 15, 20 years - See Exhibit 8.1
� Realty
Residential: 27.5 years
Non-residential (commercial): 31.5 or 39 years (depends when the property was placed

ch 13 propety transaction
calculation of gain amount realized

II. Calculation of Gain
Amount Realized (selling price)
Cash
+ FMV of other assets received
+ note receivable
+ mortgage or other liability assumed
+ Expenses paid by buyer on behalf of seller (including real estate taxes)
- Commissions
- Legal fees
Less:

III. Recognized Gain - Realized Gain is recognized UNLESS there is an exception to the GR

� EXCEPTION: section 121 - Sale of Personal Residence - up to $250,000 ($500,000 if MFJ) of gain may be excluded if certain requirements are met
� EXCEPTION: section 1031 - like-kind-exchange - up to 100% of gain may be deferred

IV. BASIS Considerations

� Allocation problems - purchase land and building - must allocate purchase price
� Acquired asset as a gift - carryover basis
� Acquired asset via inheritance - FMV at date of death
� Conversion of property from personal use to business use - lower of Ad

V. Disallowed Losses

� Sale between related parties - section 267 (See Ch. 6)

property that is classified as personalty is subject to cost recovery true or false

TRUE

if a taxpayer does not claim any cost recovery for an asset during a particular year, what will be the impact on the basis of the asset?

the basis of the asset must be reduced by the amount of cost recovery that should have been deducted

does the acquisition of real property enter into the 40% test to determine whether the midquarter convention must be used?

no. real property does not enter into the 40% test to determine whether the midquarter convention must be used.

which is true about the computation of cost recovery in the year of sale of an asset when the mid-quarter convetion is being used.

if the midquarter convention applies, the property is treated as though it were disposed of at the midpoint of the quarter

orange corporation acquired new office furniture on aug 15, 2011 for $130,000. orandge did not elect immediate expensing under #179. orange elects not to take additional first year depreciation.
what class of property is the office furniture for MACRS?
or

seven year
cost recovery deduction
macrs cost recovery {$130000 x 14.29 (table 8.1)}= $18577

weston acuires a used office machine (seven year class asset) on november 2, 2011. for $75,000. this is the only asset acuired by Weston during the year. he does not elect immediate expensing under #179. on sept 15, 2012, weston sells the machine
what mac

answer - midquarter
2011 cost recovery is (macrs cost recovery [75000 x 0.0357 (table 8.2)]
$2678
2012
macrs cost recovery [$75,000 x (.2755 x (2.5/4))]
$12914

which of the following assets would be subject to cost recovery
a. An antique vase in a doctor's waiting room.
b. A painting by Picasso hanging on a doctor's office wall.
c. Stock in the doctor's LLC.
d. a., b., and c.
e. None of the above.

e none of the above

Tan Company acquires a new machine (ten-year property) on January 15, 2011, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2011, at a cost of $40,000. No election is made to use the straight-line method.

a. $25,716.

Alice purchased office furniture on September 20, 2011, for $100,000. On October 10, she purchased business computers for $80,000. Alice did not elect to expense any of the assets under � 179, nor did she elect straight-line cost recovery. She elects not

$14,710
macrs cost recovery
office (100000 x 14.29)=14290
computer (80000 x .25)=

chapter 10

yep

which of the following expenses can roberta include as medical expenses when she computes her medical expense deduction? check all that apply
health club dues, contact lenses, travel expenses to obtain treatment at the mayo clinic in minnesota, fees for a

contact lenses, travel expenses to obtain treatment at the mayo clinic, fees for an alcohol rehabilitation program, medical insurance premiums.
code defines medical expenses as expenditures for the diagnosis, cure, mitigation, treatment, or prevention of

david, the sole proprietor of a bookstore, pays $7500 premium for medical insurance for himself and his family. joan, an employee of a small firm that doesn't provide her with medical insurance, pays medical insurance premiums of $8000 for herself.
how do

david deducts 100% of the premium for agi, whereas joan includes the premiums in computing her itemized medical expense deduction.

Julia owns a principal residence in California, a condo in nyc, and a houseboat in florida. all of the properties have mortgages on which julia pays interest.
a) for which residence can julia deduct mortgage interest?
b. what strategy should julia conside

a. her principal residence plus one of the other residences
b. consolidating the three mortgages into two mortgages

to dissuade his pastor from resigning and taking a position with a larger church, michael, an ardent leader of the congregation, gives the pastor a new car.
is the cost of the car deductible by Michael as a charitable contribution?

