REG formula sheet & cheat sheet
Every tax threshold, dollar limit, and classification rule in one place. Review the night before, skim the morning of.
OBBBA-updated. Figures reflect the amounts taught in the lessons (2025 where the lessons state it, 2026 for the transfer-tax exclusion). Tax numbers are indexed each year, so confirm the current-year amounts for your testing window.
1. Statutes, penalties, and practice standards (R1, R2, R3)
Assessment statute: 3 years (general) from the later of the filing date or due date; 6 years if the taxpayer omits > 25% of gross income; unlimited for fraud, no return, or willful evasion.
Collection statute: 10 years from the date of assessment.
Failure to file = 5% of unpaid tax per month, max 25%. Failure to pay = 0.5% per month, max 25%. When both apply in a month: 4.5% file + 0.5% pay = 5% combined.
Accuracy-related penalty = 20% (negligence or substantial understatement, the greater of 10% of correct tax or $5,000 for individuals). Civil fraud = 75%.
Preparer penalty (Section 6694): unreasonable position = greater of $1,000 or 50% of preparer income; willful or reckless = greater of $5,000 or 75%.
Confidence levels: more likely than not (> 50%) and substantial authority (~ 40%) need NO disclosure; reasonable basis (> ~ 20%) avoids the penalty ONLY if adequately disclosed; frivolous is never acceptable.
90-day letter: only the U.S. Tax Court lets you litigate WITHOUT prepaying (petition within 90 days). District Court and the Court of Federal Claims require pay first, then sue for refund.
Practice housekeeping: Circular 230 conflict consent must be written and kept 36 months; Sarbanes-Oxley requires audit workpapers be retained 7 years.
2. Basis by method of acquisition (R9)
| Acquisition | Basis for gain | Basis for loss | Holding period |
|---|---|---|---|
| Purchase | Cost + acquisition costs | Same | Begins at purchase |
| Gift | Carryover (donor) basis | Lower of carryover or FMV | Tacks if carryover basis used |
| Inheritance | FMV at death (or alternate valuation date) | Same | Automatically long-term |
Gift double-basis dead zone: when the later sale price lands BETWEEN the FMV (loss basis) and the carryover (gain basis), NO gain or loss is recognized. The alternate valuation date is generally 6 months after death and applies only if it lowers both the gross estate and the estate tax.
3. Cost recovery: Section 179, bonus, and MACRS (R9)
Ordering rule: (1) Section 179, (2) bonus depreciation on remaining basis, (3) MACRS on what is left.
Section 179 = min(cost, $2.5M ceiling − phaseout, business taxable income). 2025 ceiling is $2.5 million, reduced dollar-for-dollar once additions exceed $4 million (gone at $6.5M). Cannot create a loss; excess carries forward.
Bonus depreciation = 100% and permanent under OBBBA for qualified property (MACRS life ≤ 20 years, new OR used to the taxpayer) placed in service after January 19, 2025. Automatic unless you elect out by class. Bonus CAN create a loss.
MACRS conventions: personal property (5- and 7-year) uses 200% declining balance, half-year convention, but mid-quarter is forced if > 40% of the year’s personal property is placed in service in Q4. Real property uses straight-line, mid-month: 27.5 years residential rental, 39 years nonresidential.
Amortization: Section 197 intangibles (purchased goodwill, covenants, franchises, customer lists) amortize straight-line over 15 years (180 months). Start-up and organizational costs each get a $5,000 immediate deduction, phased out above $50,000, remainder over 180 months.
Section 179 goes first because it is capped and income-limited; it never creates a loss, but bonus can. Land is never depreciable.
4. Capital gains, losses, and recapture (R10, R11)
Holding period: long-term = held MORE than one year (a year and a day); individual long-term capital gains use the 0% / 15% / 20% rates.
Individual capital loss = deduct against ordinary income up to $3,000/year ($1,500 MFS); excess carries forward INDEFINITELY, keeping its character. No carryback.
Corporate capital loss = offsets capital gains ONLY; carry back 3 years, forward 5 years; every carryover is treated as short-term.
Wash sale: loss disallowed if substantially identical securities are bought within 30 days before or after the sale (61-day window); disallowed loss is added to replacement basis.
Section 1245 (personal property): ordinary recapture = min(recognized gain, accumulated depreciation). Gain above original cost is Section 1231.
