Академический Документы
Профессиональный Документы
Культура Документы
———————————————————————————————————————————
Lecture Outlines
Professor
Kent N. Schneider
1
Taking the Exam
Avoid the exam pitfalls. • Read the problems carefully, underlining key words.
• Show your calculations in a neat and orderly manner.
Use the “one-check, two-check” system • Attempt the first question. If you can answer it quickly
and easily, work the problem completely and move on.
• If a question seems “impossible,” place 2 checks next to
the question number in the exam booklet and move on.
• If you are in the midst of a question that seems to be
taking too much time, or if you immediately spot that a
question is answerable but time-consuming, place one
check next to the question number in the exam booklet
and move on.
• After attempting all the problems in this manner, return
first to the single-check questions and work them.
• Once all the single-check questions have been answered,
return to the “impossible” double-check questions.
When you return to these questions, they often will not
seem “impossible.”
2
Chapter 3
Chapter 3
Taxable Entities, Tax Formula, and
Introduction to Property Transactions
I. Introduction
A. Taxable Entities — There are only three types of entities
subject to tax under the Federal income tax:
1. Individuals;
2. Corporations; and
3
Chapter 3
B. Corporations
4
Chapter 3
Do Problem #31
5
Chapter 3
B. Gross Income
6
Chapter 3
b) Itemized deductions
d) Tax credits
E. Itemized Deductions
7
Chapter 3
F. Standard Deduction
a) 5,700 — Single
a) Single taxpayers
8
Chapter 3
G. Exemptions
Do Problem #39
9
Chapter 3
4. Actually, the TAX RATES are the same for all taxpayers:
10%, 15%, 25%, 28%, 33%, and 35%
J. Other Taxes
10
Chapter 3
Do Problem #46
Do Problem #47
11
Chapter 3
B. Losses
3. Capital assets include all assets EXCEPT those falling into five
specified groups of nonqualifying assets. (See p. 3-34.)
(1) Inventory;
12
Chapter 3
Do Problem #48
13
Chapter 3
Do Problem #49
Do Problem #53
14
Chapter 4
Chapter 4
Personal and Dependency Exemptions; Filing Status;
Determination of Tax; Filing Requirements
a) 2010: $3,650
b) 2009: $3,650
B. Personal Exemptions
15
Chapter 4
C. Dependency Exemptions
2. Qualifying child
16
Chapter 4
a) Support test
c) Relationship test
Do Problem #35
17
Chapter 4
4. Support
Do Problem #39
18
Chapter 4
(3) Exceptions:
Do Problem #40
1. Expired in 2009.
19
Chapter 4
b) Phase-out Thresholds
20
Chapter 4
B. Married
21
Chapter 4
C. Surviving Spouse
2. Requirements:
22
Chapter 4
D. Head of Household
1. Requirements:
a) Relationship test
b) Residence test
c) Age test
d) Joint return test
e) Citizenship test
f) Not self-supporting test
c) Special rules:
23
Chapter 4
4. Abandoned Spouse
b) Requirements:
E. Single: A taxpayer who does not qualify for any of the other filing
classifications will use the tax rates for single taxpayers.
Do Problem #41
B. Tax Schedules
2. See p. 4-26 or the inside front cover for tax rate schedules.
Do Problem #48
24
Chapter 4
Do Problem #43
Do Problem #49
25
Chapter 4
Do Problem #50
26
Chapter 4
C. Special Rules
a) 2010: $3,650
b) 2009: $3,650
27
Chapter 4
D. Due Date
a) If the taxpayer fails to pay the tax owed by the due date of
the return, interest is charged at a rate 3% higher than
the Federal short term rate
3. Penalties
a) Failure-to-pay penalty
b) Failure-to-file penalty
(a) $100, or
28
Chapter 4
F. Statute of Limitations
2. Exceptions:
Do Problem #59
(use Form 1040 and
Schedules A and B)
29
Form
1040 Department of the Treasury—Internal Revenue Service
U.S. Individual Income Tax Return 2010 (99) IRS Use Only—Do not write or staple in this space.
For the year Jan. 1–Dec. 31, 2010, or other tax year beginning , 2010, ending , 20 OMB No. 1545-0074
Label L Your first name and initial Last name Your social security number
(See A
f
instructions B
on page 14.) E If a joint return, spouse’s first name and initial Last name Spouse’s social security number
L
o
Use the IRS
label. H Home address (number and street). If you have a P.O. box, see page 14. Apt. no.
Make sure the SSN(s) above
Otherwise, E c
s
R
and on line 6c are correct.
please print
or type. E City, town or post office, state, and ZIP code. If you have a foreign address, see page 14. Checking a box below will not
a 0
change your tax or refund.
Presidential
t
Election Campaign a Check here if you, or your spouse if filing jointly, want $3 to go to this fund (see page 14) a You Spouse
Filing Status 1
2
Single
a f 01
Married filing jointly (even if only one had income)
4 Head of household (with qualifying person). (See page 15.) If the
qualifying person is a child but not your dependent, enter this
2
Check only one child’s name here. a
r
3 Married filing separately. Enter spouse’s SSN above
/
box. and full name here. a 5 Qualifying widow(er) with dependent child (see page 16)
}
D /30
6a Yourself. If someone can claim you as a dependent, do not check box 6a . . . . . Boxes checked
Exemptions on 6a and 6b
b Spouse . . . . . . . . . . . . . . . . . . . . . . . . No. of children
c Dependents: (2) Dependent’s (3) Dependent’s (4) if qualifying on 6c who:
child for child tax • lived with you
(1) First name Last name social security number relationship to you
credit (see page 17) • did not live with
7
you due to divorce
or separation
If more than four
0
(see page 18)
dependents, see Dependents on 6c
page 17 and not entered above
check here a Add numbers on
d Total number of exemptions claimed . . . . . . . . . . . . . . . . . lines above a
7 Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . 7
Income
8a Taxable interest. Attach Schedule B if required . . . . . . . . . . . . 8a
b Tax-exempt interest. Do not include on line 8a . . . 8b
Attach Form(s)
9a Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . 9a
W-2 here. Also
attach Forms b Qualified dividends (see page 22) . . . . . . . 9b
W-2G and 10 Taxable refunds, credits, or offsets of state and local income taxes (see page 23) . . 10
1099-R if tax 11 Alimony received . . . . . . . . . . . . . . . . . . . . . 11
was withheld.
