federal income tax personal (itemized) deductions
TRANSCRIPT
Federal Income Tax
Personal (Itemized) Deductions
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
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Gross Income- FOR= AGI- FROM= Taxable Income
Business
Personal
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Gross Income- FOR= AGI- FROM= Taxable Income
Personal
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
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Itemized Deductions
See text page 7-36• Medical• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
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Medical Expenses
• Define “medical” costs– See text pg 7-3
• Name as many examples as possible
• Name some that are NOT deductible
• Limits:– “out-of-pocket” costs– Reduced by 10% of AGI
mitigation
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Medical Expenses
• Problem 7-4
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.?? per mile
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Automobile Expenses
Business
$.565 pg 9 – 11
Moving $.24 pg 9 – 20
Medical $.??
CharitableContribution
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Automobile Expenses
Business
$.565 pg 9 – 11
Moving $.24 pg 9 – 20
Medical $.24 pg 7 – 4
CharitableContribution
Note: $.12 in 2001$.13 in 2002$.12 in 2003$.14 in 2004$.15$.22 in 2005$.18 in 2006$.20 in 2007$.19 in 2008$.27$.20 in 2009$.165 in 2010$.19 in 2011$.23 in 2012
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals 50%
Hotel
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Problem 7-4Which enroute costs are deductible?
Any limits?Auto/Travel $.24 per mile
Meals 50%
Hotel $50 per night
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Medical Expenses
• Problem 7-4• Problem 7-5
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Problem 7-5
• Meals?– Not deductible
• See also Pub 17, p. 145
Meals and lodging as outpatient?
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Problem 7-5
• Meals?– Not deductible
• See also Pub 17, p. 145
Meals and lodging as outpatient?
• Lodging?
– $50 per night
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38
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Problem 7-38
• Issue?• Define “medical dependent”
– Regular dependent = 5 tests– Medical dependent = 3 tests
• All except GI and joint return• Page 7-2, 7-8
• $6,400 less 10% = $4,000
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35
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Problem 7-35
GI- FOR
= AGI- FROM
= TI
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Problem 7-35
GI 58,000- FOR
= AGI 58,000- FROM
= TI
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Problem 7-35
Doctor 11,700Hospital 9,400Med Ins 600Total 21,700
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Problem 7-35Reimb
Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700
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Problem 7-35Reimb
Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900
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Problem 7-35Reimb
Doctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900Other Itemized 2,750Total Itemized 8,650
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ReimbDoctor 11,700 10,000 1,700Hospital 9,400 9,400Med Ins 600 600Total 21,700 10,000 11,700Less: 10% of AGI 5,800Deductible Medical 5,900Other Itemized 2,750Total Itemized 8,650
(compared to standard?)
Problem 7-35
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Problem 7-35
GI 58,000- FOR= AGI 58,000- FROM 8,650
= TI
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Problem 7-35
GI 58,000FORAGI 58,000FROM 8,650
3,900TI
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Problem 7-35
GI 58,000FORAGI 58,000FROM 8,650
3,900 12,550TI 45,450
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36
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Problem 7-36Medical 4,000Legal Fees 3,000Total Reimbursement 7,000
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ReimbDoctor 11,700 10,000 1,700Hospital 9,400 4,000 5,400Med Ins 600 600Total 21,700 14,000 7,700Less: 10% of AGI 5,800Deductible Medical 1,900Other Itemized 2,750Total Itemized 4,650
(compared to standard?)
Problem 7-36
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Problem 7-36
GI 58,000- FOR
= AGI 58,000- FROM 6,100
= TI
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Problem 7-36
GI 58,000FORAGI 58,000FROM 6,100
3,900TI
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Problem 7-36
GI 58,000FORAGI 58,000FROM 6,100
3,900 10,000TI 48,000
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Problem 7-36Taxable Income Revised 48,000Taxable Income Reported 45,450Difference 2,550
Must include “tax benefit.”
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Another Illustration
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Medical Expenses
• Problem 7-4• Problem 7-5• Problem 7-38• Problem 7-35• Problem 7-36• Problem 7-39
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool ???
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair ??? ???
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair 2,300
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed ??? ???
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist ??? ???