No

paula contributed orange corporation common stock to united way, a qualified charitable organizaiton. in addition, she contributed tables and chairs from her proprietorship's inventory to the high school in her city. should paula's chartiable contributin

A) a capital asset, the fiar market value
B) ordinary income property, her basis in

doug and karen are married and together have AG
I of $80000 in 2011. They have two dependents and file a joint return. They pay $3000 for a high deductible health insurance policy and contribute $2400 to a qualified health savings account (HSA). during th

a. $2400 ( the $2400 contributed to a qualifed health savings account)
b. $4100
Physician bills, dentist bills, and hospital expenses 7500
less reiumbursement (2100)
equals unreiumbursed expenses $5400
health insurance premiums $3000
prescription medicine

Dylan is a self employed, calender year taxpayer. he reports on a cash basis. dylan made the following estimated state income tax payments.
jan 18, 2011 $1800 (4th payment for 2010)
apr 15, 2011 $2250 (1st payment for 2011)
june 15, 2011 $2250 (2nd paymen

a. included overpayment, jan 2011, april 2011, june 15, 2011, sept 15 2011, sept 2011.
not included Jan 2012.
b. 1800+2250+2250+2250+1200 = $9750

in 2002, Roland, who is single, purchased a personal residence for $340000 and took out a mortgage of $200000 on the property. In May of the current year, when the residence had a fmv of $440000 and roland owed $140000 on the mortgage, he took a home equi

a) yes
b.) no
c) $240,000?

Kelsey, who is a head of household with one dependent, had AGI of $315,000 for 2011. Heincurred the following expenses and losses during the year:
medical expenses before 7.5% of agi limitation $25,000
state and local income taxes $4300
state sales tax 12

a.
medical expenses [25000 - (7.5% x 315000)] 1375
state and local income taxes 4300
real estate taxes 3705
home mortgage interest 4400
charitable contributions 3800
casualty loss [38000 - (10% x 315000)] 800
equals total itemized deductions = $24880

chapter 14

chapter 14

I. Rationale for Separate Reporting of Capital Gains & Losses

� Capital v. Ordinary

II. Capital Gains and Losses

�Short term - held one year or less: taxed as ordinary gain
�Long term - held > one year: taxed at 5/15%
�Must net s/t items together and l/t items together.
� If s/t and l/t gain, tax as indicated above
� If s/t gain and l/t loss, net together. If net re

III. Capital Assets - Examples: personal use assets and investments (car, home, stock)

� DEFINITION: none in code - go to 1221(a) which defines what is NOT a capital asset
� Inventory or property held primarily for sale to customers in the ordinary course of business
� A/R and Notes Receivable
� Depreciable property or real estate used in a

IV. Holding Period

� Acquired asset as a gift - carryover basis - tack on holding period of original owner
� Acquired asset via inheritance - basis = FMV at date of death - holding period = long term
� Asset in like-kind exchange - tack on holding period of original asset

V. Qualified Dividend Income

� Taxed as l/t capital gains: 5/15%

VII. Section 1231 & Recapture Rules

dunno

final review

final review

during 2011, green corp purchased 179 equipment costing $200,000 and qualifying leashold improvement property costing $350000. Green has no other asset purchases during 2011 and is not subject to the taxable income limitation. the maxium 179 deduction gre

$450000 [200000 with respect to the equipment and $250000 with respect to the qualifying leasehold improvements]

amortization deduction

the tax deduction for the cost or other basis of an intangible asset over the asset's estimated useful life.
examples of amortable intangibles include patents, coprights, and leasehold interests. the intangible goodwill can be amortized for income tax pur

depletion

the process by which the cost or other basis of a natural resource is recovered upon extraction and sale of the resource.
The two ways to determine the depletion allowance are the cost and percentage methods. under cost depletion, each unit of production

chapter 9

chapter 9

Employee vs. Self-Employed

Business expenses for self-employed persons are deductible for AGI
Unreimbursed business expenses for employees are generally deductible from AGI subject to 2% of AGI floor
Person is classified as an employee if:
Subject to will and control of another wit

