CHART OF FORMULAS Social Security Section 86 Lesser of Half the social security Or On-half the excess AGI plus

s half of the SS benefits minus Base Base: 25,000 indiv, 32,000 joint return, zero if married at the end of taxable year but does not file joint return see 7703 Section 151 Personal exemptions $2,000 Phaseout reduced by 2% for each 2,500 that exceeds the Threshold 150,000 in case of jt. return 125,000 in case of H of H 100,000 in case of Indiv. 75,000 in case of married separate (b) Taxpayer and spouse (c) additional exemption for dependents Section 152 - Dependents Defined Qualifying child or Qulaifying relative Principal place of Abode as taxpayer fro than half the year Not attained age 19 or age 24 if student Who has not provided over one-half of indiv own support Section 79 Group term Life Insurance Excluded up to the cost of 50,000 $500 for 50,000 excluded from GI But if 650 for 65,000 then $150 is included Section 72 Exclusion ratio Gross income does not include amount of investment HYPO: Pay $1000 for the annuity K = investment in the K Annuity pays $100 x 20 years = 2000 = expected return Exclusion Ratio investment in K/expected return = 1000/2000 = = exclusion ratio Ratio is fixed at start So in one year when I get payment of $100, how much is tax free? $50 tax free How much have I excluded as tax free over 20 years? $1000 The portion excluded from GI shall not exceed the unrecovered investment

Section 163 Investment Interest Deduction Hypo: What is Classic Investment Interest? Interest Pay on Margin Year 1 Borrow money from Merril Lynch to purchase stock or bond for $100 Borrowed stock pays dividend of $5 Owe interest to Merrill Lynch of $7 How much deduction goes to taxpayer? $5 because deduction cant exceed net gains What happened to $2 can be treated as carryover in next year and as deduction in next year Next year owe $7 plus $2 = owe $9 Year 2 taxpayer gets dividend of $10 So in Yr 2 deduct can deduct whole $9 because net gain is $10 OID redemption price at maturity minus the issue price borrow 600,000 at 10 yrs 1,000,000 OID = 400,000 Puts both borrower and lender on accrual basis so that borrower can claim deduction and the lender can claim income (h)(3)(A) Qualified Residence Interest (B) Acquisition Indebtedness - Deduct interest on 1,000,000 in debt interest on home mortgage (C) Home Equity Loan 100,000 max Section 170 Only deduct up to 50% of AGI so if you donate 50,000 and your AGI is 100,000 you can deduct up to 50,000 so entire amount Substantiation written acknowledgement if over $250 For cars, boats if over $500 need written acknowledgement Section 274 Directly related to or in case of item, directly proceeding or following a bona fide business mtg Restrictions on foreign travel Substantiation for traveling and meals Section 274(n) 50% entertainment expense allowed unless in exception 132(e) di minimis fringe or described in para 2,3,4,5,7,8,9

Section 280A PPOB deduction if regularly used as Principal place of business fro any trade or business of taxpayer As a place which is used by patients, clients or customers in meeting or dealing w/taxpayer in normal course of trade or business In case of separate structure whichis not attached to the dwelling unit, in connection with taxpayers trade or business PPOB includes place of business used for administration or management activities of any trade or business of the taxpayer if there is no other fixed location where taxpayer conducts substantial admin or management activities of such trade or business Section 1033 Involuntray Conversions (a)(1)(A) at the election of the txpayer, for purchase of other prop similar or related in use, gain shall be recognized only to extent that the amount realized upon such conversion exceeds the cost of such other property or such stock. Hypo: Basis 100,000 Insurance 1,000,000 New Home Cost 900,000

100,000 this is the gain recognized SECTION 1033(2)(B)(i) PERIOD W/IN WHICH PROP MUST BE REPLACED (i) within 2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized 1033(b)(2) basis = cost of property decreased in amount of gain not recognized Hypo: #1 When Home costs same as Insurance gives: Basis 100,000 Insurance 1,000,000 New Home Cost 1,000,000

Basis: 1,000,000 minus 900,000(amount of gain not recognized (1,000,000 100,000 = 900,000) = 100,000 #2 When home costs more than Insurance Gives Basis 100,000 Insurance 1,000,000 New Home Cost 1,200,000