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430Less: 10% of AGI 3,800
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 14,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 21,430Less: 10% of AGI 3,800Med Exp Deduction 17,630
-$9,000
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Problem 7-39Y 1 Y 2
AGI 38,000 43,000
Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430Less: 10% of AGI 3,800Med Exp Deduction 8,630
+$9,000 “tax benefit”
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Problem 7-39Y 1 Y 2
AGI 38,000 52,000
Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430 10,060Less: 10% of AGI 3,800Med Exp Deduction 8,630
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Problem 7-39Y 1 Y 2
AGI 38,000 52,000
Medical Costs 5,000Pool 3,000Maintenance 930 1,060Wheelchair & Bed 2,300 3,800Physical Therapist 4,000Medical Insurance 1,200 1,200Sub-Total 12,430 10,060Less: 10% of AGI 3,800 5,200Med Exp Deduction 8,630 4,860
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
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Taxes
• Deductible– Property taxes– State income tax– Local income tax
• Not Deductible– Federal taxes– Sales tax– Excise taxes
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Taxes
• Deductible– Property taxes– State income tax– Local income tax
• Not Deductible– Federal taxes– Sales tax *– Excise taxes
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© Copyright 2001-2005 by M. Ray Gregg. All rights reserved.
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Sales Tax Update• Most of the 633 pages of the American
Jobs Creation Bill of 2004 dealt with taxes on and tax breaks for businesses. But sandwiched in the tax tome [A book,
especially a large or scholarly one], approved by Congress and signed into law by the president, is the OK for consumers to deduct sales taxes from their federal filings. The deduction will be available on 2004 and 2005 tax returns.
http://www.bankrate.com/brm/itax/20041012b1.asp
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© Copyright 2001-2005 by M. Ray Gregg. All rights reserved.
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Sales Tax Update• “This tax break isn't an add-on; it
will require you to choose. You must decide whether you want to deduct the sales taxes you paid or your state income tax amounts.”
• “The choice is obvious for residents of the seven states that do not collect state income taxes but do levy state sales taxes: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.” http://www.bankrate.com/brm/itax/20041012b1.asp
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Taxes
• Problem 7-40
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Problem 7-40
1/1 12/31
2012
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Problem 7-40
1/1 4/11 12/31
Pd $120
2012
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Problem 7-40
1/1 12/31
Employer w/h $1,600
2012
4/11
Pd $120
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Problem 7-40
1/1 4/11 4/1312/31
Employer w/h $1,600
Pd $120
$200
2012
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Problem 7-40
1/1 4/11 4/1512/31
Employer w/h $1,600
Pd $120
$200
Amount deductible?
2012
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Problem 7-40
1/1 4/11 12/31
Employer w/h $1,600
Pd $120
Did she itemize?
2012
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Problem 7-40
1/1 4/11 12/31
Employer w/h $1,600
Pd $120
$1,600 + $120 < SD
2012
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Problem 7-40 (b)
1/1 12/31
2013
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Problem 7-40 (b)
1/1 12/31
Employer w/h $2,100
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
2013
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Problem 7-40 (b)
1/1 4/13 4/1512/31
Employer w/h $2,100
Pd $200
Rfd $450
2013
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Problem 7-40 (b)
1/1 4/13 4/1512/31
Employer w/h $2,100
Pd $200
Rfd $450
Amount deductible?
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
$2,100 + $200 = $2,300
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
Did she itemize?
2013
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Problem 7-40 (b)
1/1 4/13 12/31
Employer w/h $2,100
Pd $200
$2,300 + $5,500 > SD
2013
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Problem 7-40 (c)
AGI $51,000
From: Item Ded $7,800
Exemption 3,900 11,700
Taxable Income $39,300
2013
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96
Problem 7-40 (c)
AGI $51,000
From: Item Ded $7,350
Exemption 3,900 11,250
Taxable Income $39,750
2013 - revised
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Problem 7-40 (d)
AGI $53,500
Add: State Tax Rfd From ’12 450
New AGI $53,950
2014
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Problem 7-412013
State Income Tax $2,300Mortgage Interest 3,000Total Item Ded $5,300
101
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Problem 7-412013
Gross Income $51,000
Total Item Ded $5,300Exemption 3,200 9,500
Taxable Income $41,500
102
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Problem 7-412013
Gross Income $51,000
Std Ded $6,100Exemption 3,200 9,500
Taxable Income $41,500
103
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Problem 7-412013
Gross Income $51,000
Std Ded $6,100Exemption 3,900 10,000
Taxable Income $41,000
104
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Problem 7-41 (b)
AGI $53,500
Add: State Tax Rfd From ’13* 0
New AGI $53,500
2014
105
* No effect since she used standard deduction.
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Taxes
• Problem 7-40• Problem 7-41• Problem 7-42
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Problem 7-42 Total Deductible
Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2%
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Problem 7-42 Total Deductible
Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#
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Problem 7-42 Total Deductible
Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 ???
