Example of rent expenses Bryan lives in Birmingham, Alabama, and owns a rental

Chapter 8 - Rental Property, Royalties, and Income from Flow-Through Entities Flashcards Example of rent expensesBryan lives in Birmingham, Alabama, and owns a rental condominium on the beach in Destin, Florida. Twice a year (in March and June) he drives to Destin to perform general maintenance on the condominium. The round-trip mileage from Birmingham to Destin is 602 miles. In tax year 2019, Bryan could deduct $698 in travel costs (602 miles × 2 trips × 58.0 cents per mile).

Rental of Vacation Home - example: Jose owns a vacation

home. He uses it over Christmas for 7 days and he rented to vacationers for 90 days. Those days determine the category of the property Jose's home is a primarily rental property.All expenses related to rental property are deductible in the current year, including capital improvements.False If a taxpayer's rental property is considered a trade or a business, he or she reports the income on Schedule E.False(schedule c) Education Credits - calculating AOTC and lifetime learningAOTC is calculated as 100% of the first $2,000 of qualifying

expenses and 25% of the next $2,000: for a maximum of

$2,500 per student, per year.Lifetime learning credit is

calculated as 20% of qualifying expenses: for a maximum

of $2,000 per taxpayer, per year.A taxpayer may NOT use both credits in the same year for the same expenses.Phaseout - lifetime learning creditPhase out begins at MAGI amounts of $58,000 for single filers and $116,000 for married filing joint, respectively.Single filers and married filing joint phase out completely at MAGI amounts of $68,000 and $136,000, respectively.Indicate whether the following items would be reported on Schedule E or Schedule C.3. Nathan recently wrote a book on proverbs. He received income for his readings at various bookstores throughout the country.Schedule C Retirement Savings Contribution Credit - Phaseout For Joint returns: $64,000Head of Household: $48,000For

All other filers: $32,000

Primarily rental homesA rental property that is used no more than 14 days for personal purposes (or 10% of the days rented, whichever is greater), and it is rented for 15 days or more is considered primarily rental property.-Reported on schedule E- The expenses must be allocated between personal and rental use, and if a net loss results, the loss is allowed against other income up to $25,000

Retirement Savings Contribution Credit - Example 2Bo and Rachelle are married filing jointly with modified AGI of $39,000. Bo makes a $2,000 contribution to a qualified retirement plan. Their credit is $400 ($2,000 × 20%).Kate owns land that produces oil and receives royalty income. Katherine is a full-time dentist.Since Kate's royalty income is derived from an investment rather than a trade or business, the income is reported on Schedule E. Any related expenses are also deductible.

3.Assume the same facts as #1. Jewels has modified AGI of $98,000 and wants to claim the AOTC. What is her allowable credit after the credit phaseout based on AGI is taken into account?$ 0. Her AGI is greater than the max. phaseout."Walt has AGI of $18,744 from his employment, and he spent $1,240 on qualified expenses for his child during the year. He is entitled to a tax credit of? If Walt's AGI were $15,200, his credit would be? If Walt's AGI were $25,500, his credit would be?

- $409 ($1,240 × 33%)- $422 ($1,240 × 34%)- $360

($1,240 × 29%).

Goal of tax creditto encourage certain outcomes or to accomplish specified

societal goals.ex: assisting families with children, ensuring

additional tax relief for low-income taxpayers, encouraging taxpayers to enhance their education, encouraging adoptions, and providing incentives for taxpayers to work.Rental Expenses- Ordinary and "necessary" expenses. (refers to an expense that is appropriate and helpful rather than one that is essential to the taxpayer's activity.)-This expenses are deductible (rules of deductibility apply too such as travel and transportation)-Travel costs from the taxpayer's home to a rental property are deductible if the travel is for business purposes. If a taxpayer stays overnight , meals are also deductible (subject to the 50% limitation).Assume the same facts as #1. Jewels has modified AGI of $85,000 and wants to claim the AOTC. What is her allowable credit after the credit phaseout based on AGI is taken into account?100% of the first $2,000 and 25% of the second $900 is the maximum credit of $2,225, However, this amount is limited by the AGI phaseout.2,225 x [(90,000-85,000)/10,000] = 1,113 Rental PropertyTaxable income includes rental income.- The taxpayer must differentiate between rental property and a trade or business involving rental property.-Generally, if the taxpayer is a real estate professional and materially participates in a real property trade or business, then the business side of the rental activity should be reported on schedule C. Such as real property development, construction, acquisition, conversion, rental operation, management, leasing, or brokerage..- rental income and related expenses should be reported on Schedule E.- Rental income is not subject to self-employment tax.-they don't have social security tax-rental property is depreciated using straight-line depreciation over 27.5 or 39 years

Indicate whether the following items would be reported on Schedule E or Schedule C.Royalty income that Jane, a full-time professor of psychology at the University of San Diego, received for a textbook she wrote.Schedule E Credit for the Elderly or Disabledprovide some tax relief to low income elderly or disabled individuals.Credit is available for taxpayers over 65 years of age or permanently and totally disabled.Credit is equal to 15% of allowable base amounts (depending on the filing status & number of qualifying persons).Tom and Katie are married, file a joint return, and have two

dependent children: Jack, age 11, and Jill, age 5. Tom has

earned income of $41,000; Katie was a full-time student (for nine months) with no income. They paid a qualified day care/after school care center $6,000. What is the maximum amount of qualified employment-related expenses that would be allowed for the child and dependent care credit calculation for Tom and Katie?4500500(for two or more qualifying person) x 9 (# months) Tax cedit introthey are designed to reduce the tax liability of specific groups of taxpayers.Tax credits are different from tax deductions. A tax credit is subtracted directly from the total amount of tax liability, thus reducing or even eliminating the taxpayer's tax obligation. More beneficial to the taxpayer than a deduction because it reduces tax liability dollar-for-dollar.Tax deductions decrease the taxable income used to calculate tax liability- Tax credits are reported on Form 1040 and may some require additional forms or schedules.Roger is a head of household taxpayer with AGI of $26,000. He made a $2,200 contribution to a qualified retirement plan. How much is his retirement savings contributions credit?$2,000 × 50% = $1,000 (contribution LIMITED to $2,000) Indicate whether the following items would be reported on Schedule E or Schedule C.1. Royalty income received by Debra, a full-time author, for her mystery novel.Schedule C Depreciation of rental property(residential: 27.5 years or nonresidential: 39 years)The IRS depreciation tables are used to calculate the depreciation amount.Depreciate structure and furniture (five year property for rentals) only - land is not depreciable. You have to allocate for the land and the building separately.- One important exception to trade or business depreciation rules is that the IRC § 179 deductions cannot be claimed for property held to produce rental income. Any 100% bonus is allowed, however.Indicate whether the following items would be reported on Schedule E or Schedule C.2. Royalty income received by

Mark, a professional baseball player, for coal mined on his land in Wyoming.Schedule E