Chapter 6.Deductions for AGI

Howard Godfrey, Ph.D., CPAProfessor of Accounting ©Howard Godfrey-2015

Chapter 6. Deductions FOR AGIBusiness Related Deductions: [2] Bus. Expense/Loss, Rental Expense/Loss [4]Loss: Asset sale. Flow-through Entity [6]Loss Limit: Basis, At-Risk, PASSIVE LOSS [6: 38] Rental Exception [10: 39]VACATION HOME [11: 40, 42]OFFICE IN HOME [17: 47]IRA Contribution (Traditional) [23: 55,56]

IRA Contribution (Roth) [26: 60]IRA Distribution (Traditional), Penalty [26: 58]IRA Distribution (Roth), Qualifing Dist. [26: 63]

Moving Expense [30]Self-Employ. Income, SE Tax, Health Ins. [32: 50]Penalty-w/draw-Savings, Ed. Int. or Exp. [33: 67]

Chapter 6. Deductions FOR AGIBusiness Related Deductions: [2]Business Expense/Loss [4]Rental Expense/LossLoss: Asset sale [6]Flow-through EntityLoss Limit: Basis, At-Risk [6: 38]PASSIVE LOSS Rental Exception [10: 39]VACATION HOME [11: 40, 42]OFFICE IN HOME [17: 47]

Suppose Courtney purchased a parcel of land for its appreciation potential. Would her ownership in the land be considered a business or investment activity? Answer: Courtney's activity would most likely be considered an investment activity, because she acquired the land for its appreciation potential and she does not plan to exercise any special effort to develop the property or to become actively involved in other real estate speculation.

Suppose Courtney frequently buys and sells land or develops land to sell in small parcels to those wanting to build homes. Would Courtney's activity be considered a business or investment activity? Answer: Courtney's activity would most likely be considered a business activity because she is actively involved in generating profits from the land by developing it rather than simply holding the land for appreciation.

Activity Type Deduct for AGI Deduct From AGI

Business Self-Employed UnreimbursedActivities Business Exp. Employee Exp.

Investment Rent and Other InvestmentActivities Royalty Exp. Expenses

Deduction Type

Why invest in … say real estate?1. Want to earn income?2. Want to deduct losses from the property?3. Want to help a friend or relative who needs

assistance. You can buy home, rent it to friend at an affordable rental rate, and deduct a loss on the rental?

4. Want to buy a business (say a mobile home park) so that you can rent spaces to homeowners and:(a) report a loss in the period of ownership, and then (b) realize a big gain later when you sell the land for a

shopping center (after the area develops)?

Sec. 183.Activities Not Engaged In For Profit.

(a) GENERAL RULE. In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.

Sec. 183. Activities Not Engaged In For Profit.(b) DEDUCTIONS ALLOWABLE. In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed—(1) the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and(2) a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).

Sec. 212. Expenses for Production of Income.In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year(1) for the production or collection of

income;(2) for the management, conservation, or

maintenance of property held for the production of income; or

(3) in connection with the determination, collection, or refund of any tax.

Taxpayer had a salary from IBM $60,000Rent received for rental house 12,000Repairs expense for rental house 1,000Property tax on rental house 2,000Depreciation on rental house 10,000Repairs on personal residence 500Property tax on personal residence 1,500What is adjusted gross income?

Rent and Royalty Income-1

Salary from IBM $60,000 $60,000Rent received-rental house 12,000 12,000Repairs exp. for rental house 1,000 (1,000)Property tax on rental house 2,000 (2,000)Depreciation on rental house 10,000 (10,000)Repairs on personal residence 500Property tax on personal res. 1,500What is adj. gross income? $59,000

Rent and Royalty Income

Where are rental income & expenses reportedon the income tax return?

Definition of Losses• Annual (Activity) Losses

result when an entity’s deductions for the period exceed its income

• Transaction Losses result from disposition of an asset

Annual Loss

Trade or Bus.Rental Prop.