Basis: 1,200,000 decreased by the amount of gain not recognized 1,200,000 - (1,000,000 (insurance) 100,000 (old basis) = 900,000) = 300,000

#3 When home cost less than Insurance Gives: Basis Insurance New Home Cost 100,000 1,000,000 900,000 New Basis: 900,000 decreased by amount of gain not realized 900,000 (900,000 (cost of new home) 100,000 = 800,000) = 100,000 So when you sell it, that is when 800,000 will be recognized NOTE 1033 only applies to gain Basis 200,000 Insurance 1,000,000 New Home 1,200,000

New Basis: 1,200,000 minus 800,000 = 400,000 Another way of calculating original inv(200,000) plus new addl inv (200,000) = 400,000 When purchase home do you have gain? only if the amount realized exceeds the cost of the new home SECTION 1031 Nonrecognition from gain or loss of property solely in Kind No gain no loss recognized prop held for use in trade or business or for investment if exchanged solely for prop of like kind which is held for use in trade or business or investment Does not apply to stock, securities Basis same as property exchanged gain from exchanges not solely in kind boot (does not have to be for trade or investment could be personal prop(computer) shall be FMV or sum recd LOSS not recognized under 1031 Prop must be identified within 45 days and exchange completed within 180 days Section 172 Net Operating Loss To extent there are losses deduction allowed - carryforward for 20 years or carryback for 2 years Section 1212 Net Capital Losses For Corp carryback 3 yrs, carryforward 5 For individual carryforward indefinitely

CREDITS SECTION 21 Expenses for Household Services and Dependent Care 3000 for 1 child 6000 for 1 or more 35% reduced by the applicable % (not below 20%) 1% for every 2000 of AGI that exceeds 15,000 Qualifying Indiv Below age of 13 Dep who is physically or mentally incapable of caring for self Spouse who is phyisically incapable of caring for self Expenses enable the taxpayer to be a gainfully employed Household services For care of qualifying child Section 24 Child Care Credit 1000 reduced by $50 for every 1000 by which taxpayer AGI exceeds Threshold (but Not below Zero) Thresholds: 110,000 in case of jt return 75,000 in case of indiv 55,000 in case of married filing separate Section 32 Earned Income Credit Eligibleindiv Principal place of abode for more than one-half year is US Age 25 Not a dependent Amount of credit shall not exceed credit excess of credit over phaseout % Section 25A Hope and Lifetime Learning Credit Hope 100% of qualified tuition does not exceed 1000 limited to 2 years And 50% of expenses as exceeds 1000 but not applicable limit Lifetime Learning Credit 20% of tuition and expenses do not exceed 10,000 Limitation reduction based on AGI but not below Zero Reduced by ratio AGI over 40,000 bears to 10,000 (20,000 in case of jt return)

Installment Method Section 453 At least one payment to be received after close of taxable year Income realized - Ratio of gross profit over contract price 10 1 = 9 profit $2 X 9/10 = 1.80 report as income pro-rate income Does NOT include Dealer Dispositions and Inventory of Personal Prop

Section 1245 Gains from Depreciable Property 1245 prop personal prop boxcar, airplane Lower of A)recomputed basis of prop (basis add back depfreciation) or B) in case of sale, The amount realized which exceeds adjusted basis Shall be treated as ordinary income (A) 1000(bought it) 900(dep) = 100(basis) Sold for 1200 100 = 1,100 1000 (recomputed basis) 100 (adj basis) = 900 is to be treated as ordinary income Only $200 cap gains What if sold it for $800 (B) 800 100 = 700 1001 gain amount realized minus adj basis so entire 700 is ordinary income

1341 Computation of Tax where taxpayer restore Substantial Amount of held Under Claim of Right If It appeared taxpayer had unrestricted right, Deduction allowable because it was established taxpayer did not have unrestricted right Deduction exceeds 3,000 Then Tax imposed shall be the lesser of: The tax for taxable year computed with deduction Or an amount equal to o Tax for taxable yr computed w/deduction minus o The decrease in tax that would result fro the prior taxable yr if it was excluded from GI in the prior taxable yr