acct 553
ACCT553
Week 3 Homework – ANDRE SILVA
_________________________________________________________
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.
Chapter 7
1. In your "own" words, please describe what a "Suspended Loss" is, how it is generated and when it is becomes deductible. (5 pts)
Suspended losses occur when losses from passive activities exceed income from passive activities in a tax year. The excess losses are suspended and carried forward to a future date. Those losses can be deducted against future income from passive activities.
2. Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate. (5 pts).
As long as a taxpayer participates in management decisions in a bona fide sense, he actively participated in the real estate rental activity. Activities include new tenant approval, rental terms, repairs, capital expenditures, etc.
According to the IRS Audit Techniques Guide there is not a specific hour requirement. Even if you use a management company, you will be considered active if you are involved with the operation of your rental. However, the taxpayer must be exercising independent judgment and not simply ratifying decisions made by a manager or management company. In addition, the taxpayer must have at least a 10% interest in the rental activity.
Chapter 8
3. Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses will she be able to deduct? (5 pts)
She will be able to deduct $3,856 ($8,356 – 10% of AGI of $45,000).
4. Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000.
Week 3 Homework – ANDRE SILVA
_________________________________________________________
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.
Chapter 7
1. In your "own" words, please describe what a "Suspended Loss" is, how it is generated and when it is becomes deductible. (5 pts)
Suspended losses occur when losses from passive activities exceed income from passive activities in a tax year. The excess losses are suspended and carried forward to a future date. Those losses can be deducted against future income from passive activities.
2. Please describe "Active Participation" as it relates to a taxpayer's involvement in an investment in Real Estate. (5 pts).
As long as a taxpayer participates in management decisions in a bona fide sense, he actively participated in the real estate rental activity. Activities include new tenant approval, rental terms, repairs, capital expenditures, etc.
According to the IRS Audit Techniques Guide there is not a specific hour requirement. Even if you use a management company, you will be considered active if you are involved with the operation of your rental. However, the taxpayer must be exercising independent judgment and not simply ratifying decisions made by a manager or management company. In addition, the taxpayer must have at least a 10% interest in the rental activity.
Chapter 8
3. Macy had a lot of medical expenses this year that were not covered by her insurance (either due to a deductible, co-insurance, or co-pay). Her un-reimbursed qualifying medical expenses total $8,356 and her AGI for 2013 is $45,000. Assuming she will itemize on her 2013 tax return, how much of her medical expenses will she be able to deduct? (5 pts)
She will be able to deduct $3,856 ($8,356 – 10% of AGI of $45,000).
4. Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000.