regulation changes

8/12/2019 Regulation Changes

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Becker CPA ReviewSummary of Changes Included

in the V1.1 REG Textbook

The purpose of this document is to provide you with a list of the items that have been changed/updated inthe May 2014 version of the Regulation textbook (V1.1). If you have a V1.0 REG textbook purchasedbetween November 2013 and the end of April 2014, you can either purchase the new V1.1 textbook for$15 or use this document to update your V1.0 textbook.

Please note that the tax portion of the Regulation exam focuses primarily on principles and concepts, andnot on year-specific amounts, thresholds and phase-outs. This document provides updates for year-specific amounts that changed as of January 1, 2014. New tax law is not testable until six months afterthe date passed by Congress. Therefore, to the extent you would see these new amounts on the CPAexam, they will be testable beginning July 1, 2014.

Also included in this update are A link to an Appendix for REG 4 dealing with the "repairs regs" (Additional Expenditures on

Existing Assets) and

Additional information for REG 2 on the Affordable Care Act.


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REGULATION1R1-4, Exemption amount at the

bottom of the page. R1-10,Item I. R1-11, Item II. R1-13,Item B.2. For 2014, the personal exemption amount is $3,950.

R1-7, Item I.A.2.b. For 2014, the gross income amount referenced here is $1,000.

R1-11, Item D. For 2014, the phaseout starts when AGI exceeds $305,050 formarried filing jointly and surviving spouses, $279,650 for headsof households, $254,200 for single taxpayers, and $152,525 formarried filing separately.

R1-11 Example In the Example, the married couple has AGI of $317,050 in 2014.$317,050 - $305,050 = $12,000. The other numbers remain the

same.

R1-11, Item II. Replace the first two sentences with the following:Text above Pass Key. The amount of this exemption is $3,950 for 2014.

R1-13, Item 2. The exemption amount is $3,950 for 2014.

R1-14, Item C.2. Second line above Example box: change 2012 to 2013 andchange 2013 to 2014.

R1-20, Item g.(3) The value of employer provided parking is $250 per month for2014.

R1-20, Item g.(4) The value of employer provided transit passes is $130 per monthfor 2014.

R1-22, Item 2.b. Possessions of the United States include Guam and PuertoRico.

R1-22, Item 2.c.(2) For 2014, the phase out begins at $76,000 for single and head ofhousehold and $113,950 for married filing jointly.

R1-22 and R1-23, Item 3 The basic standard deduction for a child is $1,000 in 2014.

R1-24 Item (c) Tax Rates These rates apply for 2014 (15%, 0% and 20%)

R1-28, Item 2. e For 2014, the standard mileage rate is 56 cents per mile.

R1-29, Item 4.a.(2)(a) & (c) The Social Security Wage Base increased to$115,500 in 2014

R1-46, Item P.7. For 2014, the amount excludable from income goes to $99,200.


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R1-46 The maximum exclusion for 2014 is $29,760, or 30%Note box at bottom of page of the $99,200 maximum foreign income exclusion.

REGULATION2R2-3, Item II. A. The Educator Expenses and the Tuition and Fee& R2-11, Item E. Deduction expired 12/31/13.

R2-4, Item B The Educator Expenses Deduction expired 12/31/13.

R2-5, Item c.(1) For 2014 the phase-out for Single/HH is $60,000-$70,000 andJoint is $96,000-$116,000.

R2-5, Item c.(2)(b) For 2014, the phase-out for an individual who is not an activeparticipant in an employer sponsored retirement plan, but whosespouse is, increases to $181 -$191,000.

R2-5, Example, bottom of page; Replace with the following Example

Kristi, a single taxpayer, is an active participant in her employer's pension plan. Kristi's2014 AGI is $62,000. Kristi's maximum 2014 IRA deduction is $4,400, calculated asfollows:

2014 AGI $ 62,000

Less (60,000)

Excess over $60,000 2,000

Divided by $10,000 (phase-out range) 10,000

Phase out percentage 20%

Times maximum IRA deduction 5,500

Amount of IRA phased out (1,100)

2014 maximum IRA deduction $ 4,400

R2-6, Item d.(1) and (2) For 2014, the maximum IRA deduction remains at $5,500 for asingle taxpayer and $11,000 for married taxpayers.


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R2-6, Notes on bottom of page For 2014 the phase-out for Joint is $96,000-$116,000.For 2014, the phase-out for an individual who is not an activeparticipant in an employer sponsored retirement plan, but whosespouse is increases to $181,000-$191,000.

