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Federal Income Tax Personal (Itemized) Deductions
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Business Personal
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Personal
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Itemized Deductions See text page 7-36 Medical Taxes Interest
Charitable contributions Casualty Losses Other
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Itemized Deductions Medical Taxes Interest Charitable Contributions
Casualty Losses Other
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Medical Expenses Define medical costs See text pgs 7-3, 7-4 Name as
many examples as possible Name some that are NOT deductible Limits:
out-of-pocket costs Reduced by 7.5% of AGI mitigation
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Medical Expenses Problem 7-4
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Problem 7-4 Which enroute costs are deductible? Any limits?
Auto/Travel$.?? per mile
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Automobile Expenses Business$.51pg 9 11 Moving$.19pg 9 20
Medical$.?? Charitable Contribution
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Automobile Expenses Business$.51pg 9 11 Moving$.19pg 9 20 Medical
$.19 pg 7 4 Charitable Contribution Note: $.12 in 2001 $.13 in 2002
$.12 in 2003 $.14 in 2004 $.15 $.22 in 2005 $.18 in 2006 $.20 in
2007 $.19 in 2008 $.27 $.20 in 2009 $.165 in 2010
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Automobile Expenses Business$.51 *pg 9 11 Moving$.19 *pg 9 19
Medical Before 7/1 $.19 After 6/30 $.235 pg 7 4 Charitable
Contribution * agreement
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Problem 7-4 Which enroute costs are deductible? Any limits?
Auto/Travel$.19 per mile Meals
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Problem 7-4 Which enroute costs are deductible? Any limits?
Auto/Travel$.19 per mile Meals50% Hotel
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Problem 7-4 Which enroute costs are deductible? Any limits?
Auto/Travel$.19 per mile Meals50% Hotel$50 per night
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Medical Expenses Problem 7-4 Problem 7-5
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Problem 7-5 Meals? Not deductible See also P7-?? Lodging? $50 per
night Meals and lodging as outpatient?
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Medical Expenses Problem 7-4 Problem 7-5 Problem 7-38
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Problem 7-38 Issue? Define medical dependent Regular dependent = 5
tests Medical dependent = 3 tests All except GI and joint return
Page 7-2, 7-8 $7,300 less 7.5% = $4,300
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Medical Expenses Problem 7-4 Problem 7-5 Problem 7-38 Problem
7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Problem 7-35
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Medical Expenses Problem 7-4 Problem 7-5 Problem 7-38 Problem 7-35
Problem 7-36
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Problem 7-36
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Problem 7-36
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Problem 7-36
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Problem 7-36
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Problem 7-36
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Problem 7-36 Must include tax benefit.
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Medical Expenses Problem 7-4 Problem 7-5 Problem 7-38 Problem 7-35
Problem 7-36 Another Illustration
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Another Illustration Part I: During the current year, Melanie is
involved in an automobile accident and incurs the following
expenditures: Doctor bills$11,000 Hospital bills13,000 Melanie is
single and has no dependents. Her salary is $40,000, and other
itemized deductions are $2,800. Melanie also receives a
reimbursement of $17,000 from the insurance company for medical
expenses incurred in connection with the accident. What is Melanies
taxable income for the current year?
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration Remember This
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Another Illustration Part II: Assume all the same facts, and assume
in the following year Melanie receives an additional $6,000 in
settlement of a lawsuit arising because of the automobile accident.
The settlement is to pay Melanie for the medical expenses incurred
because of the accident that were not covered by insurance. What is
the proper treatment of this $6,000 settlement?
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration
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Another Illustration Remember This
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Another Illustration Must include tax benefit.
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Medical Expenses Problem 7-4 Problem 7-5 Problem 7-38 Problem 7-35
Problem 7-36 Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39
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Problem 7-39 -$9,000
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Problem 7-39 +$9,000 tax benefit
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Problem 7-39
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Problem 7-39
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Itemized Deductions Medical Taxes Interest Charitable Contributions
Casualty Losses Other
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Taxes Deductible Property taxes State income tax Local income tax
Not Deductible Federal taxes Sales tax Excise taxes
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Taxes Deductible Property taxes State income tax Local income tax
Not Deductible Federal taxes Sales tax * Excise taxes
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Copyright 2001-2005 by M. Ray Gregg. All rights reserved. 76 Sales
Tax Update On Oct, 11, 2004 the Senate by a vote of 69-17, approved
H.R. 4520, the "American Jobs Creation Act of 2004," clearing the
way for the President's expected signature of the measure. The
House approved the measure on Oct. 7 by a vote of 280-141.
