In 2009 john received a 375 refund for his 2008 taxes

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Unformatted text preview: 2008. In 2009 John received a $375 refund for his 2008 taxes. received QUESTION How much of this refund should John include in his year 2009 income? 17 The Tax Benefit Rule Example ANSWER x John must include in his year 2009 income the lesser John of $2,250, his 2008 deduction for state taxes ($300 + $450 + $1,500 = $2,250) or $450 x $2,500, the amount by which his 2008 itemized $2,500, deductions exceeded his standard deduction deductions or or x $375, the amount of the refund received in year $375, 2009 2009 x Therefore, John includes $375 in income 18 Deductible Interest Expense Types of Deductible Interest Expense: x Trade or business interest x Interest from passive activities Interest x Interest on qualified educational loans x Qualified residence interest x Investment interest to the extent of “net investment Investment income” income” x Prepayment Penalty on Loan : Interest Expense Prepayment 19 Nondeductible Interest x “Personal Interest” is not deductible “Personal Interest” Examples x Interest on bank loans x Interest on credit card debts x Interest on loans from insurance policies or Interest qualified retirement plans qualified x Interest on late tax payments and penalties 20 Investment Interest Expense x Investment Interest Expense is Investment deductible to the extent of “Net Investment Income” Investment x “Net Investment Income” means the Net excess of Investment Income over Investment Expenses x Investment Income is typically Invest...
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This note was uploaded on 06/06/2011 for the course ACE 346 taught by Professor Peter during the Spring '11 term at University of Illinois, Urbana Champaign.

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