Federal Income Taxation Exam 2-
Chapter 6 -Solved
Activities are either - ANSWER-Profit-motivated or
motivated by personal objectives
AGI Limitations on education deductions (EXHIBIT 6-4) - ANSWER-1) deduction up to
$2500
IF
modified AGI <$65,000 ($130,000 for MFJ)
2) deduction up to $2500 reduced by the phase out amount
IF
modified AGI is BETWEEN $65,000 and $80,000 (for MFJ--- between $130,000 and
$160,000)
3) no deduction
IF
modified AGI is equal to or ABOVE $80,000 ($160,000 for MFJ)
Alimony payments are deductible___ - ANSWER-FOR agi to maintain equity
Business expenses are deducted - ANSWER-FOR AGI (except unreimbursed
employee business expenses)
ex: self-employed business expenses, rental and royalty expenses (considered
investment)
EXHIBIT 6-1
Contributions to retirement savings are deductible___ - ANSWER-FOR AGI to
encourage savings
Costs of hospitals and long-term care facilities are - ANSWER-(meals and lodging at
hospitals) deductible when the principal purpose for the stay is medical care rather than
convenience
Deduction for interest expense on qualified education loans LIMIT - ANSWER-amount
paid up to $2500
, however,the deduction is reduced (phased-out) for taxpayers depending on the
taxpayers filing status and modified AGI)
Deduction per mile for moving expenses - ANSWER-23.5 cents
Employers can deduct - ANSWER-Social security and medicare they pay on employee
salaries
Examples of flow-through entities - ANSWER-Partnerships
LLC
S corporations
examples of itemized deductions from taxes - ANSWER-state, local, and foreign
INCOME tax
real estate taxes on property held for personal or investment purposes
personal property taxes that are assessed on the VALUE of the specific property
Floor limitation for taxpayers over 65 - ANSWER-reduced to 7.5 percent of AGI
home-equity indebtedness - ANSWER-any OTHER debt secured by the taxpayer's
qualified residence (besides acquisition indebtedness)
Investment expenses are deducted - ANSWER-FROM AGI (as itemized deductions)
ex: unreimbursed employee business expenses other investment expenses
Itemized deductions: - ANSWER-medical expenses, transportation and travel for
medical purposes, hospitals and long-term care facilities, taxes, interest, charitable
contributions, contributions of money/property
Limitations on qualified education expenses (no phase out percentage calculations) -
ANSWER-1) deduction is up to $4000
IF
modified AGI < $65,000 ($130,000 for MFJ)
2) deduction is LESSER of amount paid OR $2,000
IF
modified AGI is between $65,000 and $80,000 ($130,000 and $160,000 for MFJ)
3) deduction is $0
IF
Chapter 6 -Solved
Activities are either - ANSWER-Profit-motivated or
motivated by personal objectives
AGI Limitations on education deductions (EXHIBIT 6-4) - ANSWER-1) deduction up to
$2500
IF
modified AGI <$65,000 ($130,000 for MFJ)
2) deduction up to $2500 reduced by the phase out amount
IF
modified AGI is BETWEEN $65,000 and $80,000 (for MFJ--- between $130,000 and
$160,000)
3) no deduction
IF
modified AGI is equal to or ABOVE $80,000 ($160,000 for MFJ)
Alimony payments are deductible___ - ANSWER-FOR agi to maintain equity
Business expenses are deducted - ANSWER-FOR AGI (except unreimbursed
employee business expenses)
ex: self-employed business expenses, rental and royalty expenses (considered
investment)
EXHIBIT 6-1
Contributions to retirement savings are deductible___ - ANSWER-FOR AGI to
encourage savings
Costs of hospitals and long-term care facilities are - ANSWER-(meals and lodging at
hospitals) deductible when the principal purpose for the stay is medical care rather than
convenience
Deduction for interest expense on qualified education loans LIMIT - ANSWER-amount
paid up to $2500
, however,the deduction is reduced (phased-out) for taxpayers depending on the
taxpayers filing status and modified AGI)
Deduction per mile for moving expenses - ANSWER-23.5 cents
Employers can deduct - ANSWER-Social security and medicare they pay on employee
salaries
Examples of flow-through entities - ANSWER-Partnerships
LLC
S corporations
examples of itemized deductions from taxes - ANSWER-state, local, and foreign
INCOME tax
real estate taxes on property held for personal or investment purposes
personal property taxes that are assessed on the VALUE of the specific property
Floor limitation for taxpayers over 65 - ANSWER-reduced to 7.5 percent of AGI
home-equity indebtedness - ANSWER-any OTHER debt secured by the taxpayer's
qualified residence (besides acquisition indebtedness)
Investment expenses are deducted - ANSWER-FROM AGI (as itemized deductions)
ex: unreimbursed employee business expenses other investment expenses
Itemized deductions: - ANSWER-medical expenses, transportation and travel for
medical purposes, hospitals and long-term care facilities, taxes, interest, charitable
contributions, contributions of money/property
Limitations on qualified education expenses (no phase out percentage calculations) -
ANSWER-1) deduction is up to $4000
IF
modified AGI < $65,000 ($130,000 for MFJ)
2) deduction is LESSER of amount paid OR $2,000
IF
modified AGI is between $65,000 and $80,000 ($130,000 and $160,000 for MFJ)
3) deduction is $0
IF
