Insurance premiums are not deductible if they are Paid through an employer-sponsored cafeteria plan For disability insurance and for loss of life, limb or income Premiums for long-term care insurance are deductible, subject to limits based on age
11 - 3 Deductible Taxes Deductible taxes include State, local, and foreign real property taxes State and local personal property taxes State, local, and foreign income taxes Other federal, state, local, and foreign taxes incurred in a business or other income- producing activity
11 - 3 Deductible Taxes Prior to 2015, taxpayers could elect to deduct state and local general sales taxes instead of state and local income taxes as itemized deductions Taxpayers could use the actual sales tax paid or IRS-published tables This provision expired at the end of 2014 but could be extended by Congress
11 - 3 Nondeductible Taxes Nondeductible taxes include Federal income taxes Employee's share of payroll taxes Federal excise taxes not incurred for business Assessments on property that increase property value
11 - 3 Interest Expense Deductible interest includes Investment interest Home mortgage interest No deduction for most other personal interest (except previously mentioned student loan interest) including interest on Auto loans Life insurance loans Credit card debt Delinquent tax payments
11 - 3 Investment Interest Expense Investment interest includes interest on loans to acquire or hold investment property and margin account interest paid to a broker Investment interest expense is only deductible to the extent of net investment income Net investment income = excess of investment income over investment expenses Excess is carried forward (indefinitely) subject to same limit in future years
11 - 3 Investment Interest Expense Investment income includes gross income from interest, annuities, and short-term capital gains from investment property Long-term capital gains or dividends taxed at favorable rates are excluded unless election made to forgo the favorable rate Investment expenses include safe deposit box rental fees, investment counsel fees, brokerage account maintenance fees Limited to the lesser of total investment expenses or net miscellaneous itemized deductions after reduction for 2% AGI floor
11 - 3 Qualified Residence Interest Interest paid for acquisition debt or home equity debt for up to 2 qualified residences Interest on acquisition debt of up to $1 million principal amount (combined limit for 2 homes) is deductible Acquisition debt includes mortgage to buy, construct, or improve the residence
11 - 3 Qualified Residence Interest Interest on up to $100,000 principal amount of home equity loan is deductible Equity is the difference between FMV and mortgage debt on the residence Loan proceeds can be used for any purpose Points (loan origination fees) paid on initial home mortgages are deductible Points paid to refinance an existing loan must be amortized over life of loan
11 - 4 Charitable Contributions
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- Spring '12
- Taxation in the United States, Limit