12 Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . 12
13 Capital gain or (loss). Attach Schedule D if required. If not required, check here a 13
If you did not 14 Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . 14
get a W-2,
see page 22. 15a IRA distributions . 15a b Taxable amount (see page 24) 15b
16a Pensions and annuities 16a b Taxable amount (see page 25) 16b
17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17
Enclose, but do 18 Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . 18
not attach, any
payment. Also, 19 Unemployment compensation (see page 27) . . . . . . . . . . . . . 19
please use 20a Social security benefits 20a b Taxable amount (see page 27) 20b
Form 1040-V. 21 Other income. List type and amount (see page 29) 21
22 Combine the amounts in the far right column for lines 7 through 21. This is your total income a 22
23 RESERVED (see page 29) . . . . . . . . 23
Adjusted 24 Certain business expenses of reservists, performing artists, and
Gross fee-basis government officials. Attach Form 2106 or 2106-EZ 24
Income 25 Health savings account deduction. Attach Form 8889 . 25
26 Moving expenses. Attach Form 3903 . . . . . . 26
27 One-half of self-employment tax. Attach Schedule SE . 27
28 Self-employed SEP, SIMPLE, and qualified plans . . 28
29 Self-employed health insurance deduction (see page 30) 29
30 Penalty on early withdrawal of savings . . . . . . 30
31a Alimony paid b Recipient’s SSN a 31a
32 IRA deduction (see page 31) . . . . . . . . 32
33 Student loan interest deduction (see page 34) . . . 33
34 RESERVED (see page 35) . . . . . . . . . 34
35 Domestic production activities deduction. Attach Form 8903 35
36 Add lines 23 through 31a and 32 through 35 . . . . . . . . . . . . . 36
37 Subtract line 36 from line 22. This is your adjusted gross income . . . . . a 37
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 97. Cat. No. 11320B Form 1040 (2010)
Form 1040 (2010) Page 2
38 Amount from line 37 (adjusted gross income) . . . . . . . . . . . . . . 38
Tax and
Credits
39a Check
if:
{ You were born before January 2, 1946,
Spouse was born before January 2, 1946,
Blind. Total boxes
}
Blind. checked a 39a
b If your spouse itemizes on a separate return or you were a dual-status alien, see page 35 and check here a 39b
40
41
42
Subtract line 40 from line 38
o f
Itemized deductions (from Schedule A) or your standard deduction (see page 35) .
. . . . . . . . . . . . . . . . .
Exemptions. Multiply $3,650 by the number on line 6d . . . . . . . . . . .
.
.
.
.
.
40
41
42
s
43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- . . 43
44 Tax (see page 37). Check if any tax is from: a Form(s) 8814 b Form 4972 . 44
45
46
47
f t a 1 0
Alternative minimum tax (see page 40). Attach Form 6251 . . .
Add lines 44 and 45 . . . . . . . . . . . . . . .
Foreign tax credit. Attach Form 1116 if required . . . . 47
. .
. .
. . . . .
. . . . a
45
46
a 0
48 Credit for child and dependent care expenses. Attach Form 2441 48
r 2
49 Education credits from Form 8863, line 23 . . . . . 49
/
50 Retirement savings contributions credit. Attach Form 8880 50
D /30
51 Child tax credit (see page 42) . . . . . . . . . 51
52 Residential energy credits. Attach Form 5695 . . . . . . 52
53 Other credits from Form: a 3800 b 8801 c 53
54 Add lines 47 through 53. These are your total credits . . . . . . . . . . . . 54
7
55 Subtract line 54 from line 46. If line 54 is more than line 46, enter -0- . . . . . . a 55
0
Other 56 Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . 56
57 Unreported social security and Medicare tax from Form: a 4137 b 8919 . . 57
Taxes 58 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required . . 58
59 a Form(s) W-2, box 9 b Schedule H, line 27 c Form 5405, line 16 . . . . 59
60 Add lines 55 through 59. This is your total tax . . . . . . . . . . . . . a 60
Payments 61 Federal income tax withheld from Forms W-2 and 1099 . . 61
62 2010 estimated tax payments and amount applied from 2009 return 62
63 Making work pay credit. Attach Schedule M . . . . . . . 63
If you have a 64a Earned income credit (EIC) . . . . . . . . . . 64a
qualifying
child, attach b Nontaxable combat pay election 64b
Schedule EIC. 65 Additional child tax credit. Attach Form 8812 . . . . . . 65
66 American opportunity credit from Form 8863, line 14 . . . 66
67 First-time homebuyer credit from Form 5405, line 10 . . . 67
68 Amount paid with request for extension to file (see page 72) . 68
69 Excess social security and tier 1 RRTA tax withheld (see page 72) 69
70 Credit for federal tax on fuels. Attach Form 4136 . . . . 70
71 Credits from Form: a 2439 b 8839 c 8801 d 8885 71
72 Add lines 61, 62, 63, 64a, and 65 through 71. These are your total payments . . . . a 72
Refund 73 If line 72 is more than line 60, subtract line 60 from line 72. This is the amount you overpaid 73
Direct deposit? 74a Amount of line 73 you want refunded to you. If Form 8888 is attached, check here . a 74a
See page 73 a b
and fill in 74b,
Routing number a c Type: Checking Savings
74c, and 74d, a d Account number
or Form 8888. 75 Amount of line 73 you want applied to your 2011 estimated tax a 75
Amount 76 Amount you owe. Subtract line 72 from line 60. For details on how to pay, see page 74 . a 76
You Owe 77 Estimated tax penalty (see page 74) . . . . . . . . 77
Do you want to allow another person to discuss this return with the IRS (see page 75)? Yes. Complete the following. No
Third Party
Designee Designee’s Phone Personal identification
name a no. a number (PIN) a
Sign Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief,
they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Here
Joint return? Your signature Date Your occupation Daytime phone number
F
Medical
and 1
o f
Caution. Do not include expenses reimbursed or paid by others.
Medical and dental expenses (see page A-1) . . . . . . 1
s
2Enter amount from Form 1040, line 38 2
Dental
3Multiply line 2 by 7.5% (.075) . . . . . . . . . . . 3
a
Expenses
0
4Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . . . . . . . 4
t
Taxes You 5State and local income taxes . . . . . . . . . . . 5
Paid
(See
6
7
a f 01
Real estate taxes (see page A-3) . . . . . . . . . .
New motor vehicle taxes from line 11 of the worksheet on
back (for certain vehicles purchased in 2009) . . . . . .
6
r 2
page A-2.) 7
/
8 Other taxes. List type and amount a
D /29
8
9 Add lines 5 through 8 . . . . . . . . . . . . . . . . . . . . . . 9
Interest 10 Home mortgage interest and points reported to you on Form 1098 10
You Paid 11 Home mortgage interest not reported to you on Form 1098. If
(See
page A-4.)
Note.
Your mortgage
interest
deduction may
0 6
paid to the person from whom you bought the home, see page
A-4 and show that person’s name, identifying no., and address a
For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 17145C Schedule A (Form 1040) 2010
Schedule A (Form 1040) 2010 Page 2
Worksheet Before you begin: You cannot take this deduction if the amount on Form 1040, line 38, is equal to or greater than
for Line 7— $135,000 ($260,000 if married filing jointly).
New motor See the instructions for line 7 on page A-3.
vehicle
taxes
o f
1 Enter the state and local sales and excise taxes you paid in
2010 for the purchase of any new motor vehicle(s) after
February 16, 2009, and before January 1, 2010 (see
page A-3) . . . . . . . . . . . . . . . . . .
s
1
a
Use this
0
worksheet to 2 Enter the purchase price (before taxes) of the new motor vehicle(s) 2
t
figure the
amount to enter
on line 7.
