Income Tax

Question 1

What do refundable credits do?

Answer 1

They can generate a tax refund

Question 2

Can a business with a net operating loss (NOL) carry the losses back to prior years?

Answer 2

No, net operating losses cannot be carried back to prior years, but may be carried forward indefinitely

Question 3

Do bank loans count towards basis for general partnerships? What about corporations?

Answer 3

Bank loans count towards basis for general partnerships. They do not count towards basis for S corporations

Question 4

In an S corporation how much losses can an owner take?

Answer 4

An owner can take losses up to their basis. Anything remaining can be carried forward to the next year and definitely.

Question 5

What factors can increase the basis of an asset?

Answer 5

• Legal fees
• Commissions
• Sales tax
• Freight
• Improvements

Question 6

What does not increase the basis of an asset?

Answer 6

• Repairs
• Real estate taxes
• Normal business operating expenses

Question 7

What is the cost basis?

Answer 7

The basis increased by incidental costs

Question 8

What must improvements do to the basis?

Answer 8

Improvements must be capitalized

Question 9

How are repairs treated in terms of expenses?

Answer 9

Repairs are always deducted as expenses

Question 10

What are cost recovery deductions?

Answer 10

Allowances for the exhaustion and wear and tear of property used in a trade or business or held for the production of income

Question 11

Fill in the blank: Basis is increased by _______.

Answer 11

[legal fees, commissions, sales tax, freight, improvements]

Question 12

True or False: Repairs increase the basis of an asset.

Answer 12

False

Question 13

What is the purpose of cost-recovery deductions (CRDs)?

Answer 13

An allowance for the exhaustion and wear and tear of property used in a trade or business.

Question 14

List the property classes under MACRS.

Answer 14

• 5-year (1245 property): Computers, Autos, and light duty Trucks
• 7-year (1245 property): Office equipment except computers
• 27½ year (1250 property): Residential rental property
• 39-year (1250 property): Nonresidential real property

Question 15

What is the §179 deduction?

Answer 15

An election to expense up to $1,220,000 (2024) of qualifying property in the year of acquisition.

Question 16

True or False: The §179 deduction can create a loss.

Answer 16

False.

Question 17

Fill in the blank: MACRS applies to all recovery property except _______.

Answer 17

[land or intangibles]

Question 18

What is the property class for office equipment except computers under MACRS?

Answer 18

7-year (1245 property).

Question 19

What is the property class for residential rental property under MACRS?

Answer 19

27½ year (1250 property).

Question 20

What is the property class for nonresidential real property under MACRS?

Answer 20

39-year (1250 property).

Question 21

What type of property is referred to as 1245 property?

Answer 21

Tangible personal property.

Question 22

What is the significance of the §179 deduction in tax planning?

Answer 22

It allows for immediate expensing of qualifying property in the year of acquisition.

Question 23

How many days a year can you rent a principal residence and not incur any income tax consequences?

Answer 23

Up to 14 days a year

Question 24

How much can qualifying taxpayers deduct per year from active participation losses?

Answer 24

Qualifying taxpayers may deduct up to $25,000 per year of net losses from real estate activity from their active or portfolio income. This deduction is phased out for taxpayers with AGIs between 100,000 and $150,000 on a two dollar for one dollar basis

Question 25

What is the rule for netting losses and gains on non-publicly traded partnerships?

Answer 25

PALS up to PIGS

Question 26

Can you net gains and losses from different publicly traded partnerships? MLP:

Answer 26

No

Question 27

How our losses from a publicly traded partner (PTP) used?

Answer 27

Losses from a PTP may not be used to offset passive income from other sources net losses from a PTP must be carried forward and used ONLY against the future income from the SAME partnership. The loss in the top PTP cannot escape the circle. It is carried forward until used against income in that same partnership or sold. To take a loss from a PTP there must be a complete disposition.

Question 28

What are the rules for renting your vacation home (normally a business)?

Answer 28

Personal use cannot exceed the longer of 14 days or 10% of the rental use.

Question 29

The low income housing credit is spread over how many years?

Answer 29

10 years

Question 30

What is the maximum amount a taxpayer can deduct via charitable contributions?

Answer 30

60% of AGI shown on the tax return. Any contribution in excess of such limit is carried forward as an itemized deduction for up to five years, or if sooner, death.

Question 31

When donating gifts of appreciated property (generally stock or real estate) what amount can a taxpayer deduct?

Answer 31

When valuing gifts at FMV, the individual can only deduct 30% of AGI. 3 letters, 30%. When valuing gifts at basis, the individual can deduct 50% of AGI . 5 letters, 50%.

Question 32

When donating an item such as an art object or collectible to a charity, what value of the object is used (FMV or basis) in what situations?

Answer 32

Fair market value, if used by the charity in its charitable activity. Otherwise, use basis.

Question 33

What is the AGI phaseout for active participation loss?

Answer 33

$150,000

Question 34

What is the deduction-equivalent tax credit maximum for low-income housing programs?

Answer 34

Low income housing programs that are held as passive activity may generate a deduction equivalent tax credit up to $25,000. There is no income phase out. Ex: if someone wasn’t is in the 37% tax bracket multiply 25,000 times 37% to get a credit of $9250

Question 35

What are the property classes for MACRS?

Answer 35

5-year, 7-year, 27½-year, 39-year

Question 36

What types of property fall under 5-year MACRS?

Answer 36

Computers, autos, and light duty trucks (1245 property) ## Footnote 1245 property includes certain tangible personal property.

Question 37

What type of property is classified as 27½-year MACRS?

Answer 37

Residential rental property (1250 property) ## Footnote 1250 property includes residential rental buildings.

Question 38

What type of property is classified as 39-year MACRS?

Answer 38

Nonresidential real property (1250 property) ## Footnote 1250 property includes nonresidential buildings.

Question 39

What are the recovery percentages for 5-year MACRS in year 1 and year 2?

Answer 39

Year 1: 20%, Year 2: 32%

Question 40

What are the recovery percentages for 7-year MACRS in year 1 and year 2?

Answer 40

Year 1: 14.29%, Year 2: 24.49%

Question 41

What are the straight-line recovery percentages for 5-year depreciation in year 1 and year 2?

Answer 41

Year 1: 10%, Year 2: 20%

Question 42

What are the straight-line recovery percentages for 7-year depreciation in year 1 and year 2?

Answer 42

Year 1: 7.14%, Year 2: 14.29%

Question 43

How do you calculate a charitable bargain sale?

Answer 43

1) sale/FMV x basis = adjusted basis 2) sale - adjusted basis = taxable gain

Question 44

What is the mid-quarter conversion rule?

Answer 44

The mid Quarter conversion applies if more than 40% of the property is placed in service by a taxpayer during the last quarter of the year

Question 45

What is the threshold for using the cash accounting method?

Answer 45

No more than 29 million in revenue

Question 46

Are revocable trust tax neutral to the grantor?

Answer 46

Yes. Revocable trust trust. Anything that happens in a rev trust is the grantors tax

Question 47

Is a tax credit more valuable to a low bracket tax payer or a high bracket payer?

Answer 47

A credit is more valuable to a low bracket taxpayer than a deduction would be.

Question 48

Do gift taxes paid add to the basis of a Donny for gifted property

Answer 48

Yes

Question 49

Are qualified dividends in long-term capital gains part of AGI?

Answer 49

Yes. Qualified dividends and long-term gains are part of AGI. They are taxed differently, but are included in AGI.