[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Good luck Anna and everyone else. Congrats Jstay and everyone else! I'm so happy for you guys and I don't even know you. Probably because I know what you have been through trying to pass this thing!

[Anonymous]

Okay, someone help me out, please…

On Day 1, Jackson, a merchant, mailed Sands a signed letter that contained an offer to sell Sands 500 electric fans at $10 per fan. The letter was received by Sands on Day 3. The letter contained a promise not to revoke the offer but no expiration date. On Day 4, Jackson mailed Sands a revocation of the offer to sell the fans. Sands received the revocation on Day 6. On Day 7, Sands mailed Jackson an acceptance of the offer. Jackson received the acceptance on Day 9. Under the Sales Article of the U.C.C., was a contract formed?

A.

No contract was formed because the offer failed to state an expiration date.

Incorrect B.

No contract was formed because Sands received the revocation of the offer before Sands accepted the offer.

C.

A contract was formed on the day Jackson received Sands' acceptance.

Correct D.

A contract was formed on the day Sands mailed the acceptance to Jackson.

Why is D correct? Is it because Jackson is a merchant? I feel like I have had a million versions of this question and the answer is always B. Struggling to find what makes this one different. Thanks as always.

[No_one]

Can someone please help me with this I am getting super confused…

State taxes are deductible (itemized deduction)

Property taxes are deductible (Itemized ded)

Federal (not deductible)

If we have a rental prop: real estate taxes are ded on schedule E

When we get a state refund its a Income

Correct me If i am wrong here..Super confused..looks like my brain is fried up…

CA Candidate
FAR: You are down...
Aud: Surprised me...Thanks
BEC: 75% work done
REG: It's 80 but I am 100% done 🙂

[Anonymous]

coloradorit, right, merchant can't revoke, it's called firm offer

[Anonymous]

Thanks, Anna.

No one, I think you have it right, but remember that state tax refunds are only taxable for the amount of benefit actually received. So if you dont itemize your deductions, the refund is not taxable. And if you get a $7k state tax refund and your standard deduction would have been $5k, only $2k is taxed.

I'm a little fuzzy on this, so please correct me if I'm wrong.

Two more days and I'm going crrrrrrrrrrrrrrrrrrrrraaaaaaaaaaaaaaaaaaazzzzzzzzzzzzzzzzzzzzzzzzzzyyyyyyyyyyyyyyyyyyyy.

[Anonymous]

No_one,

sounds right to me + you can't deduct both state sales and state income taxes, just one of them

and you don't add the whole refund to income, only to the extent of tax benefit received

[No_one]

Thanks Anna…

And what about property taxes? My test is on Friday and I am mixing things like anything..Don't know what to do..

What do you mean by to the extent tax benefit recd? It means when we have itemized ded in prior year and nw we are getting refund that time we have to add them back to income. but when we take standard ded we don't add them back.

Is that rightt?

CA Candidate
FAR: You are down...
Aud: Surprised me...Thanks
BEC: 75% work done
REG: It's 80 but I am 100% done 🙂

[Anonymous]

A partner's taxable income is the amount of his/her portion of the partnership's income and the income retains the same nature as it had in the partnership (ordinary, CG, etc). Distributions don't affect the partner's income, they only affect basis, except when a cash distribution exceeds basis, then a CG can be recognized.

SHs of a C-Corp are only taxed on distributions. The distribution amount is FMV and the C corp recognizes a gain or loss on distributions.

SHs of an S-Corp are taxed 1) ordinary income for the amount up to current and accumulated E&P; 2) return of capital (no tax) for the distribution up to basis, 3) CG for the distribution in excess of basis. The distribution amount is FMV and the S Corp recognizes gains, but not losses, on distributions.

That's what I have in my brain. Any mistakes? Anything to add?

[Anonymous]

No one, scroll up a few posts. I think you missed my response to you and it may answer some of your questions.

[Anonymous]

I think property taxes for rental property or whatever property is used for business is considered business expenses, the rest is itemized deduction, not 100% sure

this is a mcq on state tax refund, read the explanation:

https://www.another71.com/cpa-exam-forum/topic/state-tax-refund

[No_one]

thanks a lot Anna..Really appreciate your help.

CA Candidate
FAR: You are down...
Aud: Surprised me...Thanks
BEC: 75% work done
REG: It's 80 but I am 100% done 🙂

[Meddik]

@coloradorit

Let me start off by saying I haven't reviewed that chapter in a couple weeks….but I believe that by making the offer (not sure if being a merchant is necessary or not but I think it is) in which you promise not to revoke it, it's irrevocable for either the time period stated or up to 60 days.

