– Net investment income = excess of investment income over investment expenses. • Excess is carried forward (indefinitely) subject to same limit in future years.
Qualified Residence Interest- Sec. 163(h)(3) • 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.
Qualified Residence Interest • Interest on up to $100,000 principal amount of home equity loan is deductible – Loan proceeds can be used for any purpose
Qualified Residence Interest • Points (loan origination fees) paid on initial home mortgages are deductible – Points paid to refinance an exiting loan must be amortized over life of loan.
Charitable Contributions – Sec. 170 • Congress allows individuals, corporations, estates and trusts to deduct contributions to certain qualified organizations. • Partnerships & S corps pass the contributions through to their partners and shareholders who then claim the deductions on their own income tax returns.
Charitable Contributions • Qualified charitable organizations – Gov. units (federal, state and local govt.) and entities formed and operated exclusively for religious, charitable, scientific, literary or educational purposes, including churches, nonprofit hospitals, school and universities, libraries, and social service agencies • Direct contributions to needy individuals are not deductible
Charitable Contributions • No deduction allowed to the extent that valuable goods or services are received in return for the contribution – Exception - contributors to universities who receive preferred rights to purchase tickets for university athletic events may deduct 80% of the amount of their contribution.
Charitable Contributions • Individuals can deduct up to 50% of AGI – Excess contributions may be carried forward up to 5 years
Charitable Contributions • No deduction for contributions of the taxpayer ’ s services and rent-free use of the taxpayer ’ s property – Out-of-pocket costs incurred for volunteer work for a qualifying charity are deductible • Property other than long-term capital gain property is valued at lesser of FMV or basis
Contributions of LTCG Property • LTCG property is valued at FMV (which is often greater than adjusted basis) – Tangible personalty given to a charity which does not use the property in its tax-exempt activity is valued at the lower adjusted basis
Contributions of LTCG Property • Deduction for LTCG property valued at FMV is limited to 30% of AGI – 30% limit can be avoided (and 50% AGI limit applied) if taxpayer elects to use lower basis – If made, election applies to all LTCG contributions that year
Charitable Contributions • Stocks or other income producing property that have declined in value should be sold so that the loss can be claimed with the sale proceeds donated • Fees incurred for appraisals of donated property may be deducted as a misc. itemized deductions • Deduction for donated vehicles sold by charity limited to gross sales proceeds
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- Fall '08
- Taxation in the United States