 Prizes and awards
 Scholarships
 Alimony received
 Child support received
 Property settlements pursuant to divorce
 Employee fringe benefits
16-1
 Imputed Income
 Below market-rate loans
 Payment of expenses by others
 Bargain purchases

 Gifts and inheritances
 Life insurance proceeds
 Welfare payments
 Social Security benefits
 Medical insurance payments

Workmen’s compensation
 Compensation for injuries
 Unemployment benefits
 Punitive damages
Payment for lost wages

 Trade or business deductions
 Moving expenses (with limitations)
 Net Capital Losses up to $3,000
 Alimony paid (but not child support)
 50% of self-employment tax paid and 40% of a self-employed person’s medical insurance premiums
 Net operating loss deduction
 IRA contributions
16-3
 Up to $2,500 of post-secondary tuition, phased out for higher income taxpayers

 Medical expenses
 Payments to health care practitioners, medical facilities, insurance premiums, medical aids, prescription drugs
 Only unreimbursed costs
 Deductible in excess of 7.5% of AGI
16-4
 Charitable contributions
 Cash or FMV of property contributed to a qualified tax-exempt organization
 Subject to many limitations
 deduction for gifts to public charities may not exceed 50% of AGI

16-5
 Interest Deductions
 Trade or business interest deducted for AGI
 Investment interest expense
 Deduction limited to amount of net investment income
 Qualified residence interest
 Deduction limited to interest on up to $1 million of acquisition debt plus $100,000 of home equity debt
 Available for a primary and one secondary residence

16-6
 Taxes
 Income taxes
 State, local, and foreign, NOT federal
 Real property taxes
 Personal property taxes based on value
 Other state, local and foreign business-related taxes deducted for AGI
 What common tax we all pay is not deductible?

16-7
 Personal Casualty and Theft losses
 A casualty loss is a loss of property caused by some sudden, unusual or unexpected external force, such as a natural disaster
 Theft means an illegal taking of property, not just loss due to carelessness
 Deduction subject to a $100 per event floor and a reduction of 10% of AGI
 Casualty and theft losses of business property deductible for AGI

16-8
 Miscellaneous itemized deductions
 Deductible only in excess of 2% of AGI
 Include:
 Unreimbursed business expenses
 Investment expenses
 Tax return preparation fees
 hobby expenses
 Gambling losses
 Deductible only against gambling winnings

16-9
 Use of property for both personal and businessrelated purposes may introduce considerable complexity into the calculation of individual taxable income
 Two common examples:
 office in the home
 vacation home

16-10
 Treatment of income and expenses of a vacation home depends on extent of rental and personal use
 If rented 14 or fewer days of year and used personally the remainder of the year, the property is treated as a personal residence. Rental income is not reported and rental expenses are not deductible

16-11
 If rented more than 14 days:
 And used personally for more than 14 days or more than 10% of the number of rental days:
 Income reported as taxable
 Allocable portion of expenses deductible, limited to rental income
 And used personally for less than 14 days or 10% or less than the number of rental days:
 Income reported as taxable
 Allocable portion of expenses deductible

16-12
 Up to $250,000 ($500,000 MFJ) of gain excluded from taxation
 Dwelling must have been owned and used as taxpayer’s principal residence for 2 of last 5 years
 Exclusion applies to only one sale every 2 years
 Reduced exclusion available if sold due to change in employment, health reasons, or unforeseen circumstances
• Reduced exclusion = maximum X lesser of ownership period exclusion or time since prior sale two years

 Tax credits
 HOPE scholarship credit
 Lifetime learning credit
 Interest rules
 Exclude from income interest earned on Series EE savings bonds used for tuition and fees
 Itemized deduction allowed for interest paid on qualified education loans
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 Education savings account
 Maximum nondeductible contribution of $2,000 per year

Withdrawals nontaxable if used for beneficiary’s education expenses