Ch 4 : Gross Income from Personal and Investment Activities

Question 1

when is imputed interest shielded by the gift tax exclusion?

Answer 1

when imputed interest is less than $16,000 it is shielded by the gift tax exclusion

Question 2

When is imputed interest not included?

Answer 2

if the outstanding loan balance is 10,000 or less, no interest will be imputed.

Question 3

When the borrower’s outstanding loan balance is 100,000 or less AND the borrower has LESS THAN $1,000 in Net Investment Income for the year, what will the imputed interest be?

Answer 3

The interest imputed on the loan would be the LESSER of:

The borrower’s Net Investment Income
OR
Loan * AFR Rate

EXAMPLE: Loan is 30,000 and AFR is 1.1%. Net Investment income is 1,000. Therefore, 30K *1.1% = 330 Imputed interest amount)

Question 4

how much gain is excluded on a personal residence sale for single and MFJ?

Answer 4

Single: 250K
MFJ: 500K

Question 5

What kind of damage payments must be included in gross income?

Answer 5

Punitive damage payments must be included in gross income

Question 6

Formula to calculate the Annuitization Excluded Amount

Answer 6

Excluded Amount =
Investment in contract/
Expected total return*
Payments received.

Question 7

Exclusion Ratio Formula for Annuitization

Answer 7

Exclusion Ratio =
Investment in contract/
Expected total return

Question 8

Inclusion Ratio Formula for Annuitization

Answer 8

Multiply the annuity payment by percentage opposite of Exclusion Ratio

EXAMPLE: If Exclusion Ratio = 40%, multiply annuity payment by 60% to get the INCLUDED AMOUNT.

Question 9

interest income generally excluded from Gross Income

Answer 9

Municipal bonds
State & Local bonds

Question 10

Are reinvested dividends included in income?

Answer 10

Yes, Reinvested Dividends are included in income