Had he not made such a promise, Jackson would have successfully revoked the offer because it was received before Sands sent the acceptance. If Sands had sent the acceptance later, and then gotten the revocation letter the next day, the acceptance would win out because of the mailbox rule.

@No_one

Here's an example:

Year 1 you pay $6,000 in state income tax, thus you deduct $6,000 (only if you itemized)

Year 2 you receive $2500 back in a state income tax refund. So, you know you had a tax benefit. But it is not $2,500 in this case.

You deducted 6000 in state income tax, got 2500 back. But, only the portion of that 2500 that is above the standard deduction is included in gross income.

So 6000 – 3950 = 2050. You must include $2,050 of the 2500 refund in gross income in the year you receive the refund.

Why? Because if you included the full $2500, you would have ended up with itemized deductions last year of $3,500. And why would anyone take that when the standard amount is $3,950?

If your state income tax $6000 and you had a refund of $1000, you would include the full amount of the refund in gross income.

FAR - 86
REG - 83
AUD - 97
BEC -

[No_one]

Thanks Meddik..It makes much more sense now..

CA Candidate
FAR: You are down...
Aud: Surprised me...Thanks
BEC: 75% work done
REG: It's 80 but I am 100% done 🙂

[Anonymous]

Thanks, Meddick. I finally found it in my text:

Firm Offer Rule

An offer by a merchant seller that includes assurances that it will be held open cannot be revoked for a stated period or a reasonable amount of time. However, the duration cannot be more than 3 months. The offer must be in writing and signed by the merchant offeror.

[Anonymous]

It took ages formatting this question and then when I was done, the browser shut down and I had to redo everything, but it's really hard for me to read if it's not formatted. I wanted you guys to see this question (I'm looking at you, Willpassby2014 and Anna) because this answers the question we all had on partnership distributions. 🙂

Mondy had an adjusted basis in her partnership interest of $39,000 before receiving a current distribution. In the current distribution (to which Sec. 751 does not apply), she received the following:

Basis FMV

Cash $ 3,000 $ 3,000

Inventory 15,000 17,000

Land 1 10,000 15,000

Land 2 20,000 25,000

What is her basis in each of the items received?

C. $3,000 cash; $15,000 inventory; $7,000 land 1; $14,000 land 2.

Answer (C) is correct.

A partner’s basis in a nonliquidating distribution is the property’s adjusted basis to the partnership immediately before the distribution. This transferred basis is not to exceed the adjusted basis of the partner’s interest in the partnership reduced by any money distributed in the same transaction. If this limitation applies, the basis is allocated first to unrealized receivables and inventory items. Any excess basis is next allocated, first, to the extent of each distributed property’s adjusted basis to the partnership. Then, the allocation of any remaining basis depends on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not. If the partnership’s bases in the distributed properties do exceed the partner’s remaining basis in the partnership, a decrease is allocated among the properties with unrealized depreciation, in proportion to their respective amounts of unrealized depreciation (to the extent of each property’s depreciation), and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). In a complete liquidation, if the partner’s remaining basis in the partnership exceeds the adjusted bases of the distributed properties, then an increase is allocated among the properties with unrealized appreciation, in proportion to their respective amounts of unrealized appreciation (to the extent of each property’s appreciation), and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). This increase adjustment is only for liquidating distributions. In a current distribution if basis is larger than the properties distributed, the properties keep their adjusted bases and the excess basis is the remaining basis.

In this case, Mondy will have a $3,000 basis in the cash and a $15,000 basis in the inventory. This leaves $21,000 of basis to allocate to the two parcels of land ($39,000 beginning basis – $3,000 cash – $15,000 inventory). The first step, however, is to assign each parcel of land its carryover basis from the partnership ($10,000 for land 1 and $20,000 for land 2). Since the total adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership, a $9,000 decrease must be allocated next ($30,000 total adjusted bases of land – $21,000 remaining basis in partnership interest = $9,000 decrease to allocate). The $9,000 decrease is allocated in proportion to the respective adjusted bases of the land at this point in the calculation ($10,000 land 1 and $20,000 land 2) [($3,000) to land 1 and ($6,000) to land 2]. The calculation of the allocation of basis to land is shown below:

Land 1 Land 2

Carryover basis $10,000 $20,000

Allocated decrease (1/3 to Land 1 and 2/3 to Land 2)

(3,000) (6,000)

Basis $ 7,000 $14,000

Edit: Now I see that I've wasted my time twice, all my spaces have been deleted even though when i edit it still shows in perfect rows and columns. 🙁

[Author]

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