[jeff]

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

[HoosierCPA]

@jack when looking at individuals I first try to look at each item and decide what pool it goes into. When I say pool I mean Ordinary Income, Investment Income, Capital Income, Passive Income. Each pool has its own rules.

Capital Loss – Individual can deduct up to 3k against ordinary income
Passive Loss – typically can only offset passive income UNLESS you meet the active user rules for rental property in which case you can deduct up to 25k against ordinary income
Investment Loss – can only offset investment income

So in your situation you would apply the investment loss rules. You can only offset the investment interest expenses against the investment income. The investment income is the 10k minus the 8k in investment expense bringing you to 2k total investment income. Again, investment expense can only offset investment income and NO MORE. The remaining 3k in unused investment expense can be carried forward indefinitely to offset future investment income.

Hope this helps!

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

[HoosierCPA]

Upon the recommendation of a physician, Mark, age 40, has an air filtration system installed in his
personal residence. He suffers from severe allergy problems. In connection with this matter, Mark
incurs and pays the following amounts during the current year:

Filtration system and cost of installation 7,000
Increase in utility bills due to the system 700
Cost of certified appraisal 350

The system has an estimated useful life of 5 years. The appraisal was to determine the value of Mark's
residence with and without the system. The appraisal states that the system increased the value of
Mark's residence by $1,000. Expenses qualifying for the medical deduction in the current year total:
A. $6,700
B. $7,350
C. $7,700
D. $8,050
Explanation

Choice “A” is correct.
Rule: The cost of a home improvement is an allowable itemized medical deduction to the extent it
exceeds any increase in the fair market value of the home (subject to the 10% of AGI floor).
The cost of the filtration system less the increase in the home value of $1,000 is permitted ($7,000 less
$1,000), plus the $700 increase in the utility bills is allowable as an itemized medical deduction
(subject to the 10% of AGI floor). The cost of the appraisal is not deductible as a medical expense but
is deductible as a miscellaneous expense subject to the “2% of AGI” rule.

**This is probably nitpicking. But determining how much your utility bill increase was caused by the new filtration system seems subjective. Seems like that would be hard to accurately calculate. Hell, it could have just been a colder winter and you ran your heat more but you could claim it was caused by the filtration system haha.

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

[Kthompson]

Hi fellow future CPA's,

BEC – 74, 73, retake 1/9/17
REG – 70, retake 2/27/17
FAR – First attempt 5/5/17
AUD – First attempt 7/1/17

Becker self-study, senior analyst at Big Four firm in NYC

[Farhan125]

@Jack The deduction by an individual taxpayer for interest on investment indebtedness is “limited to the taxpayer's net investment income for the year”.

FAR: 84
BEC: 75
REG: 1/30/2017
AUD: 5/30/2017

[RE2PECT]

@dtatham10- You're definitely nitpicking on that one 😂. I think they're just looking to see if you know what's included in the expenses and how the increase in the house's value lowers the overall expenses that can be deducted.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[jack yassa]

@dtatham10


@Farhan125

I'm sorry guys i still don't get it why he didn't subtract the 5000 which is interest expense from the 10,000 ?

Thanks.

[Tardis_Wobble]

Hi Jack –

That question frustrated me too! There is just one key part you are missing:

So the simple rule is that Investment Interest expense can only be deducted to the extent of Investment Income. (You have that rule down well)
10,000 – 5,0000 = 5,000

however

The full rule is NET Income. The 8k is an investment expense (non interest) that will need to be netted against the Investment Income in order to get NET Income that will determine the amount of Investment Interest Expense you are allowed to deduct.

SO:
10k Investment INcome – 8k Investment Income Expense = 2k Net Investment Income. Of that 5k in investment interest expense, only 2k is allowed to be deducted against that net investment income.

Please let me know if this helps 🙂

FAR - 76 - [4]
BEC - 71, 73, September 9 2016
AUD - July 28 2016
REG - October 2016

Black coffee, stress, and cottage cheese pancakes!

[RyanC23]

I take REG tomorrow for the first time. Definitely under studied, but lets see what happened.

Anyway Ive spent the last week mainly reviewing the tax portion, and likely wont have too much time to allocate to the Law portion today. Lets say I spend 2-3 hours reviewing all the Law (which I know is not enough) but are there any topics you think I should definitely focus on? Just trying to figure out how to best allocate my time, rather than try to review everything equally.

Thanks

AUD 88
BEC 8/16/2016
REG TBD
FAR TBD

[RE2PECT]

@ RyanC23- Have you studied blaw at all? There's so much material there that anything is fair game. I think you would be better served focusing more time on ethics and professional responsibilities. It's much less material and is almost the same percentage as blaw. That doesn't mean you shouldn't look over blaw, but since you're pressed for time it would make more sense to know the ethics portion better. Good luck on your exam! Let us know how it went.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[HoosierCPA]

Scenario 1: Laura purchases a building to store inventory for her business. The purchase price is $760K. Beyond this, Laura incurs the following necessary expenses to get the building ready for use: $4K to repair roof, $5K to make interior suitable for her finished goods, and $300 in legal fees.

Scenario 2: Grain Co purchases a piece of equipment for use in its rice-milling business. The purchase price is $50K. In addition, Grain Co pays $1.5K to ship the equipment, $500 for installation, and $400 for testing costs to ensure that the equipment is ready for use. Upon testing, Grain Co finds damage to the equipment that occurred during shipping an pays $3K to make the equipment functional.

Determine the total tax basis of the asset in each scenario

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

[RyanC23]

I did do all the lectures for blaw but feel like i forget a lot of it. But yes, I do have a basis for it

AUD 88
BEC 8/16/2016
REG TBD
FAR TBD

[RE2PECT]

@dtatham10

Scenario 1: I'm a little iffy about the legal fees, but I'd say all the extra costs get added to the basis making it $769300.

Scenario 2: I think all the extra costs would be included in determining the total basis making it $55400.

From what I remember, any costs incurred to get the asset ready for its intended use get added to its basis. It's been a while since I seen a question on this so I could be wrong lol.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[HoosierCPA]

@re2pect I thought these 2 scenarios were tricky that's why I posted.

Scenario 1:

760k purchase price
5k to make interior suitable
300 in legal fees
Total: $765,300

4K is R&M, expense immediately

Scenario 2:

50k purchase price
1.5k shipping
500 install
400 testing
Total: $52,400

3k is R&M expense immediately

**What I thought was odd about these 2 scenarios was the first one allows for the $5k to make interior suitable (seems like a maintenance item to me) and then the proceed to now allow the $3K in the 2nd scenario which seems like a similar concept, they needed to repair equipment to make it functional.

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

[Azsensation14]

Going in to take my first REG exam in about….. an hour.
I am averaging 70-90s in BLaw/Ethics/Individual Tax and 50-60s in Corp/Prop/Partnership/gift taxation in Becker!!!
Yipeeeeeee…. looks like I'll be retaking it in April. LOL

Hope everyone's having a great weekend studying!! (please pray for me and I'll pray for you!!)

~Min

[HoosierCPA]

@azsensation good luck! Let me know how it goes!

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

[Author]

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