Here is the updated Summary Chart for the bottom of page R2-6.

R2-7, Item g. The additional catch-up contribution for age 50 or over remainsat $1,000 for 2014.

R2-7, Item 3.d. For 2014, the Roth IRA contribution limits remain at $5,500 for asingle taxpayer and $11,000 for married taxpayers.

R2-7, Item 3.e. The 2014 phase-out for Roth Contributions increases to$114,000-$129,000 for Single and HH; and $181,000-$191,000 for Joint filers.

R2-8, Item 4.a.(1) For 2014, the Non-Deductible IRA contribution limitremains at $5,500.

R2-9, Item 5.d.(2) The contribution limit per beneficiary remains $2,000 for 2014.


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R2-10, Item (4) Chart Use the following as a replacement chart.

R2-10, Item D.2. The 2014 phase-out for student loan interest for joint filerschanges to $130,000-$160,000. Single filers changes to$65,000-$80,000.

R2-11, Item E. Tuition and Fees Deduction expired 12/31/13.

R2-11, Item F.1. For 2014, pre-tax contributions increase to $3,300 ($6,550for families).

R2-11, Item F.3. For 2014, a high deductible plan must have at least a$1,250 deductible ($2,500 for families).

R2-11, Item F.3.a. For 2014, the out of pocket limitation is $6,350 forindividuals and $12,700 for families.

R2-12, Item 4.c. For 2014 $3,200 goes to $3,250 and $6,450 goes to $6,550.

R2-12, Item 4.d. The first sentence is deleted. For 2014, $4,300 goes to $4,350,and $7,850 goes to $8,000.

R2-12, Item 3.a.(1) For 2014, the standard moving mileage rate is 23.5 cents permile.

R2-13, Item J.1. For 2014, the $51,000 deductible amount increases to $52,000.

R2-13, Item J.2. For 2014, the $51,000 additional amount above the deductibleamount increases to $52,000.

R2-14, Item 3, Example The same amounts apply for 2014.

R2-15, Item III, A. For 2014, the standard deduction for single goes to $6,200,head of household $9,100, married filing joint $12,400, andmarried filing separately $6,200.


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R2-16, Item A. 1. For 2014, the $1,500 number increases to $1,550, and the$3,000 number increases to $3,100.

Replace the existing Example with the following one:

R2-16, Item A. 2. Standard Deductionthese amounts did not change for 2014.

R2-16, Item B. 1. For 2014, the phaseouts are as follows. The phaseout startswhen AGI exceeds $305,050 for married filing jointly andsurviving spouses, $279,650 for heads of households, $254,200

for single taxpayers, and $152,525 for married filing separately.

R2-19, Item d. (5)(b) For 2014, the standard medical mileage rate is 23.5 cents permile.

R2-21, Item (4) The sales tax deduction expired after 2013.

R2-22, Item (3) The mortgage insurance premium deduction expired after 2013.

R2-23 Items b. (3) & (4) Headings The correct term is "Investment Expense" (delete "Interest").

R2-28, Item (2) For 2014, the standard mileage rate is 56 cents per mile.

R2-31.I.A. Individual Rate Structure: rates remain the same for 2014.

R2-33 Item B. Child and Dependent Care Credit: numbers remain the same for2014.

R2-34 Item 2 (top of page) andExample (bottom of page) All numbers remain the same for 2014.

R2-36-37, Item D.1. a. g. All amounts indicated for 2013 remain unchanged for 2014.

R2-37, Item II.D.2.e. For 2014, the credit phase-out begins with MAGI exceeding$54,000 ($108,000 on a joint return), with full phase-out at

$64,000 ($128,000 for joint returns).


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R2-38 2014 Education Tax Incentives Summary Chart (revised chart below)

R2-39, Item F.1. The adoption credit goes to $13,190 for 2014 from $12,970.

R2-39, Item F.2. For 2014 the phase-out for the adoption credit goes to $197,880-$237,880

R2-39, Item F. 3.d. For adoption assisted programs the 2014 amount goes from$12,970 to $13,190 and the phase out goes to $197,880-$237,880.

R2-39, Item G. The final sentence beginning with It is limited should bedeleted. The sentence beginning "For 2013, nonrefundable"should say 2014.


