Steven M' Foulks, CPA, CFP

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Personal itemized deductions

• Steven M. Foulks, CPA, CFP

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Introduction

• In addition to certain employee business
  expenses, and some 212 expenses (investment
  related) , certain personal deductions are
  allowed as deductions from AGI (i.e., itemized
  deductions)
• Except for medical expenses, these deductions are
  allowed only for expenses of the taxpayer

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Agenda

• HSAs
• Charitable deductions
• Interest

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HSA

• Health Savings Account
• Criteria to establish
• Annual insurance policy deductible must be
  gt1,100 for single, 2,200 for family
• But total non premium costs must be less than
  5,500 for single, 11,000 for family

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HSA

• Deductible FOR AGI
• Deduction limit, lesser of
• Premium,
• Annual policy deductible
• 2,850 single, 5,650 family
• Add 800 to the limit if gt 55 years old
• Not available when eligible for medicare

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HSA

• Distributions that are used for medical care do
  not trigger any taxation, otherwise
• Taxable and subject to a 10 if under 65,

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Charitable deductions

• Steps in the process
• 1st - determine the type of charity
• 2nd - determine the maximum deduction based upon
  type of property

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Charitable deductions

• 3rd - determine category of deduction
• 4th- determine the actual deduction
• 5th - determine carryover

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Types of charities

• Public charity - United Way, NMU, church, etc.
  (50 charity)
• Private foundation - receives money from selected
  private individuals - There are 2 types and the
  type has a bearing on the amount of the
  deduction

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Types of Private Foundations

• operating - distributes money in a charitable
  manner as you and I would (50 charity)
• non operating - accumulates it funds for special
  uses (e.g., for research into rheumatic heart
  disease) (generally a 30 charity)
• Note 50 (30) charities become 30 (20)
  charities, where capital gains property is
  contributed

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Three types of property maximum deduction

• Cash
• Deduction cash given
• Ordinary income(OI) - would generate OI (STCG) if
  sold
• Deduction FMV of property - ordinary income
  ordinary loss

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Three types of property maximum deduction

• Capital gain property (CG) - property if sold
  would have generated LTCG treatment
• Deduction FMV of property
• 2 exceptions - If property contributed to certain
  private nonoperating foundations, or tangible
  personalty put to an unrelated use, then
• deduction is limited to the FMV - LTCG if the
  asset had been sold

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Charitable deduction hierarchy

• First utilized - 50 deductions
• Next - 30 deductions
• Lastly - 20 deductions
• Then carryovers in the same order on a FIFO basis

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Charitable deductions (other issues)

• If one were willing to reduce the CG property
  deduction, this reduced deduction will qualify
  for the 50 ceiling, rather than the 30 ceiling

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Charitable deductions (other issues)

• Assume Wayne Rainey has AGI of 100,000. His
  only charitable contribution is stock given to
  NMU. The stock cost 40,000, 3 years ago and has
  a FMV of 50,000. What are his deduction
  possibilities?

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Charitable deductions (other issues)

• Regular deduction - 30 of AGI or FMV whichever
  is smaller (30,000 in this case, with a 20,000
  CO)
• Reduced deduction - 50 of AGI or FMV - LTCG if
  sold which ever is smaller (40,000 in this case,
  with no carryover)

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Charitable deductions (deduction)

• MAX SPECIFIC OVERALL ACT.
• CATEGORY DED. LIMIT LIMIT DED. CO
• 50
• --------------------------------------------------
  -----------------------------
• 30
• --------------------------------------------------
  -----------------------------
• 20
• --------------------------------------------------
  -----------------------------
• CO'S
• --------------------------------------------------
  -----------------------------
• To solve contribution problems complete the 1st 3
  columns and then complete columns 4 and 5 row by
  row

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Interest

• Investment interest - the deduction is limited to
  net investment income (NII)
• NII Passive income (dividends, interest, rents,
  royalties not in a business) - lesser of related
  expenses, or Misc ID. (computation excludes LTCG,
  normally)

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Interest

• Home mortgage interest - limited to interest on
  1MM of acquisition indebtedness on qualified
  residence
• Home equity loan - limited to the interest on the
  lesser of 100M or FMV of home minus outstanding
  acquisition indebtedness

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Interest

• Student loan interest
• Interest is deductible for AGI except
• not allowed if you are a dependent of another

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Interest

• Student loan interest
• limit on annual deduction-
• 2,500 in 2007

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Interest

• Student loan interest
• Available for tuition, room and board and related
  expenses for graduate and undergraduates
• Deduction is phased out for MAGI
• 55M to 70M for singles
• 110M to 140M for marrieds

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Higher Education deduction

• Expenses are the same as those that qualify for
  the HOPE credit
• 2002-3 3,000
• 2004-5 4,000
• For AGI lt 65M (single), or 130M married
• Not available for MFS

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Higher Education deduction

• For AGI
• gt 65M (single) but lt 80M, or
• gt130M (married) but lt 4160M
• 2004-5 2,000
• Cannot be used in conjunction with any other
  credit, State EAP