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Problem 7-42
1/1 4/15 12/31
Taxes $1,850 for year
31
28
31
14
104
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Problem 7-42
1/1 4/15 12/31
$527
31
28
31
14
104
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Problem 7-42 Total Deductible
Fed Taxes W/H $5,400State Tax W/H 2,000 $2,000FICA Tax W/H 3,800Sales Tax on Car 600License 70Prop Tax on Car 2% 400Prop Tax on Car $10/100#Prop Tax on House 1,850 527Total $2,927
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Taxes
• Problem 7-40• Problem 7-41• Problem 7-42• Problem 7-43
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Problem 7-43
6/30
$6,000
5/1
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Problem 7-43 (a)
6/30
$6,000
5/1
Janet (buyer): $6,000 x 61/365 = $1,003
???
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Problem 7-43 (b)
6/30
$6,000
5/1
Janet (buyer): $6,000 x 61/365 = $1,003Tara (seller): $6,000 x 304/365 = $4,997
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Problem 7-43 (c)Janet (buyer): $6,000 x 61/365 = $1,003Tara (seller): $6,000 x 304/365 = $4,997Tara’s sales price = $500,000 + $4,997
Janet’s purchase price = $500,000 + $4,997
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Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
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Interest
Page 1, line 33
ForStudent Loan
Schedule AFromHome Mortgage
NotNotPersonal
Schedule AFromInvestment
NotNotPassive
Schedule CForBusiness
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Interest
Page 1, line 33
ForStudent Loan
Schedule AFromHome Mortgage
NotNotPersonal
Schedule AFromInvestment
NotNotPassive
Schedule CForBusiness
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Interest
• Problem 7-14• How is the classification
determined?– Collateral?– Use?
• Use
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122
Interest
• Problem 7-14 • Investment Interest
Illustration
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Investment InterestInvestment interest deductible to the extent of “net investment income.”
“Net Investment Income” determined as follows:
II- IE= NII
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Investment Interest Illustration
During the current year, David reports interest and dividend income of $18,000, net short-term capital gains of $6,000, and net long-term capital gains of $7,000. His AGI is $120,000. His investment expenses, exclusive of interest, are $5,000. During the year David also pays a total of $55,000 interest on debt incurred on his investment activities. David is married and files a joint return.a. What is the total amount of deduction Dave may
take with respect to his investment interest expense if he does not make a special election?
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400
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Illustration (a)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 0Total Income 24,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400 2,600NET INVESTMENT INCOME 21,400
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131
Investment Interest Illustration
During the current year, David reports interest and dividend income of $18,000, net short-term capital gains of $6,000, and net long-term capital gains of $7,000. His AGI is $120,000. His investment expenses, exclusive of interest, are $5,000. During the year David also pays a total of $55,000 interest on debt incurred on his investment activities. David is married and files a joint return.a. What is the total amount of deduction Dave may
take with respect to his investment interest expense if he does not make a special election?
b. What is the treatment of any disallowed investment interest expense?
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132
Illustration (b)
Investment Interest 55,000Deductible Amount 21,400Carryover 33,600
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133
Investment Interest Illustration
During the current year, David reports interest and dividend income of $18,000, net short-term capital gains of $6,000, and net long-term capital gains of $7,000. His AGI is $120,000. His investment expenses, exclusive of interest, are $5,000. During the year David also pays a total of $55,000 interest on debt incurred on his investment activities. David is married and files a joint return.a. What is the total amount of deduction Dave may
take with respect to his investment interest expense if he does not make a special election?
b. What is the treatment of any disallowed investment interest expense?
c. What is the total amount of deduction David may take with respect to his investment interest expense if he elects to have his net capital gain taxed at the regular marginal tax rates?
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Illustration (c)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000
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Illustration (c)INVESTMENT INCOME:Interest & Dividend 18,000ST Capital Gains 6,000LT Capital Gains 7,000Total Income 31,000INVESTMENT EXPENSES 5,000Less: 2% of AGI 2,400 2,600NET INVESTMENT INCOME 28,400
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Illustration (c)
Investment Interest 55,000Deductible Amount 28,400Carryover 26,600
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137
Interest
• Problem 7-14• Investment Interest
Illustration• Problem 7-49
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138
Problem 7-49
a. ($12,000 - $10,200) = $1,800
$1,800 4 = $450
$450 x 2 = $900
b. None – no payments made
c. $1,800 x 9/12 = $1,350
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
139
Itemized Deductions
• Medical
• Taxes• Interest• Charitable
Contributions• Casualty Losses• Other
© Copyright 2001-2013 by M. Ray Gregg. All rights reserved.
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