Annual Losses: Net Operating Loss• Incurred in trade or business operations

– Caused by business expenses– May not be caused by investment or personal

expenses• Treatment

– No tax in year NOL occurs– Carry-back 2 years – Carry-forward unused NOL 20 years

• May elect to forego carry-back

Owner of C Corp. has asked for advice.Corporation was started in 2013

Actual Actual Actual Plan

Amounts ($000) 2013 2014 2015 2016

Revenue $100 $200 $200 $300

Expenses (98) (173) (225) (225)

Taxable income (loss) $2 $27 ($25) $75

1. Can the corp. benefit from the loss in 2015?

2. Is there a choice regarding the 2015 loss?

3. Compute the savings under two options.

4. How do you apply present value methods here?

Annual Losses: Tax Shelter LossesTax shelters are activities designed

to minimize the effect of tax on wealth accumulation.

Dominant business purpose is lacking• Primary motivation is tax reduction• Are often vehicles for tax law abuse

Building bought on 1/1/Yr 1Cost 1/1/Yr-1 $400,000 RentalMort 10% $400,000 Office Annual Deprec. Expense $10,000 BuildingAnnual insurance & exp. $15,000Value 1/1/Yr-1 $400,000Value 12/31/Yr-1 $500,000

Rental income

Per Year

Depreciate over 39 years

Charlotte Corporation

$60,000

Study the information given on the building on the preceding page. Assume the owner only pays interest on the mortgage.What is gain or loss on sale of the building, if it is sold on 1-1-Yr2, for $500,000?What happens to the taxable loss from Yr 1? What happens if the value of the building declines over the period of ownership? You can lose from operations and from selling the property for less than basis.What happens if the property appreciates in value?

T/P buys Rental Building on 1-1-Yr-1 Cost 1/1/Yr-1 $400,000 Mortgage 10% $400,000 Value of Build. 1/1/Yr-1 $400,000 Value of Build. 12/31/Yr-1 $500,000 Rent Revenue Depreciation Interest Expense Taxes,insurance Taxable Income (loss) Economically - Is there a loss?What is gain on sale of building, if it is sold on 1-1-Yr2, for $500,000?

T/P buys Rental Building on 1-1-Yr-1 Cost 1/1/Yr-1 $400,000 Mortgage 10% 400,000 Value of Build. 1/1/Yr-1 400,000 Value of Build. 12/31/Yr-1 500,000 Rent Revenue $60,000 Depreciation (10,000) Interest Expense (40,000) Taxes,insurance (15,000) Taxable Income (loss) ($5,000) Economically - Is there a loss?What is gain on sale of building, if sold on 1-1-Yr2,

for $500,000? (Assume no Yr2 deprec.)

Assume Taxpayer owns the building for exactly 4 years and in each year the income statement looks like the one on the preceding slide.After 4 years (12-31-Yr-4), Taxpayer sells the building for $350,000.Taxpayer has been paying interest only.What is the gain or loss on the building?What happens to 4 years of losses?

Yr-1 Yr-2 Yr-3 Yr-4

Rent Revenue $60,000 $60,000 $60,000 $60,000

Depreciation (10,000) (10,000) (10,000) (10,000)

Interest Expense (40,000) (40,000) (40,000) (40,000)

Taxes, insurance (15,000) (15,000) (15,000) (15,000)

Loss(Suspended) ($5,000) ($5,000) ($5,000) ($5,000)

Building Basis $390,000 $380,000 $370,000 $360,000

What is total cash inflow (after expenses) in 4 years?

T/P sells building for $350,000 at end of Yr. 1.

T/P Sells Rental Build. on 12-31-Yr-4

Cost 1/1/Yr-1 $400,000

Accum. Deprec. ($40,000)

Book Value 12/31/Yr-4 $360,000

Selling Price $350,000

Loss-sale of Bldg. 12/31/Yr-4

Operating loss Year - 4

Suspended Loss Three yrs.

Total loss

T/P Sells Rental Build. on 12-31-Yr-4

Cost 1/1/Yr-1 $400,000

Accum. Deprec. ($40,000)

Book Value 12/31/Yr-4 $360,000

Selling Price $350,000

Loss-sale of Bldg. 12/31/Yr-4 ($10,000)

Operating loss Year - 4 ($5,000)

Suspended Loss Three yrs. ($15,000)

Total loss ($30,000)

T/P Sells Rental Build. on 12-31-Yr-4

Four Year Cash Flow AnalysisAnnual revenueSelling price

Cash inflowsInterest ExpenseTaxes, InsuranceCost of property

Cash outflowsExcess outflow

T/P Sells Rental Build. on 12-31-Yr-4

Four Year Cash Flow AnalysisAnnual revenue $240,000Selling price 350,000

Cash inflows 590,000Interest ExpenseTaxes, InsuranceCost of property

Cash outflowsExcess outflow

T/P Sells Rental Build. on 12-31-Yr-4

Four Year Cash Flow AnalysisAnnual revenue $240,000Selling price 350,000

Cash inflows 590,000Interest Expense (160,000)Taxes, Insurance (60,000)Cost of property (400,000)

