recourse debt requirements a persons at risk amount includes amounts borrowed only

Unit 4 - Above the Line Deductions and Losses Flashcards initial at risk amountmoney contributed, the adjusted basis of property contributed and borrowed amount materially participates meanssatisfy one of following1. more than 500 hours2. constitutes substantially all of participation in acitvity3. more than 100 hours and exceeds any other person4. materially participated in activity for any 5 years of 10 years before year in question5. materially participated in a personal service activity for any 3 years beofre year in question6.particiaptes in the activity on a reualr, continuous or substantial basis for mroe than 100 hours recourse debt requirementsa persons at risk amount includes amounts borrowed only to the extent that the person has either personal liability or property pledged as security (no more than FMV when pledged - prior or superior claims included) the amount at risk in the activity of holding real property includes qualified nonrecourse financing (QNRF) no. not if own houseEmployer contributions to an Archer MSA are Student Loan Interest Deduction$2,500phase out: MAGISingle: 65k-80kMFJ: 130k-160k2500 * ((AGI - 65k)/15k) Net SE Incomenet SE proft * .9235 Define term schoolprovides elementary or 2nd education as determined under state law SE Tax Deduction50% FICA taxes or6.2% of first $127,200 of NET SE income +1.45% of net SE income tp has wages of $30k, $5k gain from a passive pship interest and $35k from active rental RE --- first offset passive gain ($5k) w/ 5k of passive losswith 30k, the 25k nonpassive gain can be offset Alimony recaptureprevents large property settlesments from being treated as alimony-occurs if pmts significantly decrease in 2nd or 3rd year after a divorce- not required if pmts decrease due to death of either spouse or if due to fact they represent income from a business who does at risk rule not apply topersonal holdign companyfrgn personal holding companiespersonal service corp expenses from non business rental of personal property are ---- up to--- deductible from GI up to amount received Recapture calculationsecond year recapture = year 2 - ($15k + year 3)first year = year 1 0 ((2 year alimony - 2 year recapt + year 3)/2 + $15k))both year 1 and 2 recapture amounts are included in payors GI and deducted from payees income in year 3 PAL rules applies toppl, estate, trust, personal service corp, and closely held corpapply to owners of grantor trusts, pship, and s corp

PAL rules do not apply toactive income, loss, creditportfolio income, loss or creditcasualty and theft losses, vacation home rental, mortgage interst on qualified home, business use of home, working interest in an oil or gas well helf through an entity that does not limit person's liabiltiy Alimony is income to ---- and deduction for --- income to recipientdeduction or payor SEP Maximum Contributionlesser of 25% of SE earnings or $54k*use standard 20% to calculateSE earnings are REDUCED by deductible part of SE Tax if instrument specifies both alimony and child support payments be made and only partial payments made, then partial payments are child support until obligation is fully paidexcess is alimony if loss not allowed on a PALcarry forward indefinitely and treat as a deduction Compensation for IRA contributions includes alimony and earned income but NOTpension, annuity, or other deferred comp distributions $12,825The $25,000 allowance of losses from active participation in rental real estate activities against nonpassive income is reduced by 50% of the amount by which adjusted gross income (determined without regard to Social Security benefits, IRA contributions, and passive losses) exceeds $100,000 [Sec. 469(i)(3)]. The health insurance, however, must be subtracted from her net profits, for a total of $124,350 ($125,000 - $650). Heidi's adjusted gross income exceeds $100,000 by $24,350.Therefore, the $25,000 allowance is reduced by $12,175 ($24,350 × 50%). This leaves $12,825 of losses that can be deducted (Publication 925).Self Employed HI deduction - Husband is SE. Wife is employed and denies HI. How much can deduct as SE HI?in qualified nonrecourse financing, who is personally liablethe TP is NOT personally liable, the financing is- used in an activity of holdign real estate- secured by the real property- not convertible to an ownership interest-either obtained from an unrelated third party, obtained from a related party but on commercially reasonable terms, or guaranteed by a gov entity Penalty on early WD of savingsif WD money from CD or other savigns account earlytaken in YEAR of PENALTY disallowed losses arecarried forwardif amount at risk decreases below 0, previously allowed losses must be recaptured as income-ifa deduction would reduce basis in property and part or all of the deductions is disallowed by the at risk rules, basis is reduced The deduction is limited to the taxpayer's earned income derived from the business for which the insurance plan was established.Kate is married to John, and they lived together all year.They elected to file separate returns. Kate had $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and less than $100,000 of modified

adjusted gross income. She can use $15,000 of her $26,000 rental loss to offset her passive income from the partnership and the remaining $11,000 to offset her nonpassive income.Eligible Educatorperson who for at least 900 hours during a school year is k-12 teacher, instructor, counselor, principal, or aide

rental real estate is -- -activitypassive!! ALL!!60The at-risk rules real property trades or business rules for PAL do not apply to certain TP-avoid PAL treatmetn on retnal ifmore than 50% of indiv. personal services performed during year are performed in real property trades or business and materially participate-indiv. performs more htan 750 hours of service in real property trades or business and materially partic.if required to pay all mortgage pmtP+I on joint owned home, the pmt is alimony and TP can deduct ONE HALF as alimony- if itemize deductions, a TP can claim HALF of interest in figuring deductible interest- receivor must report 1/2 pmt as alimony received. then claim 1/2 interest on Schedule A A percentage of the required "high deductible" health plan amount.Participation in an Archer MSA is conditioned upon coverage under a high-deductible plan [Sec. 220(c)(2)].Contributions are subject to an annual limitation, which is a percentage of the deductible of the required high-deductible health plan. For individual coverage, the annual limit is 65% of the deductible. For family coverage, the annual limit is 75% of the deductible. If one spouse has family coverage, both spouses fall under the 75% limit and must split the amount between themselves. No deduction is allowed if an individual received excludable employer contributions (Publication 969).Mark is being permanently transferred from his office in Virginia to another office in Washington, D.C. His office in Virginia is 10 miles from his home. For Mark to meet the distance test to qualify for moving expense deductions, how many miles must the office in Washington, D.C., be from his current home?any deduction allowed under PAL rule and agi and phaseout deduction under rule not taken into consideration in determining AGI for purpose of 25k deduction SE HI DeductionSE ppl can deduct 100% of payments made for HI coverage for the individual, spouse and dependentslimited to TP earned income from business for which insurance plan was established What expenses qualifybooks, supplies, computer equipment (including software and services), supplementary materials used in class room can deduct someone elses moving expenses if individual had the old residence and now has the new residence as principal place of home and is a member of the HH $250 rental and $50 PFBryant Corporation is a closely held corporation because more than 50% of the value of its stock is held by five or fewer individuals during the last half of the year. After December 31, 1993, a closely held C corporation is not subject to the passive activity loss rules for real estate trades or businesses if during the tax year the corporation derives more than 50% of its gross receipts from the real property trades or businesses in which it materially participates [Sec.469(c)(7)(D) and Publication