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R2-40 (top of page), Item G. 2. The credit ranges are as follows:50% $0 - $36,000 MFJ and $0 - $18,000 Single/MFS20% $36,001 - $39,000 MFJ and $18,001 - $19,500 Single/MFS10% $39,001 - $60,000 MFJ and $19,501 - $30,000 Single/MFS0% over $60,000 MFJ and over $30,000 Single /MFS*Footnote to the table: For 2014, full phase-out applies to AGI

for MFJ over $60,000, to HH over $45,000, and to single andMFS over $30,000.

R2-41, Item 1. K. Delete this entire line and move line l to line k.

R2-41, Item J. The Work Opportunity Credit expired after 2013.

R2-42, Item K.4.b. The $3,000 remains in effect in 2014.

R2-43, Item 4.a. For 2014, the maximum credit is $496.

R2-43, Item 4.b. For 2014, the maximum credit is $3,305.

R2-43, Item 4.c. For 2014, the maximum credit is $5,460.

R2-43, Item 4.d. For 2014, the maximum credit is $6,143.

R2-43, Item 5. For 2014, the disqualified income amount is $3,350.

R2-44, Item R. The residential energy credits expired after 2013.

R2-45, Item I. A. For 2014, the $179,500 should be $182,500 in both places.

R2-48, Item B. For 2014, the exemption amounts are $82,100 for married filingjointly, $52,800 for single, and $41,050 for married filing

separately. For 2014, the phaseout thresholds start at $156,500for married filing jointly, $117,300 for single, and $78,250 formarried filing separately.

R2.49 Item C 8 Medical deduction For taxpayers age 65 and over, the rate is 10%, not 7.5%.

R2-50, Item F.2.f.(3) Add "adjustment for taxpayers age 65 and older" to the end ofthe line.


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R2-52, add to end of page:

A. Addi tional Medicare Tax

The Affordable Care Act imposes an additional Medicare tax of .9% on wages in excess of

$250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for all

other taxpayers.

1. Employers are responsible for withholding this additional tax on all wages paid to an

employee that exceed $200,000 in a calendar year.

2. Any amounts withheld in excess, can be claimed as a credit on the taxpayers individual

income tax return.

III. TAX PENALTY IMPOSED BY INDIVIDUAL MANDATE SECTION OF AFFORDABLE CARE ACT

The Affordable Care Act further imposes a tax penalty on certain individuals that are not covered

by health insurance.

A. Tax Amount

In 2014, the amount of the tax is the greaterof a flat rate of $95 per person (up to a

maximum of $285), or 1% of household income that exceeds filing requirements.

1. Children are assessed at 50% of the minimum penalty.

2. Certain low income taxpayers are exempt from the tax.

3. The penalty is pro-rated by month.

4. No penalty applies to a gap in coverage of 3 months or less.

5. The IRS is prohibited from using liens or levies to collect the tax.

REGULATION3R3-22 In the 11th line under Ordinary Expenses, this item should

show Section 179 depreciation (in the IRC column) as

2014 = $25,000 (not 2013 = $500,000)

R3-28 Item C These rates remain the same for 2014.

R3-33, Item c (3), Example In the 4thline, change 2013 to 2014:

Interest earned in 2014 on the bond was $800.


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REGULATION4R4-3, bottom of page Add the following text:

E. Additional Expenditures on Existing Assets

1. Improvements to a single unit of property (UOP) must be capitalized if they result in a

betterment to the property, adapt the property to a new or different use, or result in a restoration

of the property.

2. A single unit of property is defined as all components that are functionally interdependent. A

component is functionally interdependent if the placing in service of one component is dependent

on the placing in service of other components.

3. When additional expenditures are not required to be capitalized, then they are deemed to be

"repairs" and are expensed.

Note: New rules related to repairs and capital improvements were recently enacted by the IRS.

Please see the appendix at the end of this lecture for a discussion of these new rules.

A copy of theAppendixhas been included with this document.

R4-31, Item C For tax year 2014 the taxpayer can expense up to $25,000 of thecost of qualifying property. This maximum expensing amount isreduced dollar-for-dollar if the taxpayer purchases and places inservice during the year more than $200,000 of qualifyingproperty. For tax year 2014, there is no election to deductqualified real property.Bonus depreciation expired at the end of 2013.

R4-59, Item I. A. The phrase "articles of incorporation" should be replaced with"articles of organization".

R4-59, Item I. B. The final sentence begins "A single member LLC".Add following LLC: not electing to be taxed as a corporation

R4-61, ItemsD.1.c andD.2.bR4-69, Item III.

A.R4-70, Bottomof chart

R4-71, ItemE.1R4-72, Items E.2.and E.3 For 2014, the "applicable exclusion amount" increases fromR4-77, Item V $5,250,000 to $5,340,000. This amount provides for a unified

estate and gift tax credit of $2,081,800 for 2014.


