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Flashcards in personal tax Deck (15):

business expenses

Interest expense on a loan for an auto used 75% for business is partially deductible in Schedule C—Profit or Loss From Business.

Since the auto was used 75% for business, Green can deduct 75% of costs (for example, gas and maintenance) including 75% of the allowable depreciation.


Home equity loan interest deduction

The $20,000 loan secured by the taxpayers’ home but used for reasons other than to purchase or substantially enhance the residence is considered a home equity loan. The interest on the home equity loan is deductible qualified residence interest and can be deducted as mortgage interest expense on the taxpayers' Schedule A (IRS Form 1040).


itemized deductions

Charitable contributions, personal casualty losses, and unreimbursed business expenses of an outside salesperson can only be deducted if the taxpayer itemized his or her deductions on Schedule A, Form 1040.


residential rental property

Since Adams made rental use of the property more than 14 days or 10% of the total rented days, he must allocate the expenses between the total expenses between the rental use and personal use based on the number of days used for each purpose.


personal property tax on vehicle

Payment for registration and licensing of a car may be deductible as a personal property tax only if it is imposed annually and assessed in proportion to the value of the car. Since the property tax is based on the weight of the car, it is not deductible.


Home equity

Interest expense on a home equity line of credit for an amount borrowed to finance Green's business is fully deductible in Schedule C, Profit or Loss From Business.


self employment tax deduction

Bast is allowed to reduce his gross income of $60,000 by one-half of the self-employment tax (i.e., this is considered the employer’s portion)


Funeral expenses

Funeral expenses are not deductible on an individual's income tax return.


self employed medica expenses

If you're self-employed and your business has a net profit, you can deduct 100% of your medical, health, and qualified long-term care insurance premiums for yourself, your spouse, and your dependents. The insurance can also cover your child who was under the age of 27 at the end of the year, even if the child was not your dependent.


Charitible art contributions

Donations of tangible personal property that would generate long-term capital gains if sold are eligible to be deducted at their fair market value if the donated property is related to the organization's exempt purpose. Art donated to an art museum would be a donation of long-term capital gain property that would qualify and the deduction would be valued at its fair market value.


section 179 requirements

IRC Section 179 is a business tax provision and as such requires an active trade or business for eligibility. The additional requirement of requiring the purchase from an unrelated party eliminates the possibility of churning property for the beneficial tax expense.


charitble contributions

if you pay more than the fair value can only deduction the difference between what you paid vs the actual fair value


rental of personal residence

When a personal residence is rented out for under 15 days during a taxable year, none of the rental income is included in income, nor are any rental deductions allowed for the rental use of the residence. Real estate taxes and home mortgage interest, if any, could still be used as itemized deductions if the taxpayer can benefit from itemizing.


exception to the transportation rule

In general, daily transportation expenses incurred in going between a taxpayer's residence and a work location are considered nondeductible commuting expenses.

However, there are three sets of circumstances in which daily transportation expenses are considered deductible under the Internal Revenue Code:

A taxpayer may deduct daily transportation expenses incurred in going between his or her residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works.
If a taxpayer has one or more regular work locations away from his or her residence, the taxpayer may deduct daily transportation expenses incurred in going between the residence and a temporary work location in the same trade or business, regardless of the distance.
If a taxpayer's residence is his or her principal place of business for purposes of IRC Section 280A(c)(1)(A) (i.e., he or she qualifies for the home-office deduction), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.


charitble contributions cf rules

Charitable contributions subject to the 50% limit that are not fully deductible in the year made may be carried forward five years.

The amount of the excess that may be deducted in any carryover year is limited to the lesser of (1) the remaining portion of any excess contribution not already deducted, or (2) the amount equal to 50% (or 30% for capital gain carryover) of the taxpayer's AGI after first deducting the sum of the charitable contributions (to which the 50% or 30% limitation applies) paid in the carryover year and any excess contributions that have precedence in order of time over the present carryover. In other words, the charitable contributions carryovers follow the FIFO rules.