Employee Expenses Transportation Expenses

Fall into one of the following categories:
Transportation
Travel
Moving
Education
Entertainment
Other
Transportation expense defined
Very limited, only from job site to job site and commuting to/from temporary work place
Commuting from home to work and ba

Travel Expenses

Travel expense defined
Expenses while "away from tax home" overnight on business
Includes transportation, lodging, 50% meals, and miscellaneous expenses
Travel expense defined
Restrictions on Travel Expenses
Convention travel expenses
No deduction for tra

Moving Expenses

Deductible for moves in connection with the commencement of work at a new principal place of work
Two tests must be met for moving expenses to be deductible
Distance test
Time test
Distance from old home to new job must be at least 50 miles farther than f

Deductible Moving Expenses

''Qualified'' moving expenses include reasonable expenses of:
Moving household goods and personal effects to new locationUnreimbursed moving expenses are deductible for AGI
Reimbursement or payment by employer:
For qualified moving expenses, amount is exc

The Big Picture - Example 28 Moving Expenses

Even though this is her first job, Morgan will be entitled to a moving expense deduction.
This presumes that she is not reimbursed by Kite Corporation for these expenses. Education expenses of an employee are deductible if they are incurred:
To maintain o

Education Expenses

Education expenses include:
Tuition
Books
Supplies
Transportation
Travel (including lodging and 50% meals)
A deduction is allowed for AGI for qualified tuition and related expenses involving higher education (i.e., postsecondary)

Deduction For Qualified Tuition and Related Expenses

Qualified tuition and related expenses include whatever is required for enrollment
Usually, student activity fees, books, room and board are not included
Expenses need not be work related
Deduction is not available for married persons filing separately
Af

Entertainment Expenses

Deductions are very restricted due to abuse possibilities
Deductible amount allowed:
50% of meals and entertainment costs including related taxes, tips, cover charges, parking fees, and room rental fees....100% of transportation costs
Amounts cannot be la

Restrictions on Entertainment Expenses

Club dues
Generally not deductible
Exception: Clubs formed for public service and community volunteerism (e.g., Kiwanis, Rotary)Business gifts
Business gifts of tangible personalty with a value of $25 or less per person per year are deductible
Incidental

Unreimbursed Employee Expenses

Expenses are deductible from AGI as miscellaneous itemized deductions subject to the 2% of AGI limitation
If employee could have received, but did not seek, reimbursement for whatever reason, none of the employment-related expenses are deductible

Miscellaneous Itemized Deductions

Miscellaneous itemized deductions subject to the 2% of AGI limitation
Certain miscellaneous expenses must be added together and the amount in excess of 2% of taxpayer's AGI is deductible from AGI (i.e., itemized deduction reported on Sch. A)
Examples of M

Chapter 8 Depreciation

Dr. Cliff Payne purchases and places in service in his dental practice the following fixed assets during the current year:In addition, during the current year, Dr. Payne purchased another personal residence for $300,000
He converts his original residence

Cost Recovery

Recovery of the cost of business or income-producing assets is through:
Cost recovery or depreciation: tangible assets
Amortization: intangible assets
Depletion: natural resources
Basis in an asset is reduced by the amount of cost recovery that is allowed

MACRS-Personalty

MACRS characteristics:
MACRS Personalty .
Statutory lives: 3, 5, 7, 10 yrs 15, 20 yrs
Method: 200% DB 150% DB
Convention: Half Yr or Mid-Quarter
DB = declining balance with switch to straight-line
Straight-line depreciation may be elected

Half-Year Convention

General rule for personalty
Assets treated as if placed in service (or disposed of) in the middle of taxable year regardless of when actually placed in service (or disposed of)
Example Purchased and placed an asset in service on March 15 (Tax year end is

Additional First-Year Depreciation

50% additional first-year depreciation has been allowed for several years
The Small Business Jobs Act of 2010 extended additional first-year depreciation for one more year
Effective for qualified property acquired and placed in service before January 1, 2

Mid-Quarter Convention

Applies when more than 40% of personalty is placed in service during last quarter of year
Assets treated as if placed into service (or disposed of) in the middle of the quarter in which they were actually placed in service (or disposed of)
Business with 1