Section 1250 (real property): recaptures only depreciation in EXCESS of straight-line (usually $0 under MACRS). Individuals pay a maximum 25% on unrecaptured Section 1250 gain (the straight-line depreciation portion).
Section 1231 best of both worlds: net Section 1231 gains are long-term capital gains; net Section 1231 losses are ordinary (no $3,000 limit). The 5-year lookback recharacterizes current net Section 1231 gain as ordinary up to the prior 5 years’ unrecaptured Section 1231 losses. Recapture is figured BEFORE Section 1231 treatment, and losses on sales to related parties (Section 267) are disallowed.
5. Nonrecognition: Section 1031, 1033, and 121 (R12)
Section 1031 like-kind: real property held for business or investment ONLY (post-TCJA). Recognized gain = min(realized gain, boot received). Losses are never recognized. Boot includes cash and net debt relief.
Substituted basis = FMV of property received − deferred (unrecognized) gain.
Section 1033 involuntary conversion: defer gain to the extent proceeds are reinvested in qualifying replacement property. Replacement period is generally 2 years (3 years for condemned business or investment real property) from year-end.
Section 121 home-sale exclusion: exclude up to $250,000 ($500,000 MFJ) if owned AND used as the principal residence for at least 2 of the last 5 years; usable once every 2 years. Excess gain is capital.
Boot received triggers gain, not boot paid. A like-kind exchange between related parties is unwound if either party disposes of the property within 2 years.
6. Standard deduction, filing status, and OBBBA deductions (R13)
2025 standard deduction: $15,750 single, $31,500 MFJ, $23,625 head of household, $15,750 MFS. Add the age-65/blind amount (about $1,650 unmarried / $1,350 married per condition) for each qualifying taxpayer.
OBBBA above-the-line deductions (2025-2028): qualified tips up to $25,000; overtime premium up to $12,500 ($25,000 MFJ); U.S.-assembled car-loan interest up to $10,000; senior deduction $6,000 ($12,000 if both spouses 65+), phasing out above MAGI $75,000 single / $150,000 MFJ.
Kiddie tax: a child’s net unearned income above $2,700 (2025) is taxed at the parents’ marginal rate. Earned income is always taxed at the child’s own rate.
Filing status is fixed on December 31. Head of household requires being unmarried, paying more than half the cost of the home, and a qualifying person living there more than half the year. Qualifying surviving spouse keeps MFJ rates for 2 years after a spouse’s death while maintaining a home for a dependent child.
7. QBI deduction, Section 199A (R14)
Tentative QBI deduction = 20% × qualified business income (pass-throughs only, never C corporations). OBBBA made the 20% deduction permanent.
2025 thresholds: $197,300 single / $394,600 MFJ. Below the threshold you get the full 20% with no wage limit and no SSTB exclusion.
Wage/UBIA limit (above threshold) = greater of (50% × W-2 wages) or (25% × W-2 wages + 2.5% × UBIA).
Overall cap = 20% × (taxable income − net capital gains). New OBBBA minimum deduction = $400 if you have at least $1,000 of QBI from active qualified businesses.
QBI comes AFTER AGI: it reduces taxable income but never AGI or self-employment tax. An SSTB (health, law, accounting, consulting, athletics, financial services) loses the deduction entirely above the top of the phase-in range, but gets the full 20% below the threshold. Engineering and architecture are NOT SSTBs.
8. Individual tax credits (R15)
Child tax credit = $2,200 per qualifying child under 17 (2025), up to about $1,700 refundable. Credit for other dependents = $500 (nonrefundable). Both phase out $50 per $1,000 of MAGI above $200,000 single / $400,000 MFJ.
American opportunity credit (AOTC) = 100% × first $2,000 + 25% × next $2,000 = up to $2,500 per student, first 4 years, 40% refundable.
Lifetime learning credit (LLC) = 20% × up to $10,000 of expenses per RETURN (max $2,000), nonrefundable, no year limit. You cannot claim the AOTC and the LLC for the same student in the same year.
Child and dependent care credit = 20% to 35% of up to $3,000 (one qualifying person) or $6,000 (two or more), nonrefundable.
Refundable credits: the earned income credit, the additional (refundable) child tax credit, and 40% of the AOTC. Most other personal credits are nonrefundable.
9. Alternative minimum tax (R15)
AMT = tentative minimum tax − regular tax (if positive). Start with regular taxable income, add preferences and adjustments to reach AMTI, subtract the exemption, apply 26% / 28% rates.