No.
f 1
3 Is the amount on line 2 more than $49,500?
0
Enter the amount from line 1.
a } 2
Yes. Figure the portion of the tax from
(Attach to Form
1040.)
r /
line 1 that is attributable to the first
$49,500 of the purchase price of
D /29
each new motor vehicle and enter it
here (see page A-3).
4 Enter the amount from Form 1040, line 38 . . . .
.
.
.
.
.
.
. .
4
. . . . . . 3
6
0 }
5 Enter the total of any—
• Amounts from Form 2555, lines 45 and 50;
Form 2555-EZ, line 18; and Form 4563, line 15,
and
• Exclusion of income from Puerto Rico
. . . 5
11 Deduction for new motor vehicle taxes. Subtract line 10 from line 3. Enter the result
here and on Schedule A, line 7 . . . . . . . . . . . . . . . . . . . 11
Schedule A (Form 1040) 2010
SCHEDULE B OMB No. 1545-0074
(Form 1040A or 1040) Interest and Ordinary Dividends
Department of the Treasury a Attach to Form 1040A or 1040. a See instructions on back.
2010
Attachment
Internal Revenue Service (99) Sequence No. 08
Name(s) shown on return Your social security number
Part I
Interest
1
o f
List name of payer. If any interest is from a seller-financed mortgage and the
buyer used the property as a personal residence, see instructions on back and list
Amount
s
this interest first. Also, show that buyer’s social security number and address a
(See instructions
on back and the
instructions for
f t a 1 0
Form 1040A, or
Form 1040,
line 8a.)
r a / 2 0 1
D /15
Note. If you
received a Form
1099-INT, Form
1099-OID, or
6
substitute
statement from
0
a brokerage firm,
list the firm’s
name as the 2 Add the amounts on line 1 . . . . . . . . . . . . . . . . . . 2
payer and enter
the total interest
3 Excludable interest on series EE and I U.S. savings bonds issued after 1989.
shown on that Attach Form 8815 . . . . . . . . . . . . . . . . . . . . . 3
form. 4 Subtract line 3 from line 2. Enter the result here and on Form 1040A, or Form
1040, line 8a . . . . . . . . . . . . . . . . . . . . . . a 4
Note. If line 4 is over $1,500, you must complete Part III. Amount
Part II 5 List name of payer a
Ordinary
Dividends
(See instructions
on back and the
instructions for
Form 1040A, or
Form 1040, 5
line 9a.)
Note. If you
received a Form
1099-DIV or
substitute
statement from
a brokerage firm,
list the firm’s
name as the
payer and enter
the ordinary
dividends shown 6 Add the amounts on line 5. Enter the total here and on Form 1040A, or Form
on that form. 1040, line 9a . . . . . . . . . . . . . . . . . . . . . . a 6
Note. If line 6 is over $1,500, you must complete Part III.
Part III You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a
foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust. Yes No
Foreign 7a At any time during 2010, did you have an interest in or a signature or other authority over a financial
Accounts account in a foreign country, such as a bank account, securities account, or other financial account?
and Trusts See instructions on back for exceptions and filing requirements for Form TD F 90-22.1 . . . . .
(See b If “Yes,” enter the name of the foreign country a
instructions on 8 During 2010, did you receive a distribution from, or were you the grantor of, or transferor to, a
back.) foreign trust? If “Yes,” you may have to file Form 3520. See instructions on back . . . . . .
For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 17146N Schedule B (Form 1040A or 1040) 2010
Chapter 5
Chapter 5
Gross Income
B. Form-of-Benefit Principle
35
Chapter 5
a) Calendar year
b) Fiscal year
36
Chapter 5
2. Exception: §444
a) Cash
b) Accrual
c) Special methods
37
Chapter 5
D. Cash Method
38
Chapter 5
c) Special situations
Do Problem #31
39
Chapter 5
a) General rule:
b) Exceptions:
40
Chapter 5
E. Accrual Method
b) Prepaid income.
41
Chapter 5
3. Prepaid Income
b) Exceptions:
Do Problem #39
42
Chapter 5
43
Chapter 5
b) Examples
c) Deposits
Do Problem #38
44
Chapter 5
Do Problem #33
45
Chapter 5
1. General rule
46
Chapter 5
3. Treasury Bills
a) Like EE bonds:
47
Chapter 5
a) Interest-bearing obligations
48
Chapter 5
(1) Example
2. 1984 Changes
b) Results:
49
Chapter 5
a) General Rule:
Do Problem #45
Do Problem #46
50
Chapter 6
Chapter 6
Gross Income: Inclusions and Exclusions
I. Investment Income
A. Corporate Distributions
51
Chapter 6
3. Stock Dividends
(3) The holding period for the new shares is the same
as the holding period of the original shares.
(4) Again, the holding period for the new shares is the
same as the holding period of the original shares.
52
Chapter 6
Do Problem #19
Do Problem #18
B. Interest
2. Exclusions:
(1) Omit.
53
Chapter 6
C. Annuities
54
Chapter 6
Do Problem #23
55
Chapter 6
Do Problem #24
56
Chapter 6
1. Salary
2. Commissions or bonuses
3. Tips
4. Vacation pay
5. Severance pay
57
Chapter 6
AGI
+ Tax-exempt interest
+ 50% of Social Security benefits received
+ Foreign earned income exclusion
—————————————————
Modified AGI
==============================
58
Chapter 6
Modified AGI
- Base amount ($32,000; 0; or $25,000)
————————————————
Excess
x 50%
————————————————
Includable benefits (Tier 1)
===========================
Modified AGI
- ADJ. base amt. ($44,000; 0; or $34,000)
—————————————————
Excess
x 85%
—————————————————
Subtotal
+ The LESSER of:
(1) The Tier 1 inclusion, or
(2) $4,500 (single); $6,000 (joint)
—————————————————
Includable benefits (Tier 2)
==============================
Do Problem #28
59
Chapter 6
E. Life Insurance
60
Chapter 6
b) Exceptions:
b) They can itemize all medical costs paid during the year,
even though reimbursement is expected.
61
Chapter 6
2. In general, benefits (up to $260 per day) paid for the care of a
patient also are excluded from gross income.
