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Midterm Review For Taxation IIChapters 8,9,10,13,14

15 TF, 28 MC, 5LP(516)487-1484

LONG PROBLEMS-

1) Chapter 8 Different types of lossesIs loss deductible or not? Use of property in trade or business holding ofproperty for investment, limited reduction on personal use property that iseither stolen or damaged in a casualty. Also permitted a deduction for lossesdue to uncollectible business or nonbusiness debts If it is deductible is it foror from AGI? 3 types of losses if it relates to trade or business, profit motive,casualty and theft losses EX: loss on personal use asset is NOT deductible,Guitar breaks and youre a musician it is deductible for AGI (trade or

business), Selling stock at a loss would be deductible for AGI(profit motive),

ifyou gave money to your child and he purchased and had loss you cantdeduct, loss of anticipated income is not deductible, Casualty losses arededucted from AGI2)Alternative Minimum Tax

What is the purpose of AMT? List 5 adjustments or preferences 1)medical expensesonly deductible if 10% of income (2.5% adjustment) 2)Taxes are not deductible(property, state) 3)Miscellaneous itemized deductions as a group are NOTdeductible 4) Different method of deprectiation MACRS 200% for AMT it is 150%

5)Standard deduction is not permitted 6) allowance for personaldeductions is not permitted The substantial exemption for the AMTfor Single or MFJ and mention the phase out the exemption at a rate of

4 for 1 put something on the rates 26% if AMT income goes over$175,000 it jumps up to 28% AMT is an add on tax only applies if itsgreater than regular tax. AMT tax can be used to reduce your regulartax in later years only when AMT applies in later years

3) Pass of activity lossesPurpose of the loss rules? Definition of material participation if yourea material participant and how do you meet the tests. Define activeparticipation. What is meant by suspended losses and how you get touse them eventually. 2 sets of special rules for real estate 1) if youre a

real estate profession(750 hours, or half of time to real estate) if youmeet test then youre not passive 2) small real estate owner, if youre

an active participant and AGI of less than 100,000 you get up to25,000 of your losses per year from your rental activities. Include thephase out

4) IRAs and Roths5 characteristics, money you contribute to IRA is deductible Roth isnt

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5) Education credits (American opportunity credit, lifetime learning credit)List 4 characteristics for each

AOP - applies for first 4 years, at least half time student, there is AGIlimit, per qualifying childLLC- 2,000 is maximum (20% of qualified education), Applies to anypost secondary education, just 2,000 for entire return, also subjectedto AGI limit

Chapter 8 Losses

B)Casualty losses (T/F) recognize type of event that counts as casualty lossusually natural losses but not always, car crash unless under the influence,flood, tsunami, hurricane, fire, shipwreck. What is NOT a casualty loss is amysterious disappearance is not a loss- misplacing wallet. Also be able tocompute casualty loss deduction. Starting point is the lower of cost or FMV,

after starting amount subtract and insurance reimbursement whether youactually received it or could have received. After subtraction ofreimbursement then subtract $100 per event, and then subtract 10% of AGI

B) Pass of activity losses (PAL) is loss deductible or not deductible, baddebt deduction if using cash method it is not deductible, because you dont

have any basis it was never reported it as income. If you make loan tocorporation it is a capital loss because it is not related to your trade orbusiness. Loss from related to party it is not deductible, inlaws are not arelated party as long as your sole owner.

Chapter 9

A) What does it mean to have a qualified plan? Certain vesting schedule,employees over 21, full time employees.

B) Profit Sharing Vs Pension Plan profit plan you can make an annualelection, pension is definite

C) IRAS or ROTH IRAS no RMD for roth, april 15th of 2012 is last date tomake contribution, if you extend file date or return it doesnt extend date

of which you can contribute to IRAD)HR10 Plans plans used by self employed individuals

Chapter 10- Depreciation

A) How does it work? MACRS for non real estate use 200% and ignoresalvage value, certain conventions, quarter, half year, and for real estate

mid-month convention. Whatever convention is used when you put assetinto use have to use same convention for disposition of asset

B) Real estate depreciation straight line, 27.5 years is recovery, forcommercial property its 39 years

C) Number cruncher on exam, election expense write cost of asset rightaway,

D) Assume asset is purchases and costs $539,000 5 year property, 7/1/12

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Claim maximum depreciation deduction permitted. 539,000 -139,000(election expense section 179)= 400,000 bonus deprectiaion of %50(200,000)= 200,000 then do MACRS deprecation (cost accumdepreciation) x 2/5-1/2 = 40,000 so total depreciations is139,000+200,000+40,000= 379,000

Chapter 13

Limited content (1 or 2 questions)a) section 1231 property is depreciable property used in trade business for

more than year, if its a gain it is a LTCG and if its a loss it is an ordinary

lossb) recapture of depreciation will convert 1231 capital gain into ordinary

incomec) 1245 is recapture tangible and intangle property in your businessd) 1230 deals with real estate

Chapter 14 TF on AMT

A) Dont need computations on AMT just awareness on adjustments, it is anadd on tax

B) Child care credit, do computation of child care credit. Avaiblable is youpay for someone to take care of child. If you have one chiled it is 3,000 2or more children is 6,000, % to use will be given

C) Education credits AOP and LLCD) Estimated taxes, usually people who are subject to withholding either self

employed or a lot of heavy investment income, subjected to anyone over1,000$ who people who under withhold 90% or more, way to not besubjected: 1) if you pay 90% of taxes during the year 2) pay 100% of lastyears tax bill (safe harbor rule) 3) for larger tax payers for AGI>150,000then you have to do 110%

**Only few computations, 1 on depreciation**