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R4-64 and R4-66 Replace the 2013 chart with the following 2014 chart.(same chart on both pages).

R4-70, Chart, Estate Transfer Tax Change "" (first column, near bottom) to ""

R4-72, Item 2. 2.Appl icable Exclusion Amount : The last sentence in thisitem should read: The net result is generally an estate tax dueequal to: 40% X [tentative tax base at death minus $5,340,000.]

R4-72 Below is the Example for this page, updated to 2014.

R4-74, Item IV For 2014, the per-year-per-donee exclusion remains atR4-76, Item G $14,000 per donee and $28,000 for married couples who

elect gift splitting.

R4-76, Item G, Example Sentences at the bottom of the example should read:Jack would owe gift tax only if the amount of Jack's cumulative(all years) taxable gifts exceed $5,250,000 $5,340,000.However, Jack must file a gift tax return because the value of atleast one of his gifts exceeds the $14,000 per donee exclusionamount.


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R4-77, Item V. With respect to the generation-skipping transfer tax, themaximum total exemption for married couples is $10,680,000(increased from $10,500,000) for 2014. The exemption amounthas increased for 2014 from $5,250,000 to $5,340,000.


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Becker Professional Education | CPA Exam Review Regulation 4

DeVry/Becker Educational Development Corp. All rights reserved. R4-83

A P P E ND I X

D e d u c t i o n a n d C a p i t a l i z a t i o n o f E x p e n d i t u r e s R e l a t e d t o T a n g i b l e P r o p e r t y

( R e p a i r R e g u l a t i o n s )

I. DEDUCTION AND CAPITALIZATION OF EXPENDITURES RELATED TO TANGIBLE PROPERTY(REPAIR REGULATIONS)

The IRS has issued regulations specifying whether and when a taxpayer must capitalize costsincurred in acquiring, maintaining, or improving tangible property. If the regulations do not requirecapitalization, then the costs are considered to be repairs and are expensed.

A. Tangible Property Must Be Capitalized

The general rule is that all tangible property that is not inventory must be capitalized unlessthere is an exception.

1. Materials and Supplies

a. Generally, an item that costs $200 or less or has an economic life of 12 months or

less qualifies as materials and supplies.

b. If the tangible property qualifies as materials and supplies, it can be deducted in theyear of consumption if non-incidental, or in the year paid if incidental.

(1) Incidental materials and supplies are those for which no inventories or recordsof consumption are kept.

2. Amounts Paid to Acquire or Produce Property

Amounts paid or incurred to produce or acquire tangible and intangible property mustbe capitalized.

3. Improvements

a. Improvements to a single unit of property must be capitalized if they result in abetterment to the property, adapt the property to a new or different use, or result ina restoration of the property.

(1) An improvement is a betterment if the expenditure corrects a defect or bettersa condition, is for a material addition, or increases productivity or efficiency.

(2) An improvement is an adaptation if the expenditure adapts the property to anew or different use than was originally intended by the taxpayer.

(3) An improvement is a restoration if the expenditure restores basis taken intoaccount, returns the property to a working order, results in a like-new conditionat the end of the depreciation class life, or replaces a structural part or majorcomponent of the property.

b. Indirect costs, such as otherwise deductible repair or removal costs, that directlybenefit or are incurred by reason of an improvement, must be capitalized.

c. Indirect costs that do not directly benefit and are not incurred by reason of animprovement are not capitalized, even if paid or incurred at the same time asan improvement.


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R4-84 DeVry/Becker Educational Development Corp. All rights reserved.

Regulation 4 Becker Professional Education | CPA Exam Review

4. Single Unit of Property

a. A single unit of property(UOP) is defined as all components that are functionallyinterdependent. A component is functionally interdependent if the placing in serviceof one component is dependent on the placing in service of other components.

b. A building structure is a single unit of property to the extent of the building and itsstructural components other than those designated as building systems.

c. Designated building systems considered separate from the buildingstructure include:

(1) Heating, ventilation, and air conditioning systems

(2) Plumbing systems

(3) Electrical systems

(4) Escalators

(5) Elevators

(6) Alarm and fire protection systems

(7) Security systems

(8) Gas distribution systems

d. Any amounts paid or incurred to improve designated building systemsare considered separate from the building structure and subject to theimprovement rules.

5. Intangible Property

Amounts paid or incurred for acquiring, creating, or enhancing intangible property mustbe capitalized.