1. Employer-provided plans
2. Employee-provided plans
Do Problem #35
62
Chapter 6
1. The employee can exclude the value of this benefit, and the
employer can deduct the cost of providing the service.
b) $5,000
63
Chapter 6
Do Problem #50
64
Chapter 6
65
Chapter 6
C. Child Support
Do Problem #45
Do Problem #47
66
Chapter 6
67
Chapter 6
68
Chapter 6
B. Damages Awarded
2. Compensatory damages:
1. Received by Lessor:
2. Received by Lessee:
69
Chapter 6
D. Leasehold Improvements
70
Chapter 7
Chapter 7
Overview of Deductions and Losses
I. Introduction
A. General Requirements for Deductions and Losses
B. Timing of Deductions
D. Substantiating Deductions
71
Chapter 7
3. Under both §§162 and 212, deductions are allowed only if the
expense is:
c) Reasonable; and
1. The Activity
a) Profit motive
72
Chapter 7
a) Trade or business
b) Production of income
3. The Relationship
73
Chapter 7
1. Ordinary
2. Necessary
D. Reasonable in Amount
b) Exceptions:
74
Chapter 7
75
Chapter 7
d) Even accrual basis taxpayers must use the cash basis for
the following expenses:
76
Chapter 7
a) Fire
b) Storm
c) Shipwreck
d) Theft
e) "Other casualty"
77
Chapter 7
B. Importance of Distinction
6. Alimony
7. Moving expenses
78
Chapter 7
1. Medical expenses
2. Charitable contributions
3. Interest expense
4. Taxes
5. Casualty losses
6. Miscellaneous itemized deductions
F. Self-employed v. Employee
Do Problem #40
79
Chapter 7
V. Limitations on Deductions
A. Hobby Loss Rule
1. Overview
2. Profit Motive
3. Presumptive Rule
4. Deduction Limitation
80
Chapter 7
C. Legal Expenses
81
Chapter 7
D. Capital Expenditures
82
Chapter 7
1. Fines and penalties paid for the violation of any law are not
deductible.
2. Interest income
83
Chapter 7
a) Loss is disallowed.
K. Substantiation
84
Chapter 8
Chapter 8
Employee Business Expenses
I. Introduction
A. Examine specific provisions governing certain deductions
common to employees and self-employed persons.
B. Topics considered
1. Education expenses
2. Moving expenses
85
Chapter 8
a) $4,000 deduction
(1) MFJ: 0 — 130,000
(2) Single/Head of household: 0 — 65,000
b) $2,000 deduction
(1) MFJ: 130,001 — 160,000
(2) Single/Head of household: 65,001 — 80,000
c) No deduction
(1) MFJ: over 160,000
(2) Single/Head of household: over 80,000
(3) MFS over -0-
86
Chapter 8
3. No “double-dipping” allowed.
87
Chapter 8
1. New employee;
2. Transferred employee; or
3. Self-employed person
C. Moving Expenses
a) Distance test:
b) Time test:
88
Chapter 8
89
Chapter 8
90
Chapter 8
(2) If an employee:
91
Chapter 8
1. Any home office expenses that are not deducted because of the
gross income limitation can be carried forward and offset
against home office income in future years.
Do Problem #26
Do Problem #28
V. Transportation Expenses
A. Distinction between Transportation and Travel
B. Transportation v. Commuting
2. Exceptions:
92
Chapter 8
(2) Requirements:
(2) But, once the taxpayer arrives at the first job site,
subsequent transportation costs are deductible.
93
Chapter 8
1. Actual Expenses
3. Switching Methods
Do Problem #36
94
Chapter 8
1. Domestic Travel
95
Chapter 8
2. Exceptions:
a) Reimbursed expenses
(1) The 50% rule does not apply when the food or
beverage provided is excludable as a de minimus
employee fringe benefit (e.g., holiday turkeys given
to employees or subsidized cafeterias).
96
Chapter 8
c) §274(e) exceptions
C. Business Gifts
1. General rule:
97
Chapter 8
D. Entertainment Facilities
1. General rule
2. Exception:
Do Problem #38
B. Elements to be substantiated
2. Time
3. Place
98
Chapter 8
99
Chapter 8
D. Form 2106
E. Partial Reimbursements
3. Example:
100
Form 2106 Employee Business Expenses
a
OMB No. 1545-0074
2010
See separate instructions.
Department of the Treasury Attachment
Internal Revenue Service (99) a Attach to Form 1040 or Form 1040NR. Sequence No. 129
Your name Occupation in which you incurred expenses Social security number
Part I
o f
Employee Business Expenses and Reimbursements
s
Column A Column B
Step 1 Enter Your Expenses Other Than Meals Meals and
a 0
and Entertainment Entertainment
a f t 0 1
1 Vehicle expense from line 22 or line 29. (Rural mail carriers: See
instructions.) . . . . . . . . . . . . . . . . . . 1
r 2
2 Parking fees, tolls, and transportation, including train, bus, etc., that
/
did not involve overnight travel or commuting to and from work . 2
D /16
3 Travel expense while away from home overnight, including lodging,
airplane, car rental, etc. Do not include meals and entertainment . 3
4 Business expenses not included on lines 1 through 3. Do not include
meals and entertainment . . . . . . . . . . . . . . 4
0 6
5 Meals and entertainment expenses (see instructions) . . . . .
6 Total expenses. In Column A, add lines 1 through 4 and enter the
result. In Column B, enter the amount from line 5 . . . . . .
5
Note: If you were not reimbursed for any expenses in Step 1, skip line 7 and enter the amount from line 6 on line 8.
Step 2 Enter Reimbursements Received From Your Employer for Expenses Listed in Step 1
8 Subtract line 7 from line 6. If zero or less, enter -0-. However, if line 7
is greater than line 6 in Column A, report the excess as income on
Form 1040, line 7 (or on Form 1040NR, line 8) . . . . . . . 8
o f . . . . . . . .
Business miles included on line 12 . . . . . . . . . . . .
Percent of business use. Divide line 13 by line 12 . . . . . . . .
.
.
.
12
13
14
miles
miles
%
miles
miles
%
s
15 Average daily roundtrip commuting distance . . . . . . . . . . 15 miles miles
16 Commuting miles included on line 12 . . . . . . . . . . . . . 16 miles miles
17
18
19
f t a 1 0
Other miles. Add lines 13 and 16 and subtract the total from line 12
Was your vehicle available for personal use during off-duty hours? . .
.
Do you (or your spouse) have another vehicle available for personal use?
.
.
.
.
.
17
.
.
.
.
.
.
.
.
.
.
.
.
miles
. . .
. . .
Yes
Yes
miles
No
No
0
20 Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . Yes No
21
r a /2
If “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . .
Section B—Standard Mileage Rate (See the instructions for Part II to find out whether to complete this section or Section C.)
Yes No
D /16
22 Multiply line 13 by 50¢ (.50). Enter the result here and on line 1 . . . . . . . . . . . . 22
Section C—Actual Expenses (a) Vehicle 1 (b) Vehicle 2
23 Gasoline, oil, repairs, vehicle
insurance, etc. . . . . . . 23
6
24a Vehicle rentals . . . . . . 24a
0
b Inclusion amount (see instructions) . 24b
c Subtract line 24b from line 24a . 24c
25 Value of employer-provided vehicle
(applies only if 100% of annual
lease value was included on Form
W-2—see instructions) . . . . 25
26 Add lines 23, 24c, and 25. . . 26
27 Multiply line 26 by the percentage
on line 14 . . . . . . . . 27
28 Depreciation (see instructions) . 28
29 Add lines 27 and 28. Enter total
here and on line 1 . . . . . 29
Section D—Depreciation of Vehicles (Use this section only if you owned the vehicle and are completing Section C for the vehicle.)