MACRS-Realty

MACRS characteristics:
MACRS Realty
Residential Rental Nonresid. Realty
Statutory lives: 27.5 yrs 31.5 yrs or 39 yrs
Method: Straight-line
Convention: Mid-month
Residential rental real estate
Includes property where 80% or more of gross rental revenues ar

Straight-line Election

May elect straight-line rather than accelerated depreciation on personalty placed in service during year
Use the class life of the asset for the recovery period
Use half-year or mid-quarter convention as applicable
Election is made annually by class of pr

Unreimbursed Employee Expenses

Expenses are deductible from AGI as miscellaneous itemized deductions subject to the 2% of AGI limitation
If employee could have received, but did not seek, reimbursement for whatever reason, none of the employment-related expenses are deductible

Examples of Miscellaneous Itemized Deductions Subject to 2% Floor

Most reimbursed expenses under a nonaccountable plan
Unreimbursed employee expenses
Section 212 expenses not related to rents and royalties
Tax return preparation fee
Hobby expenses
Investment expenses (except interest and taxes)

1.Joey, who is single, is not covered by another qualified plan earns $109,000 (AGI is also $109,000) in 2011. In 2011, he can contribute _____ to traditional IRA or _____ to Roth IRA.

Answer: Contribution ceiling is the smaller of $5000 (or $10,000 for spousal IRA) or 100% of compensation. However if the tax paper is an active participant in qualified plan, the traditional IRA deduction limitation is phase out proportionately between c

Deductible as Itemized.

Gambling loss and Uniform dry cleaning
Expense incurred in applying for the CFO position of a grocery chain. Taxpayer, an auditor with a CPA firm, did not get the job
Cost of Visual Aid prepared by a college professor for use in a graduate seminar

Deductible for AGI

Cost of safety shoes Taxpayer is self -employed
Expense incurred by the taxpayer, a member of the Vermont National Guard, two day training

Not Deductible

Club Dues for the Coronado Club Taxpayer a Lawyer uses the luncheon club exclusively for business, Cost noncredit for CPA review program taxpayer is Graduate from the business school.

Home to first job is 20 miles -First job to Second job is 18 miles -Home to second job 29miles
Judith works 48 weeks during the year. The deductible mileage is _____. Explanation: the Expense of getting from one job to another is deductible

48 week x 5 days = 240 days x 18 miles = 4,320.

4. Moving expense Qualified and nonqualified
Upon losing his job as a plant manager, Anthony incurs $6,200 in job search expense. Having no success in finding new employment in the same type of work, Anthony moves to Clearwater and begins a charter boat b

Anthony can Deduct $6,200 all related expense to the job search from AGI (subject to a 2% AGI Limitation, and the Moving Expense $7,936 as deduction a FOR AGI
Packing and moving $7,100 + $380(Lodging) + $456 (Mileage 2400 miles * 0.19) = $7,936

5. Qualified tuitions and related expense under Section 222
Sophia is single and is employed as an architect. During 2011, she spends $3,900 in tuition to attend law school at night. Her MAGI is $64,000. Her Qualified tuition under section 222 is $3,900.

John is single and is employed as pharmacist. During 2011, he spends $2,300 ($2,100 for tuition and $200 for books) to take a course in herbal supplement at a local university. His MAGI is $70,000. Under section 222 qualifies a deduction is $2,000. Not al

Hailey spends $5,200 for tuition and $900 for books and supplies to pursuit an accounting degree. Her MAGI is $40,000 files separate tax returns. A Deduction for AGI under section 222 is o and no Section 222 is zero. Because no deduction is allowed under

6. Business Entertainment
Snipe associates paid $70,000 for a 20 seat skybox. Regular seats to these games cost $200 each. At one game, an employee of Snipes entertained 18 clients Snipes furnished food and beverage for the event at a cost of $1,000. The

7. Partially reimbursed expenses- Effect on AGI and itemized deductions
Audrey, age 38 and single, earns a salary of $59,000. She has interest income of $1600 and has a $2000 long-term capital loss from the sale of a stock investment. Audrey incurs the fo

...

carol and dave earch purchased 100 shares of stock of burgundy, inc. a publicly owned corporation, in July, and they each pay $10000. carol sells her stock on dec 31 for $8000. Sincy burgundy's stock is listed on a national exchange, dave is able to ascer

Yes. They are treated differently because the loss in value of Carol's stock is the result of a sale which qualifies as a disposition, but the loss in value of Dave's stock is simply a decline in value.

