GROSS INCOME
v Gross Income
Ø 61(a)-All income from whatever source derived- including
§ (1)Comp for services/fees/commissions/fringe(2)Gross Income Buis, (3)Dealings in property, (4)Int, (5)Rents, (6)Royalties, (7)Divdns, (8)Alimony(if not=not income), (9)Annuities, (10)Life Ins, (11)pensions, (12)Discharge of Indebtedness,…
Ø Obligations to Repay-
§ Borrowed Money
· No-Get 100k now but = 100k debt = $0 increase
§ Claim of Right-North Am. Oil Consol
· Report When get claim of right
· If loose it = deduction when lost
v Property Dispositions (BASIS)
Ø Code
§ 61(a)(3)-Included in GI
§ 1001(a)-(b)- Computation of gain/Loss
§ 1011(a)- Adjusted Basis
§ 1012- Basis of Property = Cost
§ 1015(a)- Basis For Gift-
§ 1014(a)(1)- Basis from a decedent
§ 1016(a)(1)- Adjustment to basis
Ø Realized Gain
§ = Amount Realized – Adjusted Basis
v Gifts & Death Transfer: Exclusions
Ø Code
§ 102(a)- Gross Income DOES NOT include value of property acquired by
· Gift, bequest, Devise, Inheritance
Ø Case Law
§ Duberstien- BMW = Compensation (though say gift- compensated for buis adv)
§ Pastor Case- Economic Nexis –wouldn’t have given if not pastor-
§ Wolder -Free Services for stock in Will = compensation for services-
v Gift and Death Transfer Basis
Ø Basis For Received from Decident
§ 1014(a)(1)- Basis = Fair Market Value at time of Decident’s Death-
· = eliminates Gain OR Loss = if loss Bad-
§ 1014(b)(1)- acquired from decedent IF
· Bequest, Devise, inheritance or by the estate
§ 1014(f)- section ends 2009
Ø Basis for Gift
§ 1015(a)- Basis for Gift
· =Same as the donor’s Basis
· Unless > Fair Market Value- Then Fair Market Value
¨ (cannot give your losses to another)
v Sale of Residence: Exclusion of Sale Of Principle (Limited)
Ø General
§ Dealings in property Taxed- 61(a)(3)- 121 exception for principle residence
§ Not Taxed on imputed rental value of home
§ Property Tax deductible- 164(a)(1)
§ Mtg Int- 163(a)&(h)(3)
Ø Code
§ 121(a) -Shall not include gain from sale of principle residence- IF-
· During 5 yrs before sale/exchange- property owned and used as Principle Residence for periods aggregating 2 yrs or more-
§ Can only use once every 2 yrs- 121(b)(3)(A) (kicks it to sub(c))
§ 121(d)(1)- applies if either spouse fulfils- (if Joint Return)
§ 121(f)- can elect not to apply
Ø 121(b)-If Meet Time Period & 1/ 2yrs req-
§ Single Return- Limit- $250,000
§ Joint- $500,000 IF
· Either spouse meets (a) ownership req
· And- Both Meet use Req of (a)
· And- neither disqualify under (b)(3)(A)
§ Joint but not Satisfy Reqs
· Total would get if each considered individual (both considered to own if 1 owned)
Ø 121(c)-If Don’t meet the Reqs under (a) & (b)(3)
§ Applies IF (121(c)(2)
· Sub (a) doesn’t apply because of (a) ownership/use or (b)(3) 1/ 2yr rule
· AND- sale/exchange is by reason of
¨ Change in Employment
¨ Health reasons
¨ Unforeseen Circumstances (to extend provided for in regs)
§ CALCULATION
·
X = (Lesser of Months Owned/Used OR Months Since Last Sale of Princ Res)
—– ———————————
Interest Made
§ Not Taxed on what contributed(already paid)
Ø Roth-
§ Post tax $ in
§ Tax free while in- tax free when comes out- (all tax free)
v IRA
§ Deductible, Non-Deductible, Roth IRA, 25B Credit
§ Earned income = net earnings from self-employment (401(c)(2))
Ø Deductible IRA- 219
§ Notes
· Deductible = Deduction Above Line – (62(a)(7))
· Beneficiary must be under 70.5yrs (219(d)(1))
· Married computed seperalty-(f)(2)
· Compensation = earned income under 401(c)(2)- not pension/deferred Comp
Ø (does not include Trust Money)-
· Special Rules For Married Individuals** -219(c)
¨ (2)- applies IF
Ø Joint Return
Ø Amount of compensation includable in ind Gross income < Spouses
¨ (1)-limitation of (b)(1) = Lesser of
§ $4,000 (or $5,000 for old folk)
§ Or- SUM of
· Individual’s Gross Income
· Plus
· Spouse’s Income – (Deductible + Nondeductible + Roth)
§ 219(a) allows- for the qualified retirement Contributions of the individual-
¨ 219(e)-Qualified ret Contribution = any amount paid in cashàIRA
Ø Or Employee plans under 501(c)(18) – limit $7k or 25% of GI ((b)(3))
§ Max Amount-(b)-
· Deductible Amount = 4,000 (for 2007)
¨ Unless 50 or older
Ø =increased by 1,000 = $5,000
Or- Gross Income