Chapter 6 Notes: Individual DeductionsFor or From AGIBusiness ActivitiesTrade or business activities require a relatively high involvement or effort from the taxpayerwhereas investment activities don’t requireEx:self-employed business activityInvestment ActivitiesInvestment activities involve investing in property for appreciation or for income payments.Ex:owning stocks (investment in a C corp), a partnership interest (flow-through entityincome), rentals and intangible assets that bring in royaltiesInvestments in educationActivity TypeDeduction for AGIDeduction fromAGINot DeductibleBusinessactivitiesSelf-employment businessexpensesN/AUnreimbursed employeebusiness expenseInvestmentActivitiesRental and Royalty Expense•Flow-through entity loss•Capital loss•Qualified education loaninterestInvestmentinterest expenseQualifiedBusiness IncomeDeduction (QBI)Other investmentexpensesWhen you work for someone else and costs are not reimbursed – used to create adeduction.like investment advisory fees (what you pay to Merrill Lynch) to manage your investment_ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _FOR AGI deductions for an investment activity you really care about:Expenses related to education – when making payments on loans (typically after yougraduate)2.Interest on qualified education loans for taxpayer, spouse, or dependent“qualified” – tuition and fees, books and expenses for enrollment, roomand board, and other necessary supplies/expenses such as travelMaximum of $2,500deduction, is phased out based on taxpayer incomeDon’t need to remember phase-out thresholds – but just FYI –if single (married filing jointly) make over $85,000($170,000) it is completely phased out and you get nodeduction for the interest you paid.Also, if married filing separately (regardless of income), notallowed to get this deduction.