(a) Vehicle 1 (b) Vehicle 2
30 Enter cost or other basis (see
instructions) . . . . . . . 30
31 Enter section 179 deduction (see
instructions) . . . . . . . 31
32 Multiply line 30 by line 14 (see
instructions if you claimed the
section 179 deduction or special
allowance). . . . . . . . 32
33 Enter depreciation method and
percentage (see instructions) . 33
34 Multiply line 32 by the percentage
on line 33 (see instructions) . . 34
35 Add lines 31 and 34 . . . . 35
36 Enter the applicable limit explained
in the line 36 instructions . . . 36
37 Multiply line 36 by the percentage
on line 14 . . . . . . . . 37
38 Enter the smaller of line 35 or line
37. If you skipped lines 36 and 37,
enter the amount from line 35.
Also enter this amount on line 28
above . . . . . . . . .
38
Form 2106 (2010)
Chapter 9
Chapter 9
Capital Recovery
I. Introduction
A. Concept of Capital Recovery
1. Requirements
103
Chapter 9
3. Adjustment to Basis
104
Chapter 9
2. Personal property
105
Chapter 9
3. Real Property
D. Calculating Depreciation
2. Recovery Period
3. Depreciation Methods
a) Personal property
106
Chapter 9
4. Accounting Conventions
a) Personal property
107
Chapter 9
b) Real property
5. MACRS Tables
b) Personal Property
c) Real Property
Do Problem #28
108
Chapter 9
E. Straight-Line Methods
2. MACRS Straight-Line
Do Problem #30
Do Problem #31
109
Chapter 9
2. General Rule:
3. Limits:
110
Chapter 9
a) Recovery property,
b) Must not be a building,
c) Used in a trade or business, and
d) Must not be acquired from a "related party."
Do Problem #34
Do Problem #35
(use Form 4562)
111
Chapter 9
2. These limits are adjusted for inflation. See p. 9-29 for prior
year limits.
Do Problem #12
Do Problem #37
I. Automobile Leasing
b) The portion of the tax year the lease was in effect, and
112
Chapter 9
1. If "listed property" is not used more than 50% of the time for
Trade or Business purposes in the year of acquisition, several
tax benefits are lost or restricted:
a) Passenger autos
c) Entertainment property
e) Cell phones
113
Chapter 9
4. Employer-Provided Cars
114
Chapter 9
b) Items to be substantiated:
115
Chapter 9
IV. Amortization
A. General rules
1. General Rules:
C. Leasehold Improvements
116
Chapter 9
V. Depletion
A. Compute the depletion using either cost or percentage
depletion method and deduct the higher amount.
B. Cost Depletion
2. Formula:
C. Percentage Depletion
a) Formula:
Do Problem #41
117
OMB No. 1545-0172
Form 4562 Depreciation and Amortization
(Including Information on Listed Property) 2010
Department of the Treasury Attachment
Internal Revenue Service (99) a See separate instructions. a Attach to your tax return. Sequence No. 67
Name(s) shown on return Business or activity to which this form relates Identifying number
Part I
o f
Election To Expense Certain Property Under Section 179
Note: If you have any listed property, complete Part V before you complete Part I.
s
1 Maximum amount. See the instructions for a higher limit for certain businesses . . . . . . . . 1 $250,000
2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . 2
3
4
5
t a 0
Threshold cost of section 179 property before reduction in limitation (see instructions) .
Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . .
f 1
Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If
. . .
. . .
married
. .
. .
filing
3
4
$800,000
0
separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . 5
6
r a
(a) Description of property
/2
(b) Cost (business use only) (c) Elected cost
D /21
7 Listed property. Enter the amount from line 29 . . . . . . . . .
8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7
9 Tentative deduction. Enter the smaller of line 5 or line 8
7
. . . . . . . . . . . . . . .
. . . . . . 8
9
6
10 Carryover of disallowed deduction from line 13 of your 2009 Form 4562 . . . . . . . . . . . 10
0
11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) 11
12 Section 179 expense deduction. Add lines 9 and 10, but do not enter more than line 11 . . . . . 12
13 Carryover of disallowed deduction to 2011. Add lines 9 and 10, less line 12 a 13
Note: Do not use Part II or Part III below for listed property. Instead, use Part V.
Part II Special Depreciation Allowance and Other Depreciation (Do not include listed property.) (See instructions.)
14 Special depreciation allowance for qualified property (other than listed property) placed in service
during the tax year (see instructions) . . . . . . . . . . . . . . . . . . . . . . 14
15 Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . 15
16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . 16
Part III MACRS Depreciation (Do not include listed property.) (See instructions.)
Section A
17 MACRS deductions for assets placed in service in tax years beginning before 2010 . . . . . . . 17
18 If you are electing to group any assets placed in service during the tax year into one or more general
asset accounts, check here . . . . . . . . . . . . . . . . . . . . a
Section B—Assets Placed in Service During 2010 Tax Year Using the General Depreciation System
(b) Month and year (c) Basis for depreciation
(d) Recovery
(a) Classification of property placed in (business/investment use (e) Convention (f) Method (g) Depreciation deduction
period
service only—see instructions)
19a 3-year property
b 5-year property
c 7-year property
d 10-year property
e 15-year property
f 20-year property
g 25-year property 25 yrs. S/L
h Residential rental 27.5 yrs. MM S/L
property 27.5 yrs. MM S/L
i Nonresidential real 39 yrs. MM S/L
property MM S/L
Section C—Assets Placed in Service During 2010 Tax Year Using the Alternative Depreciation System
20a Class life S/L
b 12-year 12 yrs. S/L
c 40-year 40 yrs. MM S/L
Part IV Summary (See instructions.)
21 Listed property. Enter amount from line 28 . . . . . . . . . . . . . . . . . . . . 21
22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here
and on the appropriate lines of your return. Partnerships and S corporations—see instructions . . . . . 22
23 For assets shown above and placed in service during the current year, enter the
portion of the basis attributable to section 263A costs . . . . . . . 23
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2010)
Form 4562 (2010) Page 2
Part V Listed Property (Include automobiles, certain other vehicles, cellular telephones, certain computers, and
property used for entertainment, recreation, or amusement.)
Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a,
24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable.
(a) (b)
(c)
Business/
o
(d) f
Section A—Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.)
24a Do you have evidence to support the business/investment use claimed? Yes No 24b If “Yes,” is the evidence written?
