chart and formulas

8/3/2019 Chart and Formulas

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CHART OF FORMULAS

Social Security Section 86

Lesser of

Half the social securityOrOn-half the excessAGI plus half of the SS benefits minus BaseBase: 25,000 indiv, 32,000 joint return, zero if married at the end of taxable year but doesnot file joint return see 7703

Section 151 Personal exemptions

$2,000Phaseout reduced by 2% for each 2,500 that exceeds the Threshold

150,000 in case of jt. return125,000 in case of H of H100,000 in case of Indiv.75,000 in case of married separate

(b) Taxpayer and spouse(c) additional exemption for dependents

Section 152 - Dependents Defined

Qualifying child or Qulaifying relative Principal place of Abode as taxpayer fro than half the year Not attained age 19 or age 24 if student Who has not provided over one-half of indiv own support

Section 79 Group term Life Insurance

Excluded up to the cost of 50,000$500 for 50,000 excluded from GIBut if 650 for 65,000 then $150 is included

Section 72

Exclusion ratioGross income does not include amount of investment

HYPO: Pay $1000 for the annuity K = investment in the KAnnuity pays $100 x 20 years = 2000 = expected returnExclusion Ratio investment in K/expected return = 1000/2000 = = exclusion ratioRatio is fixed at start

So in one year when I get payment of $100, how much is tax free? $50 tax freeHow much have I excluded as tax free over 20 years? $1000The portion excluded from GI shall not exceed the unrecovered investment


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Section 163 Investment Interest Deduction

Hypo: What is Classic Investment Interest? Interest Pay on MarginYear 1

Borrow money from Merril Lynch to purchase stock or bond for $100Borrowed stock pays dividend of $5Owe interest to Merrill Lynch of $7

How much deduction goes to taxpayer? $5 because deduction cant exceed net gainsWhat happened to $2 can be treated as carryover in next year and as deduction in nextyear

Next year owe $7 plus $2 = owe $9Year 2 taxpayer gets dividend of $10So in Yr 2 deduct can deduct whole $9 because net gain is $10

OID redemption price at maturity minus the issue price borrow 600,000 at 10 yrs1,000,000 OID = 400,000Puts both borrower and lender on accrual basis so that borrower can claim deduction andthe lender can claim income

(h)(3)(A) Qualified Residence Interest

(B) Acquisition Indebtedness- Deduct interest on 1,000,000 in debt interest on home mortgage

(C) Home Equity Loan 100,000 max

Section 170

Only deduct up to 50% of AGI so if you donate 50,000 and your AGI is 100,000 youcan deduct up to 50,000 so entire amountSubstantiation written acknowledgement if over $250For cars, boats if over $500 need written acknowledgement

Section 274

Directly related to or in case of item, directly proceeding or following a bona fidebusiness mtgRestrictions on foreign travelSubstantiation for traveling and mealsSection 274(n) 50% entertainment expense allowed unless in exception132(e) di minimis fringe or described in para 2,3,4,5,7,8,9


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Section 280A

PPOB deduction if regularly used as

Principal place of business fro any trade or business of taxpayer As a place which is used by patients, clients or customers in meeting or dealing

w/taxpayer in normal course of trade or business In case of separate structure whichis not attached to the dwelling unit, in

connection with taxpayers trade or businessPPOB includes place of business used for administration or management activities of anytrade or business of the taxpayer if there is no other fixed location where taxpayerconducts substantial admin or management activities of such trade or business

Section 1033 Involuntray Conversions

(a)(1)(A) at the election of the txpayer, for purchase of other prop similar or

related in use, gain shall be recognized only to extent that the amount realized upon

such conversion exceeds the cost of such other property or such stock.