http://ria.thomson.com/taxwatch/default.asp
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Copyright 2001-2005 by M. Ray Gregg. All rights reserved. 77 Sales
Tax Update Most of the 633 pages of the American Jobs Creation Bill
of 2004 dealt with taxes on and tax breaks for businesses. But
sandwiched in the tax tome [A book, especially a large or scholarly
one], approved by Congress and signed into law by the president, is
the OK for consumers to deduct sales taxes from their federal
filings. The deduction will be available on 2004 and 2005 tax
returns. http://www.bankrate.com/brm/itax/20041012b1.asp
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Copyright 2001-2005 by M. Ray Gregg. All rights reserved. 78 Sales
Tax Update This tax break isn't an add-on; it will require you to
choose. You must decide whether you want to deduct the sales taxes
you paid or your state income tax amounts. The choice is obvious
for residents of the seven states that do not collect state income
taxes but do levy state sales taxes: Florida, Nevada, South Dakota,
Tennessee, Texas, Washington and Wyoming.
http://www.bankrate.com/brm/itax/20041012b1.asp
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Taxes Problem 7-40
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Problem 7-40 1/1 12/31 2010
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Problem 7-40 1/1 4/11 12/31 Pd $120 2010
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Problem 7-40 1/1 12/31 Employer w/h $1,600 2010 4/11 Pd $120
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Problem 7-40 1/1 4/11 4/1312/31 Employer w/h $1,600 Pd $120 $200
2010
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Problem 7-40 1/1 4/11 4/1512/31 Employer w/h $1,600 Pd $120 $200
Amount deductible? 2010
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Problem 7-40 1/1 4/11 12/31 Employer w/h $1,600 Pd $120 Did she
itemize? 2010
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Problem 7-40 1/1 4/11 12/31 Employer w/h $1,600 Pd $120 $1,600 +
$120 < SD 2010
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Problem 7-40 (b) 1/1 12/31 2011
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Problem 7-40 (b) 1/1 12/31 Employer w/h $2,100 2011
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Problem 7-40 (b) 1/1 4/13 12/31 Employer w/h $2,100 Pd $200
2011
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Problem 7-40 (b) 1/1 4/13 4/1512/31 Employer w/h $2,100 Pd $200 Rfd
$450 2011
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Problem 7-40 (b) 1/1 4/13 4/1512/31 Employer w/h $2,100 Pd $200 Rfd
$450 Amount deductible? 2011
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Problem 7-40 (b) 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,100
+ $200 = $2,300 2011
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Problem 7-40 (b) 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 Did she
itemize? 2011
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Problem 7-40 (b) 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,300
+ $5,500 > SD 2011
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Problem 7-40 (c) AGI$51,000 From:Item Ded$7,800 Exemption 3,700
11,500 Taxable Income$39,500 2011
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Problem 7-40 (c) AGI$51,000 From:Item Ded$7,350 Exemption 3,700
11,050 Taxable Income$39,950 2011 - revised
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Problem 7-40 (d) AGI$53,500 Add: State Tax Rfd From 11 450 New
AGI$53,050 2012
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Taxes Problem 7-40 Problem 7-41
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Problem 7-41 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,100 +
$200 = $2,300 2011 99
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Problem 7-41 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,100 +
$200 = $2,300 2011 100
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Problem 7-41 2011 State Income Tax$2,300 Mortgage Interest 3,000
Total Item Ded$5,300 101
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Problem 7-41 2011 Gross Income$51,000 Total Item Ded$5,300
Exemption 3,200 9,500 Taxable Income$41,500 102
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Problem 7-41 2011 Gross Income$51,000 Std Ded$5,800 Exemption 3,200
9,500 Taxable Income$41,500 103
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Problem 7-41 2011 Gross Income$51,000 Std Ded$5,800 Exemption 3,700
9,500 Taxable Income$41,500 104
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Problem 7-41 (b) AGI$53,500 Add: State Tax Rfd From 11* 0 New
AGI$53,500 2012 105 * No effect since she used standard
deduction.
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Problem 7-41 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,100 +
$200 = $2,300 2011
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Copyright 2001-2005 by M. Ray Gregg. All rights reserved. 107
Problem 7-41 1/1 4/13 12/31 Employer w/h $2,100 Pd $200 $2,100 +
$200 = $2,300 2011 State Sales Tax = $3,000
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Problem 7-41 2011 State Sales Tax$3,000 Mortgage Interest 3,000
Total Item Ded$6,000
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Problem 7-41 2011 Gross Income$51,000 Total Item Ded$6,000
Exemption 3,700 9,700 Taxable Income$41,300
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Problem 7-41 2011 Gross Income$51,000 Total Item Ded$6,300
Exemption 3,700 9,950 Taxable Income$41,050
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Problem 7-41 (b) AGI$53,500 Add: State Tax Rfd From 11* 0 New
AGI$53,500 2012 * No effect since she deducted sales taxes
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Problem 7-41 Generally... Itemize previous year = include Standard
previous year = exclude Straddle Deduct sales tax rather than
income tax previous year = exclude Tax Benefit
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Taxes Problem 7-40 Problem 7-41 Problem 7-42
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Problem 7-42 Total Deductible Fed Taxes W/H$5,400 State Tax
W/H2,000$2,000 FICA Tax W/H3,800 Sales Tax on Car600 License70 Prop
Tax on Car2%
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Problem 7-42 Total Deductible Fed Taxes W/H$5,400 State Tax
W/H2,000$2,000 FICA Tax W/H3,800 Sales Tax on Car600 License70 Prop
Tax on Car2%400 Prop Tax on Car$10/100#
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Problem 7-42 Total Deductible Fed Taxes W/H$5,400 State Tax
W/H2,000$2,000 FICA Tax W/H3,800 Sales Tax on Car600 License70 Prop
Tax on Car2%400 Prop Tax on Car$10/100# Prop Tax on
House1,850???
