Final Review Session BA 128AChapter 13 Estate TaxDeductionsValuation of estateChapter 5 Capital G/LChapter 5Chapter 7- itemized deductionsQualified Medical ExpensesClassification of interestInvestment InterestOther interestCharitable Contribution -limitation amountCharitable contributions - basisChapter 8 loss and bad debtsPassive lossCasualty lossBad Debts and NOLNOLChapter 9 Employee Reimbursed ExpensesWhat is deductibleChapter 10 - DepreciationChapter 10 Section 179Chapter 13Section 1231 continueSection 1245Section 1250 and Unrecapture 1250 gainSection 1231 netting procedureChapter 14 AMTC2 -Forms of organizationsTax considerations in forming corporationsReceipt of BootTransferee Corp’s RecognitionC3 - corporations deductions and lossesCapital Gains and LossesCharitable ContributionsSpecial deduction - Dividends-received deductionNet Operating LossC4 - current E&PNon-liquidating distributionsProperty Distributions- tax consequences to SHProperty Distributions- tax consequences to corpPartnership profits and lossesContribution of property to partnershipsPartnership’s distributive shareFinal Review Session BA 128A•Final Exam 5/18 12:30- 3:30 C230•Questions from last lecture•Review Chapter 13•Final Review Ch I5,7,8,9,10,12,13,14; C2,3,4,9,11,12Chapter 13 Estate TaxEstate tax formulaGross estate- deductions (expenses, debts & losses)=Adjusted gross estate- deductions (marital and charitable)= Taxable Estate+ Adjusted taxable gifts (post 1976)= Estate Tax BaseTentative tax (current uniform transfer tax rates)- Post 1976 gift taxes (current uniform transfer tax rate) - unified credit taken in year gift taxes are paid- unified credit (full amount)- other credits= Estate Tax payableDeductions•Expenses - administrative expenses for managing the estate, funeral expenses•Debts - personal liabilities e.g. mortgage•Casualty and theft losses - incurred while estate is being settled•Marital and Charitable deductions - no ceilingValuation of estate•FMV at date of death or alternate valuation date•Alt. Valuation - all or nothing•FMV at date of death - price at which property would change hands between a willing buyer and seller•exception - life insurance - valued at face value•listed stock - average of low and high price; if sale takes place within a few days of death date, use wtd average of high and low stock price on the nearest trade dates before and after date of death•Other valuation - Block stock, non-public stock, real estate, annuitiesChapter 5 Capital G/L•ST < 1yr, LT > 1yr; deduct loss up to $3000, gain taxed at 20% except uncolletibles, 1250 unrecapture and section 1202•Netting of CL and CG–net STCL and STCG–net LTCL and LTCG–NLTCG > NSTCL = NCG–adjusted NCG is NCG without uncollectibles, section 1250 unrecapture and then sec1202 small bus stock–both NLTCL and NSTCL - use NSTCL first - retain character of loss–NSTCL > NLTCG - net highest rate group first (ie 28%, 25% and then 20%)Chapter 5•Realized vs. recognized gain•Property basis –received as gift - usually donor’s basis except if FMV < basis, donee has 2 basis (if sold at gain later, basis = donor’s basis, else basis = FMV)–Gift tax paid by donor increase donee’s basis–property from decedent - FMV–property convert from personal to business - lower of FMV or adjusted basis–basis of stock dividend–basis of stock rightsChapter 7- itemized deductions•Deduct only if it exceeds standard deduction•Subject to phase out - 3% of amount exceeds threshold. Qualified medical expenses•Taxes•Qualified interest•Casualty and theft losses•Miscellaneous deductions–Non reimbursed employee expenses–Investment expenses–Cost of tax advice•Charitable ContributionsQualified Medical Expenses•Deduct the amount that exceed 7.5% of AGI•No deduction it it is reimbursed•Include taxpayer, taxpayer’s spouse and dependent•Diagnosis, cure, mitigation, treatment and prevention of disease, medical procedures involving function or structure of body - except cosmetic surgery unless for deformity correction•Transportation for medical reasons•Long term care•Capital expenditures for medical care - add a swimming pool, remove physical barriers•Medical insurance premiumsClassification of interest•Active trade and business - for AGI•Passive activity - e.g. rental activity - for AGI - Chapter 8•Investment interest - offset investment income - from AGI •Personal interest - not deductible•Qualified residence - from AGI•Student loan - for AGIInvestment Interest•Investments - generates portfolio of income such as interest, dividends, annuities and royalties, not personal or business, not passive and not tax exempt securities•Net investment income = Investment income - investment expenses. Investment income include net gain to the extent that net gain exceeds net capital gain•Taxpayer can elect to include net capital gain in investment income that will be subject to regular tax rates•Investment expenses only deductible to the extent that it is >2% of AGI - ie this is the amount used to calculate net investment incomeOther interest•Qualified residence interest–Principal + secondary residence–Secured by home–Acquisition indebtedness - up to $1,000,000–Home equity interest - can only deduct the amount applied to the lesser of FMV of qualified residence in excess of acquisition indebtedness or $100,000•Student Loan interest–For higher education expenses–FOR AGI deduction–Maximum deductible amount = $1000 in 1998.–Phased out ratably for AGI between 40,000 and 50,000Charitable Contribution -limitation amount•Max - 50% of AGI•depends ORGANIZATION contributed to and TYPES of property contributed •Excess is carry forward for the subsequent 5 years•Capital gain property contributed to public charity is limited to 30% of AGI•Ordinary and cash property contributed to private nonoperating foundation is also limited to 30% of AGI•Contributions of capital gain property to private nonoperating foundation are limited to the lesser of 20% of taxpayer’s AGI or 30% of taxpayer’s AGI reduced by capital gain contributed to public charity•Contributions to athletics events in return for the right to purchase tickets (80% limitation)•Apply 50% limitation contributions first and then the 30% limitation•Carryover amounts subject to the same % limitations. Deductions for current year is applied first.Charitable contributions -