(e)
Basis for depreciation
(f)
Yes
(g) (h) (i)
No
s
Type of property (list Date placed Recovery Method/ Depreciation Elected section 179
investment use Cost or other basis (business/investment
vehicles first) in service period Convention deduction cost
percentage use only)
a 0
25 Special depreciation allowance for qualified listed property placed in service during
t
the tax year and used more than 50% in a qualified business use (see instructions) .
f
26 Property used more than 50% in a qualified business use:
1
25
0
%
%
%
r a /2
D /21
27 Property used 50% or less in a qualified business use:
% S/L –
% S/L –
% S/L –
6
28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . 28
0
29 Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . 29
Section B—Information on Use of Vehicles
Complete this section for vehicles used by a sole proprietor, partner, or other “more than 5% owner,” or related person. If you provided vehicles
to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles.
(a) (b) (c) (d) (e) (f)
Vehicle 1 Vehicle 2 Vehicle 3 Vehicle 4 Vehicle 5 Vehicle 6
30 Total business/investment miles driven during
the year (do not include commuting miles) .
31 Total commuting miles driven during the year
32 Total other personal (noncommuting) miles
driven . . . . . . . . . . . .
33 Total miles driven during the year. Add lines
30 through 32 . . . . . . . . .
34 Was the vehicle available for personal use Yes No Yes No Yes No Yes No Yes No Yes No
during off-duty hours? . . . . . . .
35 Was the vehicle used primarily by a more
than 5% owner or related person? . . .
36 Is another vehicle available for personal use?
Section C—Questions for Employers Who Provide Vehicles for Use by Their Employees
Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who are not
more than 5% owners or related persons (see instructions).
37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by Yes No
your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your
employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners . . . .
39 Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . .
40 Do you provide more than five vehicles to your employees, obtain information from your employees about the
use of the vehicles, and retain the information received? . . . . . . . . . . . . . . . . . . .
41 Do you meet the requirements concerning qualified automobile demonstration use? (See instructions.) . . .
Note: If your answer to 37, 38, 39, 40, or 41 is “Yes,” do not complete Section B for the covered vehicles.
Part VI Amortization
(e)
(b)
(a) (c) (d) Amortization (f)
Date amortization
Description of costs Amortizable amount Code section period or Amortization for this year
begins
percentage
42 Amortization of costs that begins during your 2010 tax year (see instructions):
Chapter 10
Certain Business Deductions and Losses
I. Bad Debts
A. General Requirements
2. Basis
3. Worthlessness
120
Chapter 10
b) Tax treatment:
Do Problem #12
121
Chapter 10
1. Casualties
C. Loss Computation
122
Chapter 10
2. Exceptions:
D. Year Deductible
2. Exceptions:
123
Chapter 10
1. General rule:
1. Formula:
NOL
Business income ———————————————————> +
124
Chapter 10
2. Rationale:
Do Problem #22
125
Form 4684 Casualties and Thefts
©
See separate instructions.
OMB No. 1545-0177
2009
Department of theTreasury © Attach
to your tax return. Attachment
Internal Revenue Service © Use a separate Form 4684 for each casualty or theft. Sequence No. 26
Name(s) shown on tax return Identifying number
SECTION A—Personal Use Property (Use this section to report casualties and thefts of property not used in a trade
or business or for income-producing purposes.)
1 Description of properties (show type, location, and date acquired for each property). Use a separate line for each property lost or damaged from
the same casualty or theft.
Property A
Property B
Property C
Property D
Properties
A B C D
2 Cost or other basis of each property . . . . . . 2
3 Insurance or other reimbursement (whether or not you
filed a claim) (see instructions) . . . . . . . . 3
Note: If line 2 is more than line 3, skip line 4.
4 Gain from casualty or theft. If line 3 is more than line 2,
enter the difference here and skip lines 5 through 9 for that
column. See instructions if line 3 includes insurance or other
reimbursement you did not claim, or you received payment
for your loss in a later tax year . . . . . . . . 4
5 Fair market value before casualty or theft . . . . 5
6 Fair market value after casualty or theft . . . . . 6
7 Subtract line 6 from line 5 . . . . . . . . . 7
8 Enter the smaller of line 2 or line 7 . . . . . . 8
9 Subtract line 3 from line 8. If zero or less, enter -0- . . 9
10 Casualty or theft loss. Add the amounts on line 9 in columns A through D . . . . . . . . . . . . . 10
11 Enter the smaller of line 10 or $500 . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Subtract line 11 from line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Caution: Use only one Form 4684 for lines 13 through 22.
13 Add the amounts on line 12 of all Forms 4684 . . . . . . . . . . . . . . . . . . . . . 13
14 Add the amounts on line 4 of all Forms 4684. . . . . . . . . . . . . . . . . . . . . . 14
}
15 ● If line 14 is more than line 13, enter the difference here and on Schedule D. Do not
complete the rest of this section (see instructions). . . . . . . .
15
● If line 14 is less than line 13, enter -0- here and go to line 16.
● If line 14 is equal to line 13, enter -0- here. Do not complete the rest of this section.
16 If line 14 is less than line 13, enter the difference . . . . . . . . . . . . . . . . . . . . 16
17 Add the amounts on line 12 of all Forms 4684 on which you entered a disaster loss (see instructions) . . . . . . 17
18 Is line 17 more than line 14?
Yes. Enter the difference. If you are filing Schedule A (Form 1040), go to line 19. Otherwise, enter this amount
on line 6 of Schedule L (Form 1040A or 1040). Do not complete the rest of Section A. Form 1040NR filers, see
instructions.
No. Enter -0-. If you claim the standard deduction, do not complete the rest of Section A. . . . . . . 18
19 Subtract line 18 from line 16 . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20 Enter 10% of your adjusted gross income from Form 1040, line 38, or Form 1040NR, line 36. Estates and trusts, see instructions 20
21 Subtract line 20 from line 19. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . 21
22 Add lines 18 and 21. Also enter the result on Schedule A (Form 1040), line 20, or Form 1040NR, Schedule A, line 8.
Estates and trusts, enter the result on the "Other deductions" line of your tax return . . . . . . . . . . 22
For Paperwork Reduction Act Notice, see page 5 of the instructions. Cat. No. 12997O Form 4684 (2009)
Form 4684 (2009) Attachment Sequence No. 26 Page 2
Name(s) shown on tax return. Do not enter name and identifying number if shown on other side. Identifying number
Chapter 11
Personal Itemized Deductions
I. Medical Expenses
A. What is Deductible?
b) Both the "gross income" test and the "joint return" test
are waived for purposes of determining dependency
status.
128
Chapter 11
4. Nursing homes
129
Chapter 11
B. When Deductible?
C. Amount Deductible?
Do Problem #27
130
Chapter 11
2. Eligible taxpayers
3. Deductible Contributions
b) Ages 55 to 64:
131
Chapter 11
4. HSA distributions
1. General rule:
2. Restrictions:
132
Chapter 11
II. Taxes
A. General requirements for Deductibility
B. Income Taxes
Do Problem #28
133
Chapter 11
C. Sales Taxes
2. Computation:
D. Property Taxes
Do Problem #30
134
Chapter 11
c) Investment interest
2. Personal interest
135
Chapter 11
c) Acquisition indebtedness
(1) Includes:
136
Chapter 11
(b) $100,000.
