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Federal Income Tax
University of Kansas School of Law
Dickinson, Martin B.

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)
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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