Cash outflows (620,000)Excess outflow ($30,000)

Tax Shelter Losses-At-Risk Rules• At-Risk Rules disallow the deduction of

artificial losses– Loss deduction limited to amounts actually “at-

risk”– To determine amounts actually at-risk, take the

amount of cash or other assets contributed and• Add debts for which taxpayer is responsible• Adjust for share of income (loss) from the

activity• Reduce by amount of withdrawals

Tax Shelter Losses Passive Activity Loss

• A passive activity is any trade or business in which the taxpayer does not materially participate

• Passive Activity Loss Rules disallow the deduction of passive activity losses from other forms of income

Types of Income and Losses• Active: salary and wages of an employee

and income earned from a business in which the owner/recipient materially participates

• Portfolio: interest and dividends• Passive: tax shelter income, income passed

through to limited partners, and income from other businesses in which owner/recipient does not materially participate

Passive Activity Loss (PAL)• Taxpayers subject to the limitations:

– All non-corporate taxable entities– Conduit entity: passive losses

flow-through to owners• Taxpayers not subject to the limitations:

– Publicly held corporations • PAL can offset active and portfolio income

– Closely held corporations• PAL can offset active income, but not portfolio

Passive Activity LossGeneral Rules for Limitations

• Passive activity losses must be netted against passive activity income–Net passive losses are not

deductible–Net passive gains are reported

with other income

Passive Activity LossException for Rental Real Estate

• By definition, all rental activities and limited partnership interests are passive

• But, taxpayers who materially participate in rental real estate business may be allowed to offset any losses against other active or portfolio income

Passive Activity LossDisposition of Passive Activities

• Excess (suspended) losses must be accounted for in the year of disposition

• Disposition by sale frees the suspended loss to offset income of any other activity– First, offsets other passive income– Second, offsets gain from disposal– Third, any remaining PAL offsets ordinary

income

Material Participation• Current activity level

–500 hours or more participation in year–Participation is substantially all the

activity by all persons–At least 100 hours and no one else

participates more–At least 100 hours in more than one

activity and aggregate of activities exceeds 500 hours

Rental Real Estate Relief• Taxpayers can qualify for up to $25,000

deduction for rental real estate losses• Taxpayer must own at least 10% and

actively participate in management–Set rents, qualify renters, approve repairs

• Deduction phases out for AGIs between $100,000 and $150,000

Bud is single & received wages of $140,000 from IBM in 2013. Bud is a 50% partner in a partnership engaged in a rental real estate activity w/ $60,000 loss for the partnership. Bud was an active participant in the rental real estate activity. He had no other income. How much of the partnership rental loss may Bud deduct on his 2013 income tax

return? (Sec. 469(i))a. $0 b. $5,000 c. $15,000 d. $25,000

Salary and AGI $140,000

Maximum loss write-off $25,000

Law: AGI Threshhold 100,000

Phase-out percentage 50%

Bud's AGI- above threshhold

Reduction in maximum loss

Maximum write-off

Bud - Loss from rental activity.

Salary and AGI $140,000

Maximum loss write-off $25,000

Law: AGI Threshhold 100,000

Phase-out percentage 50%

Bud's AGI- above threshhold 40,000

Reduction in maximum loss 20,000

Maximum write-off $5,000

Bud - Loss from rental activity.

Real PropertyBusiness Exception

• Taxpayers must spend more than half their time in real property businesses in which they materially participate and time spent equals or exceeds 750 hours

A taxpayer has this income (losses) for the current year:Active Income $43,000 Portfolio Income $29,000Passive Income $(27,000)What is the taxpayers taxable income (loss) if:

T/P is single individual & passive income is not from rental?An individual cannot deduct passive losses against active or portfolio income. The individual taxpayer has taxable income of $72,000 ($43,000 + $29,000) and a suspended loss of $27,000.

T/P is a single individual and the passive income results from a rental activity for which the taxpayer fails to qualify as a real estate professional?Individual - active participant in a rental real estate activity - is allowed to deduct up to $25,000 of losses from rental activities against active and portfolio income. The taxable income is $47,000 ($43,000 + $29,000 - $25,000).

