IRS Rules, Retirement, and Special Topics Flashcards

The Alternative Minimum Tax (AMT) was designed to ensure that:

Answer: High-income taxpayers pay a minimum level of tax regardless of deductions

The AMT is a parallel tax calculation that adds back certain preference items and deductions to ensure high-income taxpayers pay at least a minimum tax.

Foreign tax credits allow US taxpayers to:

Answer: Offset US tax on foreign income with taxes paid to a foreign government

The foreign tax credit (Form 1116) reduces US income tax by the amount of income tax paid to a foreign government on the same income.

What is the annual gift tax exclusion for 2024?

Answer: $18,000

The annual gift tax exclusion for 2024 is $18,000 per recipient, meaning a donor can give up to $18,000 to any number of individuals without gift tax consequences.

Under the like-kind exchange rules (Section 1031), tax deferral is available for the exchange of:

Answer: Real property held for investment or business use

After the TCJA, Section 1031 like-kind exchanges apply only to real property held for productive use in a trade or business or for investment.

A taxpayer inherits stock worth $50,000 that the deceased purchased for $10,000. What is the heir's tax basis?

Answer: $50,000 (stepped-up basis)

Inherited property receives a stepped-up basis equal to the fair market value at the date of death, eliminating built-in gain from the decedent's holding period.

The kiddie tax rules tax a child's unearned income above a threshold at the:

Answer: Parent's marginal tax rate

The kiddie tax applies to unearned income of children under 19 (or under 24 if full-time students) above the annual threshold, taxed at the parent's rate.