B. De Minimis RuleCompanies can make a de minimis annual expense election regarding expenditures to acquireor produce property if they have a capitalization policy in effect as of the beginning of the year.This election can also be applied to materials and supplies.

1. The capitalization policy must be a written accounting policy for nontax purposes thattreats as an expense in the financial statements:

a. property purchases under a certain dollar amount; and/or

b. property with an economic useful life of 12 months or less.

2. If a company has an applicable financial statement, the maximum amount is $5,000.

3. If a company does not have an applicable financial statement, the maximum amountis $500.

4. An applicable financial statement is:

a. a financial statement required to be filed with the SEC; or

b. an audited financial statement; or

c. a financial statement, other than a tax return, required to be provided to a federal orstate government or agency (other than the IRS or SEC).


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Becker Professional Education | CPA Exam Review Regulation 4

DeVry/Becker Educational Development Corp. All rights reserved. R4-85

E X A M P L E

Center Corporation has an applicable financial statement and at the beginning of Year 1 has a written

accounting policy to expense amounts paid for tangible property costing up to $5,000. During Year 1,

Center pays $32,000 for 8 desks.

Center may deduct the entire $32,000 in Year 1 under the de minimis rule. The cost of $4,000 per desk

($32,000 / 8) is below the $5,000 per item threshold.

E X A M P L E

Center Corporation has an applicable financial statement and at the beginning of Year 1 has a written

accounting policy to expense amounts paid for tangible property costing up to $10,000. During Year 1,

Center pays $50,000 for 8 desks.

For financial reporting purposes, Center can expense the entire $50,000 paid for the 8 desks because

each desk costs less than the $10,000 limit ($50,000 / 8 = $6,250 per desk). However, for tax purposes,

Center must capitalize all of the purchases unless their economic life is less than 12 months because the

de minimis rule is not met. The de minimis rule is not met because the purchases exceed $5,000 each.

C. Safe Harbors1. Routine Maintenance

There is an elective safe harbor that allows taxpayers to expense routine maintenancethat the taxpayer reasonably expects to occur more than once during the class life of theasset and does not result in a betterment.

a. Routine maintenance does notinclude amounts paid or incurred for the:

(1) replacement of a component of a unit of property that has been deducted as aloss other than a casualty loss.

(2) replacement of a component of a unit of property that has been accounted forin realizing gain or loss from the sale or exchange of the component.

(3) repair of damage to the unit of property that has been taken as a basisadjustment as a result of a casualty loss.

(4) return of a unit of property to its ordinary operating condition if it hasdeteriorated and is no longer functional for its intended use.

2. Qualifying Small Taxpayers

Qualifying small taxpayers can expense costs related to an eligible building if they do notexceed the lesser of 2 percent of unadjusted basis of the building or $10,000.

a. Amounts deducted under the de minimis or routine maintenance rules will counttoward the $10,000 limit.

b. A qualifying small taxpayer is a taxpayer with average annual gross receipts of $10million or less during the three preceding tax years.

c. An eligible building is any building with an unadjusted basis that does not exceed$1 million.

E X A M P L E

Data, Inc. is a qualifying small taxpayer and owns an office building. The building has an unadjusted basis

of $850,000, and in Year 3, Data pays $8,750 for repairs and improvements.

Under the qualifying small taxpayer safe harbor rule, the building is an eligible building because the

unadjusted basis of $850,000 is under $1 million. The safe harbor rule will apply because the total

amount paid of $8,750 is below the lesser of $17,000 (2% of $850,000) or $10,000. Data Inc. would

expense the repairs and maintenance of $8,750.


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Regulation 4 Becker Professional Education | CPA Exam Review

E X A M P L E

Data, Inc. is a qualifying small taxpayer and owns an office building. The building has an unadjusted basis

of $850,000, and in Year 3, Data pays $12,000 for repairs and improvements.

Under the qualifying small taxpayer safe harbor rule, the building is an eligible building because the

unadjusted basis of $850,000 is under $1 million. However, the qualifying small taxpayer safe harbor rule

will not apply because the total amount paid of $12,000 exceeds the lesser of $17,000 (2% of $850,000)

or $10,000.

Therefore, Data Inc. will:

expense the repairs and improvements of $12,000 if the repairs and improvements are considered to

be routine maintenance and Data elects to apply the routine maintenance safe harbor rule; or

capitalize the repairs and improvements if they result in the betterment, adaptation, or restoration of

the office building.

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