T/P is single and the passive income results from a rental activity for which the taxpayer qualifies as a real estate professional? An individual who qualifies as real estate professional can deduct all losses from the activity against active and portfolio income. The taxable income is $45,000 ($43,000 + $29,000 - $27,000).

Revenue $100Interest & Prop. Tax (60)

40Insurance, etc. ($30) (30)Limit on Depreciation 10Depreciation ($25) (10)Basis adj. Reg. for Sec. 183.

Income (Loss) $0

Hobby, Vac. Home, Home Office

Vacation Homes

Sched. E: $5,000

Sched. E: $4,000

Rent Rev. $12,000

Sched. E: $3,000

Depreciation Expense: $8,000

Family Residence Rental Property

Property Ins., Repairs, Maint. : $6,000

Mort. Interest & Property Taxes: $10,000

Sched. A: $5,000

Duplex

Residential Rental Property• If rental of real estate is a business,

all income is included and all expenses are deductible, even if it creates a loss (subject to passive loss rules)

• Expenses include: advertising, cleaning, maintenance, utilities, insurance, taxes, interest, commissions for collection of rent, travel to collect rental income or to manage the property or maintain the property

Residential Rental Property

• When property is converted from personal to rental property, expenses must be divided between rental and personal use

• No depreciation or insurance deduction allowed for personal-use part of year

• Mortgage interest and real estate taxes for personal-use can be deducted as itemized deductions

Rental of a Vacation Home• If the residence is rented for

less than 15 days during the year a de minimis exception applies–No rental income is reported and–No deductions are allowed for expenses

other than mortgage interest and property taxes as itemized deductions

–See Sec. 280(g)

Rental of a Vacation Home • If rental period is greater than 14 days and• If personal use does not exceed the greater of

14 days or 10% of the rental days– All rent is included in income– Expenses are allocated between rental and

personal use– All expenses related to the rental use are

deductible (even if this creates a loss)– But see passive loss rules. Sec. 469

Rental of a Vacation Home • If rental period is greater than 14 days but• Personal use exceeds the greater of 14 days or

10% of the rental days– Rental expenses limited to rental income (no loss)– Nondeductible rental expenses can be carried

forward to the future years– Real estate taxes and mortgage interest for

personal-use portion allowed as itemized deductions

14 days or less 15 days or more

Time Not more than greater of 14 days 1 2

of or 10% of total days rented Sec. 183(Hobby Rules) Sec. 183(Hobby Rules)

Personal More than greater of 14 days 3 4

Use or 10% of total days rented Sec. 280A(g) Sec. 280A-Gen. Rule

Period Rented To Others

Vacation Home Rules

Sec. 280A Disallowance of Certain

Expenses … Business Use of Home, Rental of Vacation Homes, etc. (a) General Rule.-- Except as otherwise

provided in this section, in the case of a taxpayer who is an individual or a S corporation, no deduction otherwise allowable … shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.

Sec. 280A Disallowance of Certain Expenses … Business Use of Home, Rental of Vacation Homes, etc. (b) Exceptions for Interest, Taxes, Casualty

Losses, Etc.--Subsection (a) shall not apply to any

deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity).

Sec. 280A Disallowance…(d) Use as Residence.--(1) In General.--For purposes of this

section, a taxpayer uses a dwelling unit during the taxable year as a residence if he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of--

Sec. 280A Disallowance…

(d) Use as Residence.--(A) 14 days, or 10 percent of the number of

days during such year for which such unit is rented at a fair rental. For purposes of subparagraph (B), a unit shall not be treated as rented at a fair rental for any day for which it is used for personal purposes.

Sec. 280A Disallowance…(g) Special Rule for Certain Rental Use.--Notwithstanding any other provision of

this section or section 183, if a dwelling unit is used … by the taxpayer as a residence and

… rented for less than 15 days during the taxable year, then--

Sec. 280A Disallowance…(g) Special Rule...--…(1) no deduction otherwise allowable …

because of the rental use of such dwelling unit shall be allowed, and (2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.

(e) Expenses Attributable To Rental.-- (1) In General.--…where .. an individual or an S corp. uses a dwelling unit for personal purposes on any day .. (whether or not he is treated under this section as using such unit as a residence), the amount deductible.. with respect to expenses attributable to the rental of the unit (or portion thereof) .. shall not exceed an amount which bears the same relationship to such expenses as the number of days during each year that the unit (or portion thereof) is rented at a fair rental bears to the total number of days .. that the unit (or portion thereof) is used.