2025 exemptions (TCJA levels, now permanent): about $88,100 single / $137,000 MFJ, phasing out at higher AMTI.
Common add-backs: the standard deduction, state and local taxes, the ISO bargain element (exercised and held), and private-activity municipal bond interest. NOT added back: charitable contributions and acquisition-debt home mortgage interest. You pay the GREATER of the regular tax or the tentative minimum tax.
10. Loss-limitation gates: basis, at-risk, passive (R16)
Order (never rearrange): (1) tax basis, (2) at-risk, (3) passive activity loss. Each gate can suspend a separate slice of the same loss.
At-risk amount = basis − nonrecourse debt you are not personally liable for (qualified nonrecourse real-estate financing still counts as at-risk).
Passive activity loss: passive losses offset only passive income, never wages or portfolio income. Rentals are passive by default. Material participation (about 500+ hours) makes an activity non-passive.
$25,000 active-rental allowance = $25,000 − 50% × (MAGI − $100,000); zero at MAGI $150,000.
Complete disposition: a fully taxable sale of an entire passive activity to an unrelated party frees ALL suspended passive losses. A real estate professional (750+ hours and more than half of working time in real property) treats rentals as non-passive.
11. Corporate formation and the dividends-received deduction (R17, R18)
Section 351 control = transferors own ≥ 80% of voting power AND ≥ 80% of each class of nonvoting stock immediately after. Recognized gain = min(realized gain, boot received); losses never recognized. Services are not property.
Section 357(c) gain = liabilities assumed − adjusted basis of property transferred (only when liabilities exceed basis).
Stock basis = basis of property − boot − liabilities assumed + gain recognized. Corporate basis = transferor basis + gain recognized.
C corp basics: flat 21% rate (no capital-gain preference); charitable deduction capped at 10% of taxable income (5-year carryforward); post-TCJA NOLs carry forward indefinitely, offset only 80% of taxable income, no carryback.
Distribution waterfall: dividend to the extent of E&P → return of capital (reduces basis) → capital gain (excess over basis).
| Ownership of payer | DRD percentage | Taxable-income limit |
|---|---|---|
| Less than 20% | 50% | 50% of taxable income |
| 20% up to 80% | 65% | 65% of taxable income |
| 80% or more (affiliated) | 100% | No limitation |
DRD income limit is waived in any tier when the full DRD creates or increases an NOL. For S corporations, deduct flow-through losses only up to stock basis PLUS direct shareholder loan (debt) basis, never entity-level debt or guarantees; file Form 2553 by the 15th day of the 3rd month for current-year effect.
12. Partnership outside basis and hot assets (R19)
Outside basis = contributions + share of partnership liabilities + income (including tax-exempt) − distributions − losses. A liability increase acts like a cash contribution; a decrease acts like a distribution.
Section 721 formation: no gain or loss and NO 80% control test. Services for a capital interest = ordinary income; gain if liability relief exceeds the basis of contributed property.
Nonliquidating distribution: gain ONLY if cash distributed > outside basis. Property takes a carryover basis capped at remaining outside basis; no loss recognized.
Guaranteed payments: deductible by the partnership, ordinary income to the partner (and self-employment tax); not distributions.
Section 751 hot assets (unrealized receivables and substantially appreciated inventory) convert the related slice of gain on a SOLD interest into ordinary income; the rest is capital gain. Unlike an S shareholder, a partner DOES get basis for the share of partnership liabilities.
13. Transfer taxes and trusts (R20)
| Item | Amount / rule | Year |
|---|---|---|
| Annual gift exclusion (per donee) | $19,000 | 2025 |
| Unified basic exclusion (per decedent) | $15,000,000 (OBBBA, permanent) | 2026 |
| Top unified transfer-tax rate | 40% | Current |
| Marital / charitable deduction | Unlimited | Current |
Gift splitting: spouses may treat a gift as half from each, doubling the annual exclusion to $38,000 per donee (2025). The annual exclusion requires a PRESENT interest; future interests do not qualify.
Taxable estate = gross estate − debts − expenses − marital deduction − charitable deduction.
Trust distribution deduction = lesser of distributions or distributable net income (DNI). DNI also caps the beneficiary’s income and fixes its character. Simple trust exemption = $300; complex trust exemption = $100.
Portability (DSUE) lets a surviving spouse use the deceased spouse’s unused exclusion if elected on the first spouse’s return. The generation-skipping transfer (GST) tax is a separate 40% tax on transfers that skip a generation.
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