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Problem 7-42 1/1 4/15 12/31 Taxes $1,850 for year 31 28 31 14
104
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Problem 7-42 1/1 4/15 12/31 $527 31 28 31 14 104
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Problem 7-42 Total Deductible Fed Taxes W/H$5,400 State Tax
W/H2,000$2,000 FICA Tax W/H3,800 Sales Tax on Car600 License70 Prop
Tax on Car2%400 Prop Tax on Car$10/100# Prop Tax on House1,850 527
Total$2,927
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Taxes Problem 7-40 Problem 7-41 Problem 7-42 Problem 7-43
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Problem 7-43 6/30 $6,000 5/1
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Problem 7-43 (a) 6/30 $6,000 5/1 Janet (buyer): $6,000 x 61/365 =
$1,003 ???
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Problem 7-43 (b) 6/30 $6,000 5/1 Janet (buyer): $6,000 x 61/365 =
$1,003 Tara (seller): $6,000 x 304/365 = $4,997
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Problem 7-43 (c) Janet (buyer): $6,000 x 61/365 = $1,003 Tara
(seller): $6,000 x 304/365 = $4,997 Taras sales price = $500,000 +
$4,997 Janets purchase price = $500,000 + $4,997
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Itemized Deductions Medical Taxes Interest Charitable Contributions
Casualty Losses Other
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Interest Page 1, line 33ForStudent Loan Schedule AFromHome Mortgage
Not Personal Schedule AFromInvestment Not Passive Schedule
CForBusiness
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Interest Page 1, line 33ForStudent Loan Schedule AFromHome Mortgage
Not Personal Schedule AFromInvestment Not Passive Schedule
CForBusiness
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Interest Problem 7-14 How is the classification determined?
Collateral? Use? Use
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Interest Problem 7-14 Investment Interest Illustration
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Investment Interest Investment interest deductible to the extent of
net investment income. Net Investment Income determined as follows:
II -IE =NII
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Investment Interest Illustration During the current year, David
reports interest and dividend income of $18,000, net short-term
capital gains of $6,000, and net long-term capital gains of $7,000.
His AGI is $120,000. His investment expenses, exclusive of
interest, are $5,000. During the year David also pays a total of
$55,000 interest on debt incurred on his investment activities.
David is married and files a joint return. a.What is the total
amount of deduction Dave may take with respect to his investment
interest expense if he does not make a special election?
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Illustration (a)
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Illustration (a)
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Illustration (a)
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Illustration (a)
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Illustration (a)
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Illustration (a)
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Investment Interest Illustration During the current year, David
reports interest and dividend income of $18,000, net short-term
capital gains of $6,000, and net long-term capital gains of $7,000.
His AGI is $120,000. His investment expenses, exclusive of
interest, are $5,000. During the year David also pays a total of
$55,000 interest on debt incurred on his investment activities.
David is married and files a joint return. a.What is the total
amount of deduction Dave may take with respect to his investment
interest expense if he does not make a special election? b.What is
the treatment of any disallowed investment interest expense?
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Illustration (b)
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Investment Interest Illustration During the current year, David
reports interest and dividend income of $18,000, net short-term
capital gains of $6,000, and net long-term capital gains of $7,000.
His AGI is $120,000. His investment expenses, exclusive of
interest, are $5,000. During the year David also pays a total of
$55,000 interest on debt incurred on his investment activities.
David is married and files a joint return. a.What is the total
amount of deduction Dave may take with respect to his investment
interest expense if he does not make a special election? b.What is
the treatment of any disallowed investment interest expense? c.What
is the total amount of deduction David may take with respect to his
investment interest expense if he elects to have his net capital
gain taxed at the regular marginal tax rates?
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Illustration (c)
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Illustration (c)
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Illustration (c)
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Interest Problem 7-14 Investment Interest Illustration Problem
7-49
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Problem 7-49 a. ($12,000 - $10,200) = $1,800 $1,800 4 = $450 $450 x
2 = $900 b. None no payments made c. $1,800 x 9/12 = $1,350
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Itemized Deductions Medical Taxes Interest Charitable Contributions
Casualty Losses Other
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147