(e) Expenses Attributable To Rental.--

(2) Exception for Deductions Otherwise Allowable.--This subsection shall not apply with respect to deductions which would be allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was rented.

Sue rents her vacation home for 60 days and lives in the home for 30 days. Sue's gross Rental income is $5,000 Expenses for the entire year: Real estate taxes $2,300 Mortgage interest expense $7,000 Utilities and maintenance $2,400 Depreciation $9,000How much depreciation will Sue deduct on her tax return?a. $1,871 b. $6,000 c. $3,000 d. $1,400

14 days or less 15 days or more

Time Not more than greater of 14 days 1 2

of or 10% of total days rented Sec. 183(Hobby Rules) Sec. 183(Hobby Rules)

Personal More than greater of 14 days 3 4

Use or 10% of total days rented Sec. 280A(g) Sec. 280A-Gen. Rule

Period Rented To Others

Vacation Home Rules

Problem

Data

Days of Personal Use 30

Days Rented 60

Total Days Used 90

Rev. & Exp. shown below

VACATION HOMEHome Use:

The tax rules covering this problem are in IRC Section 280A. Note that there are two ways to allocate interest and taxes between rental and personal use. See Textbook. Repeat this with IRS Approach.

Revenue and Expenses Total Rental Personal

Revenue $5,000 $5,000

1. Interest 7,000 / /

2. Taxes 2,300 / /

Total Interest & Taxes 9,300 Subtotal

3. Other Exp. except Deprec. 2,400 /

Net Income Before Dep.

4. Depreciation Expense 9,000 /

Limit on Depreciation

Net Income or Loss

Schedule E Schedule AFraction Fraction

Vacation Home for Sue

Revenue and Expenses Total Rental Personal

Revenue $5,000 $5,000

1. Interest 7,000 60 / 365 1,151 305 / 365 $5,849

2. Taxes 2,300 60 / 365 378 305 / 365 1,922

Total Interest & Taxes 9,300 1,529 7,771 Subtotal 3,471

3. Other Exp. except Deprec. 2,400 60 / 90 1,600

Net Income Before Dep. 1,871

4. Depreciation Expense 9,000 60 / 90 6,000

Limit on Depreciation 1,871

Net Income or Loss -$

Schedule E Schedule AFraction Fraction

Vacation Home for Sue

Benefits of IRAsIRA Contribution

Traditional [23: 55,56]Roth [26: 60]

IRA Distribution Traditional [26: 58]Roth - Qualifing Dist. [26: 63]

Moving Expense [30]

Self-employment Income

Self-employment Tax

Self-employ. Health Ins.

Penalty-w/draw-Savings

Education Interest or Exp. [33: 67]

Moving Expenses

Moving expenses are deductible if they meet two tests.

1. Distance test

Old house

Old job

x + 51 miles x m

iles

New job

Moving ExpensesTime Test

2. Time Test– Employee taxpayers must be employed in

the new area for 39 weeks of the 12 months after moving

– Self-employed taxpayers must be employed in the new area for 78 weeks of the 24 months after moving

– Waived for death, disability, or required transfer

Moving Expenses Qualifying Expenses• Only two types of expenses are

deductible:–Costs of moving household goods and

personal items to the new location–Transportation and lodging costs of

moving the taxpayer and family to the new location• Mileage is allowed at $0.23 (2015) per mile• None of the cost of meals is deductible

Moving Expenses Reimbursements• Any reimbursement of moving

expenses received from an employer is included as income, unless it is a qualified moving expense reimbursement, meaning that the expense is deductible as a moving expense under Section 217.

Jay obtained a new job in Boston and moved

to Boston from Reno during the current year

He incurred the following moving expenses: Return

Penalty for breaking apartment lease $1,000

Transportation of household goods $6,700

House-hunting trips to Boston 600

Cost of transporting Jay's family 2,300

Meals incurred while moving the family 200

Temporary living expenses while waiting

for the new residence to be ready 1,000

What is Jay's moving expense deduction?