Robin inherits 1000 shares of Wal-mart stock from her aunt in 2011. According to the info received from the executor of her aunt's estate, Rboin's adjusted basis for the stock is $55000. Albert, Robin's fiance, receives 1000 shares of Wal-mart stock from

A. carryover
B. Fair market value
for property received by gift, there is a carryover basis. if no gift tax is paid, then albert's adjusted basis is the $7000.
For inherited property, the basis is a new basis. (fmv on the date of the decedent's death, unl

Samantha wants to retire, sell the house that she has occupied as her residence for 20 years, and travel. she would have a $120000 realized loss on the sale of the residence. She intends to use the net proceeds to fund her travels.
a)Can Samantha recogniz

A. No.
a taxpayers personal residence is a personal use asset, therefore a realized lss from the sale of a personal residence is not recognized. , since its a personal use asset, the realized loss on the sale is disallowed and cant be recognized.
B. satis

an individual taxpayer sells some used assets at a rummage sale. these assets are ____ asets. Losses on these assets ____ deductible and the proceeds of the sale are a return of capital, thus the transactions are not taxable.

Personal; are not

is an account receivable that arose in the ordinary course of a cash basis dentist's business a capital asset?

No

internal revenue code provisions play an important role in the definition of capital assets, because the code list categories of what ______ capital assets.

ARE NOT

after netting all her short term and long term capital gains and losses, minerva has a net short term capital gain and a net long term capital gain.
Can she net these against each other?

No.
She cannot net them against each other because they are both gains.

Nick inhertited 130 shares of BEIGE stock when his mother, cherie died. cherie had acuired the stock for a total of $300,000 on november 15, 2010. she died on august 10, 2011, and the shares were worth a total of $225,000 at thta time. Nick sold the share

answers: $11000; long term capital gain.
his gain of $11000 (236000-$225000) is a long term capital gain.

elaine case (single, no dependents) has the following transaction in 2011.
AGI (exclusive of capital gains and losses) 240000
long term capital gain 22000
long term capital loss (8000)
short term capital gain 19000
short term capital loss (23000)
Elaine h

elaine has a net long term capital gain of $14000 and a net short term capital loss of $4000. As a result, she has a net capital gain of $10000.
net long-term capital gain (22000 long term capital gain - 8000 long term loss) = 14000
net short term capital

dear ms case. the purpose of this letter is to discuss the result of your stock transactions for 2011. You had ____ of _____ capital gains and ____ of ____ capital losses. subtracting the ___ of losses from the ___ of ____ results in a ___ net ____ capita

dear ms case. the purpose of this letter is to discuss the result of your stock transactions for 2011. You had $14000 of longterm capital gains and $4000 of short term capital losses. subtracting the $4000 of losses from the $14000 of gains results in a $

tax deprecation and cost recovery chapter 8

Step 1 - Determine Classification of Property
� Classified by Recovery Period
� Personalty - 3, 5, 7, 10, 15, 20 years - See Exhibit 8.1
� Realty
Residential: 27.5 years
Non-residential (commercial): 31.5 or 39 years (depends when the property was placed

ch 13 propety transaction
calculation of gain amount realized

II. Calculation of Gain
Amount Realized (selling price)
Cash
+ FMV of other assets received
+ note receivable
+ mortgage or other liability assumed
+ Expenses paid by buyer on behalf of seller (including real estate taxes)
- Commissions
- Legal fees
Less:

III. Recognized Gain - Realized Gain is recognized UNLESS there is an exception to the GR

� EXCEPTION: section 121 - Sale of Personal Residence - up to $250,000 ($500,000 if MFJ) of gain may be excluded if certain requirements are met
� EXCEPTION: section 1031 - like-kind-exchange - up to 100% of gain may be deferred

IV. BASIS Considerations

� Allocation problems - purchase land and building - must allocate purchase price
� Acquired asset as a gift - carryover basis
� Acquired asset via inheritance - FMV at date of death
� Conversion of property from personal use to business use - lower of Ad

V. Disallowed Losses

� Sale between related parties - section 267 (See Ch. 6)