Federal Taxation IV: Itemized Deductions Flashcards Preview

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Flashcards in Federal Taxation IV: Itemized Deductions Deck (22):

Itemized deductions ("from AGI")

primarily non-trade business expenses (employee/investment expenses) and a few allowed personal expenses.


Six types of personal expenses that may be itemized (1040, Sch A)

1. Medical
2. Interest
3. Taxes
4. Charitable Contributions
5. Casualty Losses
6. Misc Deductions


Standard Deduction Limits for 2015

Single: $6,300
Head of Household: $9,250
Married-joint: $12,600
Married-separate: $6,300


Medical Expenses

Uninsured medical expenses eligible for deduction.

Qualified Medical Expenses
- Reimbursements from Insurance
- 10% of AGI
= Deductible Medical Expense


Property and Personal Income Taxes

if imposed by state, local or foreign governments, can be deducted as an itemized deduction. For cash basis taxpayer: deducted in year paid/withheld (even if related to different tax year)


Home Mortgage interest

interest paid on debt relating to principal abode and second home is eligible.

maximum $1 million



Can be deducted in year of purchase/improvement

Defined as compensation paid to a lender solely for the use or forbearance of money


Investment Interest Expense

limited to net investment income (investment income - investment expense)


Charitable Contributions

1. must be made to qualified recipients
2. can be made in cash or property but not services


Charitable Contribution of Long Term Capital Gain Property

1. May deduct FMV, but limited to 30% of AGI.
2. deduction limited to adjusted basis of tangible personal property if charitable org does not use in a manner related to it's tax-exempt purpose
3. if exceeds $5K and charity sells within 3 yrs, taxpayer must recapture deduction to extent it exceeded basis of the property


Charitable Contribution of Property (other than LTCG)

1. FMV of property reduced by ordinary income or ST capital gain that would be recognized if property was sold


Charitable Contribution of distributions from IRA

up to $100K tax-free if contributed to charitable organization by an individual age 70 or over


Written record of contribution required when:

1. Single contribution > $250 requires written acknowledgement from donee
2. Cash contribution not deductible unless donor has canceled check, cc statement or written statement from the charity
3. Property > $500 requires description of property
4. Property > $5000 requires qualified appraisal
5. Property > $500,000 qualified appraisal must be attached to tax return


Charitable Contribution of Autos, etc.

If claimed value is > $500 and donee sells vehicle, deduction is limited to gross sales proceeds. Donee must provide proof for donor to attach to return.


Charitable Deduction Limitations

1. 50% AGI for aggregate cash/property contributions
2. 30% AGI for public charities
3. 20% AGI for private charities
4. Contributions in excess carry forward 5 yrs
5. 50% limitation applied 1st, then 30%, then 20%


Casualty Loss

Lower of decline in FMV or AB of property. Calculation:
- Insurance Reimbursements
- $100 per casualty
- 10% x AGI
= Casualty loss deduction


Limit on Casualty Loss amount

adjusted basis of damaged property is limited to lesser of adjusted basis or decline in value of the asset due to the casualty


Net Casualty Gain

If insurance proceeds exceed property's adjusted basis, then all casualty gains and losses are netted (before 10% of AGI reduction). Net casualty gain is a capital gain.


Operation of 2% AGI floor limitation

1. floor limit is applied by subtracting 2% of AGI from aggregate amount of deductions subject to the floor
2. excess deductions over the floor are included with other itemized deductions


5 types of misc deductions subject to AGI floor

1. Employee business expenses not reimbursed under an accountable plan
2. Investment expenses (not royalty/rental)
3. Tax Return prep fees
4. Home office expenses of an employee
5. Hobby expenses


Misc deductions NOT subject to 2% AGI floor

1. Repayments of previously included income under claim of right doctrine
2. Remaining basis of terminated annuity
3. Gambling losses to extent of winnings


Overall Limitation on Itemized Deductions

Threshold (2015)
Married filing joint = $309,900
Head of Household = $284,050
Single = $258,250

Reduction after threshold is lower of 3% of amount of AGI in excess of threshold OR 80% x (taxes + mort. int. + charity + 2% misc ded)

* Does not apply to medical, investment interest, casualty/theft losses, gambling losses