Hypo: Basis Insurance New Home Cost

100,000 1,000,000 900,000

100,000 this is the gain recognized

SECTION 1033(2)(B)(i) PERIOD W/IN WHICH PROP MUST BE REPLACED

(i) within 2 years after the close of the first taxable year in which any part

of the gain upon the conversion is realized

1033(b)(2) basis = cost of property decreased in amount of gain not recognized

Hypo:

#1 When Home costs same as Insurance gives:

Basis Insurance New Home Cost

100,000 1,000,000 1,000,000

Basis: 1,000,000 minus 900,000(amount of gain not recognized (1,000,000 100,000 =900,000) = 100,000

#2 When home costs more than Insurance Gives


100,000 1,000,000 1,200,000

Basis: 1,200,000 decreased by the amount of gain not recognized1,200,000 - (1,000,000 (insurance) 100,000 (old basis) = 900,000) =

300,000


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#3 When home cost less than Insurance Gives:


100,000 1,000,000 900,000

New Basis: 900,000 decreased by amount of gain not realized900,000 (900,000 (cost of new home) 100,000 = 800,000) = 100,000

So when you sell it, that is when 800,000 will be recognized NOTE 1033 only applies to gain

Basis Insurance New Home200,000 1,000,000 1,200,000

New Basis: 1,200,000 minus 800,000 = 400,000

Another way of calculating original inv(200,000) plus new addl inv (200,000) =400,000

When purchase home do you have gain? only if the amount realized exceeds the costof the new home

SECTION 1031 Nonrecognition from gain or loss of property solely in Kind

No gain no loss recognized prop held for use in trade or business or for investment ifexchanged solely for prop of like kind which is held for use in trade or business or

investment Does not apply to stock, securities Basis same as property exchanged gain from exchanges not solely in kind boot (does not have to be for trade or

investment could be personal prop(computer) shall be FMV or sum recd

LOSS not recognized under 1031 Prop must be identified within 45 days and exchange completed within 180 days

Section 172 Net Operating Loss

To extent there are losses deduction allowed- carryforward for 20 years or carryback for 2 years

Section 1212 Net Capital Losses

For Corp carryback 3 yrs, carryforward 5For individual carryforward indefinitely


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CREDITS

SECTION 21 Expenses for Household Services and Dependent Care

3000 for 1 child6000 for 1 or more

35% reduced by the applicable % (not below 20%)

1% for every 2000 of AGI that exceeds 15,000

Qualifying Indiv

Below age of 13 Dep who is physically or mentally incapable of caring for self Spouse who is phyisically incapable of caring for self

Expenses enable the taxpayer to be a gainfully employed

Household services For care of qualifying child

Section 24 Child Care Credit

1000 reduced by $50 for every 1000 by which taxpayer AGI exceeds Threshold

(but Not below Zero)

Thresholds:110,000 in case of jt return75,000 in case of indiv55,000 in case of married filing separate

Section 32 Earned Income CreditEligibleindiv

Principal place of abode for more than one-half year is US Age 25 Not a dependent

Amount of credit shall not exceed credit excess of credit over phaseout %

Section 25A Hope and Lifetime Learning Credit

Hope 100% of qualified tuition does not exceed 1000 limited to 2 yearsAnd 50% of expenses as exceeds 1000 but not applicable limit

Lifetime Learning Credit 20% of tuition and expenses do not exceed 10,000Limitation reduction based on AGI but not below Zero

Reduced by ratio AGI over 40,000 bears to 10,000 (20,000 in case of jt return)


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Installment Method Section 453

At least one payment to be received after close of taxable year

Income realized - Ratio of gross profit over contract price10 1 = 9 profit

$2 X 9/10 = 1.80 report as income pro-rate incomeDoes NOT include Dealer Dispositions and Inventory of Personal Prop

Section 1245 Gains from Depreciable Property

1245 prop personal prop boxcar, airplane

Lower of

A)recomputed basis of prop (basis add back depfreciation) orB) in case of sale,The amount realized which exceeds adjusted basis

Shall be treated as ordinary income(A) 1000(bought it) 900(dep) = 100(basis)Sold for 1200 100 = 1,1001000 (recomputed basis) 100 (adj basis) = 900 is to be treated as ordinary incomeOnly $200 cap gains

What if sold it for $800

(B) 800 100 = 700 1001 gain amount realized minus adj basis so entire 700 is ordinary income

1341 Computation of Tax where taxpayer restore Substantial Amount of held

Under Claim of Right

If It appeared taxpayer had unrestricted right,Deduction allowable because it was established taxpayer did not have unrestricted right

Deduction exceeds 3,000Then Tax imposed shall be the lesser of:

The tax for taxable year computed with deduction Or an amount equal to

o Tax for taxable yr computed w/deduction minuso The decrease in tax that would result fro the prior taxable yr if it was

excluded from GI in the prior taxable yr

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