November 2005

Q1) I read it in the text on page 30. It is a bullet point under "Above-The-Line" Deductions. It reads: Losses from the sale or exchange of property. Unless it does not mean personal residences? Please clarify.

[Christine's Answer] In very simply terms, if you have a residence, such as residential rental property, and you sell that rental property at a loss it would be an above the line deduction, subject to possible other limitations. But generally, yes, this would be an above the line deduction.

However, personal residences (the home you live in), those losses are never deductible.

Q2) The lecture points out that Losses on sale of residence are never deductible, but aren't they an Adjustment to Income or "Above-the-Line" deductions?

[Christine's Answer] Losses on the sale of personal residences are never deductible. Therefore, they are neither above the line nor below the line deductions. For income tax purposes, the taxpayer is simply out of luck with losses on personal residences..

Q3) Question #5 on Quiz 2 has two answers that could be correct: Age test
and Head of Household. Can you clarify?

[Christine's Answer] The correct answer is (d) head of household because it is the better answer Age test is not the best answer because age combined with gross income test is used to determine to determine whether a taxpayer is entitled to take a dependent exemption. For example, under the gross income test, you may not claim as a dependent a person who had gross income of $3,100 or more for 2004. There are two exceptions to the gross income test. If your child is under age 19 at the end of the year, or is a full–time student under the age of 24 at the end of the year, the gross income test does not apply.

Q4) Question #18 on Quiz 2 is a little unclear b/c it is based on income (the # of children the individual has also determines earned income credits).

[Christine's Answer] I agree it is not a good question. It is a big tricky. The answer is d - none of the above. This is the best answer because the Earned Income Credit is not based on the amount of taxes you paid last year (you can receive a refund without paying taxes). It's not based on the number of children you claim as a deduction, it is based on the number of qualifying children with a maximum of 2 (you may have claimed 8 as a deduction/exemption),and it is not based on tax credits available.

Q5) What the definition of Natural Person was in cir. 230 because the circ. did not define it.

[Christine's Answer] IRC 7701 is a section devoted to definitions. This section defines person, however, it does not define natural person. Person is defined as follows: “person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. IRC 7701(a)(1).

Through not specifically defining “natural person”, the IRC implies that a that a “natural person” is a person with inalienable rights, a flesh and blood human being, the sovereign individual.

In addition, if you are wondering if the IRC defines “individual”, it does not.


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