4. Investment interest
Do Problem #32
Do Problem #31
137
Chapter 11
b) Requirements:
c) Deduction Phase-out:
138
Chapter 11
2. Disallowance Possibilities
3. Substantiation Requirements
(2) If the charity files a return with the IRS reporting the
information that is required to be included in the
written acknowledgment to substantiate the amount
of the deductible contribution.
139
Chapter 11
B. Limitations on Deductions
b) Contributions of Services:
140
Chapter 11
Do Problem #35
Do Problem #38
141
Chapter 11
C. Amount deductible?
Do Problem #40
142
Chapter 14
Chapter 14
Property Transactions:
Basis Determination, Recognition of Gain or Loss
I. Realization v. Recognition
A. Realization
B. Recognition
a) Postponed gains
c) Postponed losses
d) Tax-free gain
e) Disallowed losses
143
Chapter 14
b) Gift:
Do Problem #25
Do Problem #26
144
Chapter 14
c) Inheritance:
(2) Exceptions:
Do Problem #27
Do Problem #28
e) Nontaxable exchange:
145
Chapter 14
2. Basis Adjustments
b) §179 expense
1. Convertible Securities
146
Chapter 14
3. Abandonment
4. Demolition
5. Spousal Transfers
147
Chapter 14
7. Transfers to Charity
Do Problem #30
148
Chapter 14
a) Inventory,
149
Chapter 14
Do Problem #31
150
Chapter 14
Do Problem #32
(2) This rule does not apply if the second sale occurs:
151
Chapter 14
Amount realized
- Adjusted basis of note
——————————
Gain or loss
=================
152
Chapter 14
V. Disallowed Losses
A. Wash Sales
Do Problem #33
153
Form 6252 Installment Sale Income
a Attach to your tax return.
OMB No. 1545-0228
2010
Department of the Treasury a Use a separate form for each sale or other disposition of Attachment
Internal Revenue Service property on the installment method. Sequence No. 79
Name(s) shown on return Identifying number
1
2a
Description of property a
Date acquired (mm/dd/yyyy) a
s
3 Was the property sold to a related party (see instructions) after May 14, 1980? If “No,” skip line 4 . . . . Yes No
4 Was the property you sold to a related party a marketable security? If “Yes,” complete Part III. If “No,”
a 0
complete Part III for the year of sale and the 2 years after the year of sale . . . . . . . . . . . . Yes No
t
Part I Gross Profit and Contract Price. Complete this part for the year of sale only.
5
6
a f 0 1
Selling price including mortgages and other debts. Do not include interest whether stated or unstated
Mortgages, debts, and other liabilities the buyer assumed or took the
property subject to (see instructions) . . . . . . . . . . .
5
r 2
6
/
7 Subtract line 6 from line 5. . . . . . . . . . . . . . . 7
D /23
8 Cost or other basis of property sold . . . . . . . . . . . 8
9 Depreciation allowed or allowable . . . . . . . . . . . . 9
10 Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . 10
11 Commissions and other expenses of sale . . . . . . . . . 11
7
12 Income recapture from Form 4797, Part III (see instructions) . . . 12
0
13 Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Subtract line 13 from line 5. If zero or less, do not complete the rest of this form (see instructions) 14
15 If the property described on line 1 above was your main home, enter the amount of your excluded
gain (see instructions). Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . 15
16 Gross profit. Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . 16
17 Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . 17
18 Contract price. Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . 18
Part II Installment Sale Income. Complete this part for the year of sale and any year you receive a payment or have
certain debts you must treat as a payment on installment obligations.
19 Gross profit percentage (expressed as a decimal amount). Divide line 16 by line 18. For years after
the year of sale, see instructions . . . . . . . . . . . . . . . . . . . . . . 19
20 If this is the year of sale, enter the amount from line 17. Otherwise, enter -0- . . . . . . . . 20
21 Payments received during year (see instructions). Do not include interest, whether stated or unstated 21
22 Add lines 20 and 21 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23 Payments received in prior years (see instructions). Do not include
interest, whether stated or unstated . . . . . . . . . . . 23
24 Installment sale income. Multiply line 22 by line 19 . . . . . . . . . . . . . . . . 24
25 Enter the part of line 24 that is ordinary income under the recapture rules (see instructions) . . . 25
26 Subtract line 25 from line 24. Enter here and on Schedule D or Form 4797 (see instructions) . . . 26
Part III Related Party Installment Sale Income. Do not complete if you received the final payment this tax year.
27 Name, address, and taxpayer identifying number of related party
28 Did the related party resell or dispose of the property (“second disposition”) during this tax year? . . . . . Yes No
29 If the answer to question 28 is “Yes,” complete lines 30 through 37 below unless one of the following conditions is met. Check the box that applies.
a The second disposition was more than 2 years after the first disposition (other than dispositions of
marketable securities). If this box is checked, enter the date of disposition (mm/dd/yyyy) . . . . . a
b The first disposition was a sale or exchange of stock to the issuing corporation.
c The second disposition was an involuntary conversion and the threat of conversion occurred after the first disposition.
d The second disposition occurred after the death of the original seller or buyer.
e It can be established to the satisfaction of the Internal Revenue Service that tax avoidance was not a principal purpose for
either of the dispositions. If this box is checked, attach an explanation (see instructions).
30 Selling price of property sold by related party (see instructions) . . . . . . . . . . . . 30
31 Enter contract price from line 18 for year of first sale . . . . . . . . . . . . . . . . 31
32 Enter the smaller of line 30 or line 31 . . . . . . . . . . . . . . . . . . . . . 32
33 Total payments received by the end of your 2010 tax year (see instructions) . . . . . . . . 33
34 Subtract line 33 from line 32. If zero or less, enter -0- . . . . . . . . . . . . . . . 34
35 Multiply line 34 by the gross profit percentage on line 19 for year of first sale . . . . . . . . 35
36 Enter the part of line 35 that is ordinary income under the recapture rules (see instructions) . . . 36
37 Subtract line 36 from line 35. Enter here and on Schedule D or Form 4797 (see instructions) . . . 37
For Paperwork Reduction Act Notice, see page 4. Cat. No. 13601R Form 6252 (2010)
Chapter 17
Chapter 17
Property Transactions:
Dispositions of Trade or Business Property
a) They are ordinary assets until they have been held for
more than 12 months.
3. Before the 1984 Act, once the §1231 netting process was
complete, the treatment was as follows:
155
Chapter 17
Do Problem #46
156
Chapter 17
Do Problem #34
(use Form 4797)
Do Problem #40
157
Chapter 17
2. §1250 property
b) Thus, even though §1250 does not cause the gain caused
by deducting straight-line depreciation to be classified as
ordinary gain, this rule prevents that portion of the gain
from enjoying the same treatment as LTCGs.
