[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for REG. 🙂

[Claudia408]

for those who have taken Reg a few times… how are you studying? do you feel like you know the material bc you've done sooooo many MCQs already?

sadly, going on #5 here but i'm only using Ninja MCQ for the 3rd time (haven't used Ninja since August 1) and i'm breezing by the questions. how do i know if i'm learning more stuff? i don't think i've memorized answers, more like i've memorized the current “tricks”.

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[jack yassa]

@dtatham10
I think i got it know. Thank you so much 😀

[wakefern58]

Hi guys. The explanations for AMT questions are poorly written so could someone who has a grasp on this please clarify that I have the thought process right here. Your help is greatly appreciated!

For AMT – Med Expenses are allowable as itemized deductions for the amount that exceeds 10% of AGI. Med Expenses that do not exceed 10% of AGI are add backs. For Med Expense AMT purposes, the 10% of AGI threshold is for under 65 as well as 65+. So if a 65+ couple used the 7.5% of AGI limit for med expense to compute regular tax income, you would have to add back the remaining 2.5% of med expenses to reach 10% total for AMT purposes.

For AMT – Misc. Itemized Deductions are allowable for the expenses up to the first 2% of AGI. Misc. Itemized deductions exceeding 2% are add backs.

Do I have this right?

[jack yassa]

@wakefern58
This is helpful, what about taxes ? how do you distinguish between the Add back and the itemized one ?

Thanks.

[HoosierCPA]

@wakefan close…the 2nd paragraph on the 2% itemized is a little off, there is never an allowable deduction for misc expenses under 2%. Individual tax rules are you are allowed to deduct misc itemized deductions only for expenses exceeding the 2% AGI so anything under that 2% would never be allowed in any instance.

So having said that, 2% misc item deductions are add backs to the extent that exceeds the 2% threshold. Your medical explanation looks good. you are allowed to deduct expenses exceeding 10% however if you are 65 or older and you claim the 7.5% threshold then you need to add back the 2.5%.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

@jack for your answer above. I would say its B. $23,750. It's important when looking at these AMT questions if they are asking for “add back” adjustments or “itemized deductions”. In this case they want to know add backs.

Real Estate Taxes – 18k
Medical Expenses – (150k * 2.5%) = 3.75k
Misc Item – 2k
Total – 23.75k

The one real curveball in this question them taking the additional medical expenses for being older then 65. You have to add back the 2.5% for AMT purposes.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[jack yassa]

@dtatham10
I got you, so if they are not above 65 we would had added back the whole 15,000 ? since its add back and we add all medical expenses < 10% of AGI?

AM I right?

[HoosierCPA]

@jack yassa no, if they are under 65 its an allowable deduction. So let me try to break it down in simplified #'s

======================
Over 65 years of age 20k medical expenses 100k adjusted gross income:

1) Normal Taxable Income for >65 years:
20,000 medical expenses – (20,000 (100,000 x 7.5%)) = 12,500

IF they weren't 65…lets say they were 45…now the 7.5% threshold doesn't come into play:

2) Normal Taxable Income for <65 years:
20,000 medical expenses – (20,000 (100,000 x 10%)) = 10,000

Basically the IRS is disallowing the tax benefit you get for being old..if you see in example 1 you would normally get a benefit of 12,500 for being old..in example 2 you only get a 10,000 benefit for being less then 65…you take the difference and you ADD BACK to your taxable income. So in this case the add back is 2,500 (12,500 – 10,000)

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[wakefern58]

@Jackyassa

The answer is 38,750.
15,000 home equity loan is added back (this is not acquisition indebtedness).

[wakefern58]

@dtatham10 thanks for the clarification! Much appreciated.

@jack Yassa

The answer is 38,750.
15,000 home equity loan is added back (this is not acquisition indebtedness which is allowable deduction).
18,000 for Real estate & state income tax are add backs.
3,750 for Mex expenses is added back (2.5% added back for AMT purposes for 65+)
2,000 added back for Misc Itemized deductions (2% of AGI is 3000 so the 2000 excess is added back).

Total is 38750.

[Namstut]

@wakefern58 the home equity loan was related to the purchase of the mobile home and it is considered a primary residence for AMT purposes, therefore, the interest is an allowable deduction and it should not be added back. I was confused by this one too so I had to research it. I assume the motor (mobile) home was not used on a transient basis in this case (see below).

For the regular tax, a qualified residence (in the case of the taxpayer’s principal residence and an elected second residence) includes a house, mobile home, condominium, houseboat, house trailer, and stock held by a tenant-stockholder in a cooperative housing corporation. For AMT, this is also the case for the taxpayer’s principal residence. However, for AMT purposes, the second residence can only be a home, apartment, condominium, or a mobile home not used on a transient basis.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[jack yassa]

Thanks a lot guys for that. that's awesome!
I got more question in the Basis area “C” corp

Question CPA-06003
In April, X and Y formed Z Corp. X contributed $50,000 cash, and Y
contributed land worth $70,000 (with an adjusted basis of $40,000). Y
also received $20,000 cash from the corporation. X and Y each
receives 50% of the corporation's stock. What is the tax basis of the
land to Z Corp.?
a. $40,000
b. $50,000
c. $60,000
d. $70,000
I'm just wondering how much is “Y” S/H basis in the land ?
He received $20,000 shall he add is to his basis as a recognized gain or shall he subtract it !!? I'm confused.

[Namstut]

Jack Yassa, the shareholder's basis in the property contributed is the adjusted basis of the property contributed, less any debt assumed by the corporation, plus any gain recognized on property contributed, minus any cash received from the corporation.

You have to remember that you have to account for gain recognized by Y (boot received).

His realized gain is 60,000-40,000=20,000
His recognized gain is $20,000 – cash received from the corporation.

So in this case for Y

$40,000 – Adjusted basis of the land
+$20,000 – gain recognized
-$20,000 – cash received from the corporation
=$40,000 – Y's basis

I would recommend going through REG-3 SIM #1, testlets 2,3 and 6, they will definitely help you understand the concept.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[wakefern58]

@Namstut

Becker has the correct answer being 38,750 with the 15,000 added back. I'm guessing the question wants the candidate to assume the mobile home is on a transient basis. I supposed this is why the question was thrown out! Ha best of luck on the test

[HoosierCPA]

@wakerfern yearh I messed up on my explanation as well the $15k is a disallowed deduction for AMT so it should be an add back. I apologize for confusing everyone!!!! Mortgages on your house is deductible EQUITY loans are not.

AMT is a tricky topic–I would suggest not spending an eternity on it. I have taken the exam 4 times, so take that for what it's worth. The first time I sat for REG I spent an eternity on AMT, wasted hours of studying off and on trying to get it down. I finally got to a point where I felt confident and actually wanted to see it tested. Lets just say this forum is the most use I've gotten out of my AMT knowledge hahaha.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Author]

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