Module 3: Gross Income Part 2

Question 1

Rental of Residence (home)

Answer 1

Rented fewer than 15 days - excluded from income

• rented 15 or more days: expenses must be prorated btwn personal and rental
• No rental loss allowed: rental use expenses are deductible only to the extent of rental income
• non residence rental property: losses are considered passive and will be deducted only to the extent of passive income. An exception rule allows active participant in rental activity to deduct up to 25k of rental losses against non passive income.

Question 2

Self employment tax and Self employment health insurance expenses

Answer 2

these line items are adjustments from total gross income and not deducted from self-employment earnings

Question 3

Uniform capitalization rules = Inventory

Answer 3

cost required to be capitalized: direct materials, direcct labor, and applicable indirect costs such as factory overhead

cost not required to be capitalized = period expense: selling, advertising, marketing expenses, g&a expenses, research & officer compensation