4. Formula:
Amount Realized
- Adjusted Basis
———————————————————
Realized Gain
- §1250 Gain (the lesser of:)
• Realized gain, or
• Total depreciation - S/L depreciation
———————————————————
Remaining gain
- Unrecaptured §1250 Gain (the lesser of:)
• Remaining Gain, or
• S/L depreciation
———————————————————
§1231 Gain
=================================
Do Problem #44
158
Chapter 17
(1) Gifts
2. Installment Sales
159
Form 4797 Sales of Business Property OMB No. 1545-0184
o f
Enter the gross proceeds from sales or exchanges reported to you for 2010 on Form(s) 1099-B or 1099-S (or
substitute statement) that you are including on line 2, 10, or 20 (see instructions) . . . . . . . . 1
s
Part I Sales or Exchanges of Property Used in a Trade or Business and Involuntary Conversions From Other
Than Casualty or Theft—Most Property Held More Than 1 Year (see instructions)
2 (a) Description
of property
f t a
(b) Date acquired
(mo., day, yr.)
r a / 2 0
3
4
5 D /23
Gain, if any, from Form 4684, line 42 . . . . . . . . . . .
Section 1231 gain from installment sales from Form 6252, line 26 or 37 .
Section 1231 gain or (loss) from like-kind exchanges from Form 8824 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3
4
5
6
6 Gain, if any, from line 32, from other than casualty or theft. . . . . . . . . . . . . . . . . . 6
0
7 Combine lines 2 through 6. Enter the gain or (loss) here and on the appropriate line as follows: . . . . . . . 7
Partnerships (except electing large partnerships) and S corporations. Report the gain or (loss) following the
instructions for Form 1065, Schedule K, line 10, or Form 1120S, Schedule K, line 9. Skip lines 8, 9, 11, and 12 below.
Individuals, partners, S corporation shareholders, and all others. If line 7 is zero or a loss, enter the amount from
line 7 on line 11 below and skip lines 8 and 9. If line 7 is a gain and you did not have any prior year section 1231
losses, or they were recaptured in an earlier year, enter the gain from line 7 as a long-term capital gain on the
Schedule D filed with your return and skip lines 8, 9, 11, and 12 below.
8 Nonrecaptured net section 1231 losses from prior years (see instructions) . . . . . . . . . . . . . 8
9 Subtract line 8 from line 7. If zero or less, enter -0-. If line 9 is zero, enter the gain from line 7 on line 12 below. If line
9 is more than zero, enter the amount from line 8 on line 12 below and enter the gain from line 9 as a long-term
capital gain on the Schedule D filed with your return (see instructions) . . . . . . . . . . . . . . 9
Part II Ordinary Gains and Losses (see instructions)
10 Ordinary gains and losses not included on lines 11 through 16 (include property held 1 year or less):
A
B
C
o f
s
D
a
Property A Property B Property C Property D
0
These columns relate to the properties on lines 19A through 19D. a
t
20 Gross sales price (Note: See line 1 before completing.) . 20
21
22
a f
Cost or other basis plus expense of sale . . . .
Depreciation (or depletion) allowed or allowable . .
01 .
.
21
22
r 2
23 Adjusted basis. Subtract line 22 from line 21. . . . 23
24
25 If section 1245 property:
D /23
Total gain. Subtract line 23 from line 20 .
.
.
.
.
.
24
25a
25b
26
6
If section 1250 property: If straight line depreciation was used,
0
enter -0- on line 26g, except for a corporation subject to section 291.
a Additional depreciation after 1975 (see instructions) .
b Applicable percentage multiplied by the smaller of line
24 or line 26a (see instructions) . . . . . . .
26a
26b
c Subtract line 26a from line 24. If residential rental property
or line 24 is not more than line 26a, skip lines 26d and 26e 26c
d Additional depreciation after 1969 and before 1976. . 26d
e Enter the smaller of line 26c or 26d . . . . . . 26e
f Section 291 amount (corporations only) . . . . . 26f
g Add lines 26b, 26e, and 26f. . . . . . . . . 26g
27 If section 1252 property: Skip this section if you did not
dispose of farmland or if this form is being completed for a
partnership (other than an electing large partnership).
a Soil, water, and land clearing expenses . . . . . 27a
b Line 27a multiplied by applicable percentage (see instructions) 27b
c Enter the smaller of line 24 or 27b . . . . . . 27c
28 If section 1254 property:
a Intangible drilling and development costs, expenditures
for development of mines and other natural deposits,
mining exploration costs, and depletion (see
instructions) . . . . . . . . . . . . . 28a
b Enter the smaller of line 24 or 28a . . . . . . 28b
29 If section 1255 property:
a Applicable percentage of payments excluded from
income under section 126 (see instructions) . . . . 29a
b Enter the smaller of line 24 or 29a (see instructions) . 29b
Summary of Part III Gains. Complete property columns A through D through line 29b before going to line 30.
30 Total gains for all properties. Add property columns A through D, line 24 . . . . . . . . . . . . . 30
31 Add property columns A through D, lines 25b, 26g, 27c, 28b, and 29b. Enter here and on line 13 . . . . . . 31
32 Subtract line 31 from line 30. Enter the portion from casualty or theft on Form 4684, line 36. Enter the portion from
other than casualty or theft on Form 4797, line 6 . . . . . . . . . . . . . . . . . . . . 32
Part IV Recapture Amounts Under Sections 179 and 280F(b)(2) When Business Use Drops to 50% or Less
(see instructions)
(a) Section (b) Section
179 280F(b)(2)
33 Section 179 expense deduction or depreciation allowable in prior years. . . . . . . . 33
34 Recomputed depreciation (see instructions) . . . . . . . . . . . . . . . . 34
35 Recapture amount. Subtract line 34 from line 33. See the instructions for where to report . . 35
Form 4797 (2010)
Chapter 15
Chapter 15
Nontaxable Exchanges
4. Amount of Exclusion
162
Chapter 15
5. Depreciation Recapture
B. Replacement Property
163
Chapter 15
a) This test, the most lenient of the three, is used where there
is a condemnation of real property which is used in the
taxpayer's trade or business or held for the production of
income.
1. General Rule: The taxpayer has 2 years from the END of the
taxable year in which the gain was first realized.
164
Chapter 15
D. Nonrecognition Rules
1. Realized losses
2. Realized gains
165
Chapter 15
166
Chapter 15
Postponement of Gain on
Involuntary Conversions
Proceeds Proceeds
- Adjusted basis - Cost of Replacement Property
--------------------- ---------------------------------------
Realized gain Amount Not Reinvested
============ ======================
Recognized Gain
============
167
Chapter 15
(1) Inventory
(2) Stocks and bonds
(3) Notes
(4) And other similar items.
168
Chapter 15
(2) The Tax Court held that the property received was
not held for productive use or for investment, and,
therefore, it was a taxable exchange.
169
Chapter 15
B. Effect of Boot
170
Chapter 15
Postponement of Gain on
Like-Kind Exchanges
Recognized Gain
=============
171