Jay obtained a new job in Boston and moved

to Boston from Reno during the current year

He incurred the following moving expenses: Return

Penalty for breaking apartment lease $1,000

Transportation of household goods $6,700 $6,700

House-hunting trips to Boston 600

Cost of transporting Jay's family 2,300 $2,300

Meals incurred while moving the family 200

Temporary living expenses while waiting

for the new residence to be ready 1,000

What is Jay's moving expense deduction? $9,000

Moving Expense - AnnAnn earned a salary of $80,000 from Big Corp. in 2015. Ann asked to be transferred permanently to Charlotte from Topeka. The company does not reimburse moving costs where the employee requests the move. Ann paid a moving company $10,000 to pack and move her household furniture. She also paid $1,000 for an airline ticket from Topeka to Charlotte as part of the move. She spent $20 on lunch at the airport while waiting for her flight to Charlotte. What is her AGI?

Ann's Moving Expense Facts Return

Salary $80,000 $80,000

Moving costs ($10,000) ($10,000)

Airline ticket ($1,000) ($1,000)

Meals ($20)

Adj. Gross Income $69,000

What if employer reimbursed all these items?

Student Loan Interest-1

• Deduction allowed for interest paid on qualified student loans incurred and used for tuition, fees, room, board, books, and supplies.

• Post-secondary education

Student Loan Interest-2

•Deduction limit is $2,500– Limit is phased out for AGI of

$65,000 - $80,000 ($130,000 - $160,000 for married persons filing jointly)

Student Loan Interest-3– Individuals claimed as dependents

cannot take deduction on their own tax return.

– Expenses paid by tax-exempt scholarships or subject to education credits must be excluded from loan amounts and related interest.

Student Loan InterestCecilia is married and files a joint return with her husband, Steve. They have AGI of $142,000. Cecilia paid $2,000 in student loan interest in 2015. What is her interest deduction?

Student Loans 2015

Married filing Joint ReturnAdjusted Gross Income $142,000Phase-out Threshold 130,000 Excess 12,000 Phase-out range 30,000 Income in phase-out rangeStudent Loan Interest Paid 2,000 Phase-out: lesser of pmt or $2,500.

Student Loan Interest - LimitPhase-out from lower amt.Deduction after phase-out

Student Loans 2015

Married filing Joint ReturnAdjusted Gross Income $142,000Phase-out Threshold 130,000 Excess 12,000 Phase-out range 30,000 Income in phase-out range 40.000%Student Loan Interest Paid 2,000 Phase-out: lesser of pmt or $2,500.

Student Loan Interest - Limit 2,000 Phase-out from lower amt. (800) Deduction after phase-out 1,200

84

Deduction for Qualified Education Expenses

Deductions for Self-Employed TaxpayersNote material related to self employment has been placed in a separate PowerPoint file that is posted on the course webpage.

Review: Deductions For AGI-1–Trade or business expenses–Rent and Royalty expenses–Reimbursed employee expenses–Capital loss–Alimony paid–Retirement plan contributions

including IRAs–50% of self-employment taxes–Self-employed health insurance

Review: Deductions For AGI-2–Moving expenses –Educator expenses–Student loan interest expense –Tuition and fees deduction–Health savings accounts–Penalty on early withdrawals of

savings–Other deductions for AGI

Laura Bush, age 48. No dependents.Salary $38,000 Dividend income $2,000 Income from rents $16,000 She also has this information:

Contribution to IRA $2,000 Expenses relating to rents $9,000 Cost of stock market publications $1,000 Charitable contributions $1,500 Unreimbursed employee expenses $1,000

Her adjusted gross income is:a. $42,000 b. $43,000 c. $45,000 d. $40,600

Facts ReturnSalary $38,000 Dividend income $2,000 Income from rents $16,000

SubtotalShe also has this information:

Contribution to IRA $2,000 Expenses relating to rents $9,000 Cost of stock publications $1,000 Charitable contributions $1,500 Employee expenses $1,000

Subtotal

Adjusted Gross Income (AGI)

Laura Bush, age 48. No dependents.

Facts ReturnSalary $38,000 $38,000 Dividend income $2,000 $2,000 Income from rents $16,000 $16,000

Subtotal $56,000 She also has this information:

Contribution to IRA $2,000 $2,000 Expenses relating to rents $9,000 $9,000 Cost of stock publications $1,000 Charitable contributions $1,500 Employee expenses $1,000

Subtotal $11,000

Adjusted Gross Income (AGI) $45,000

Laura Bush, age 48. No dependents.

End