REG Individual Taxation and Return Computation

Individual-tax rules for income, deductions, credits, loss limits, and owner-level pass-through reporting.

This part covers the federal taxation of individuals. The goal is to move from gross income through deductions and limitations to the reporting consequences that affect the return and the taxpayer’s ultimate liability.

Individual tax questions are sequential. A correct deduction or credit answer can still be wrong if the candidate has already misclassified income, ignored a limitation, used the wrong filing status, or failed to connect pass-through information to the taxpayer’s return.

In This Part

Individual Gross Income and Exclusions covers what enters or stays out of the tax base.
Individual Deductions, Credits, and Filing Rules explains how taxable income and liability are reduced.
Individual Loss Limitation Rules covers the limitation regimes that frequently change the answer.
Pass-Through Income Reporting for Individuals connects individual returns to partnership and S corporation activity.

Individual Return Lens

Computation area	What to decide first	Common REG trap
Gross income	Whether an item is included, excluded, deferred, or separately characterized.	Starting with deductions before identifying the tax base.
Deductions and credits	Whether the item reduces income or tax liability and whether limitations apply.	Treating deductions and credits as interchangeable.
Loss limits	Which limitation regime applies and in what order.	Applying a loss before checking basis, at-risk, passive, or other limits.
Pass-through reporting	Character, separately stated items, basis, and owner-level limits.	Combining pass-through amounts without preserving character.

Individual Tax Review Sequence

Step	Return question	Why order matters
1. Establish filing context	What filing status, dependency facts, taxpayer age, and return limitations apply?	Several deductions, thresholds, and credits depend on taxpayer status before computation begins.
2. Build gross income	Which items are included, excluded, deferred, or separately characterized?	The tax base must be correct before deductions and credits can be evaluated.
3. Apply deductions and AGI limits	Which adjustments, standard or itemized deductions, and percentage limits apply?	Many limitations depend on AGI or taxable-income ordering.
4. Compute credits and tax effects	Which credits, additional taxes, prepayments, or carryovers affect final liability?	Credits reduce tax rather than income and may be refundable, nonrefundable, or limited.
5. Preserve character	Do pass-through items, capital items, passive losses, or carryovers retain special treatment?	Recharacterizing separately stated amounts is a common source of wrong REG answers.

Individual Tax Checkpoints

Checkpoint	Ask before finalizing	Return consequence
Filing context	Which filing status, dependency facts, age, residency, and taxpayer limitations apply?	Thresholds, deductions, and credits often depend on status before amounts are computed.
Income character	Is the item ordinary, capital, passive, portfolio, tax-exempt, deferred, or excluded?	Character controls rates, limits, forms, and carryover treatment.
Deduction category	Is the item an adjustment, standard or itemized deduction, business deduction, or limited personal expense?	Ordering and AGI limits can change the allowable amount.
Loss limitation order	Do basis, at-risk, passive activity, capital loss, or other limits apply first?	Applying limits in the wrong order can produce a plausible but wrong answer.
Credit and payment treatment	Is the item refundable, nonrefundable, carryforward, prepayment, or additional tax?	Credits and payments affect liability differently from deductions.

How to Use This Part

Read this part in order because the individual tax computation builds step by step.
Focus on what changes inclusion, deduction, or limitation treatment.
Revisit these chapters whenever a REG miss turns on individual-return mechanics or pass-through reporting.

In this section

Individual Gross Income and Exclusions
REG individual-tax coverage for gross income, exclusions, capital gains, and kiddie-tax issues.
- Wages, Dividends, Pensions, and Gross Income Inclusions
  How common compensation, investment, and retirement items enter individual gross income.
- Taxable and Tax-Exempt Interest and Dividends
  Tax treatment for interest, municipal bond income, ordinary dividends, and qualified dividends.
- Short-Term and Long-Term Capital Gains and Losses
  Holding-period classification, netting, annual loss limits, and carryforward mechanics for individuals.
- Gross Income Exclusions for Gifts, Insurance, Scholarships, and Fringe Benefits
  Major statutory exclusions from individual gross income and the facts that can make them taxable.
- Kiddie Tax on Minor Children's Unearned Income
  When a child's unearned income is taxed using the parent-rate framework.
Individual Deductions, Credits, and Filing Rules
REG individual-tax coverage for AGI adjustments, itemized deductions, credits, QBI, and filing-status issues.
- AGI Adjustments for Self-Employment, IRAs, and HSAs
  Above-the-line deductions that reduce adjusted gross income before itemized deductions or credits.
- Itemized Deduction Categories and Limits
  Medical, tax, interest, charitable, and casualty deductions with their key thresholds and limitations.
- Refundable and Nonrefundable Tax Credits
  How individual tax credits reduce liability and when a credit can generate a refund.
- Qualified Business Income Deduction Rules
  Section 199A QBI deduction eligibility, SSTB limits, wage limits, UBIA factors, and taxable-income thresholds.
- Filing Status and Estimated Tax Payment Rules
  How filing status affects individual tax computation and when estimated-payment safe harbors apply.
Individual Loss Limitation Rules
REG coverage of at-risk rules, passive-loss limits, suspended losses, hobby losses, and related disallowances.
- At-Risk and Material Participation Rules
  How at-risk amounts and participation facts limit individual loss deductions.
- Passive Losses and Rental Real Estate Activities
  Passive activity loss limits, rental real estate exceptions, real estate professional rules, and suspended losses.
- Suspended Losses Released on Disposition
  When complete taxable disposition releases passive or at-risk suspended losses.
- Hobby Losses and Other Nondeductible Items
  Profit-motive factors, hobby loss limits, and other individual deductions that may be disallowed.
Pass-Through Income Reporting for Individuals
REG pass-through reporting coverage for K-1 items, separate statements, basis, and loss utilization.
- Partnership and S Corporation Flow-Through Items
  How partnership and S corporation items pass to individual owners and preserve tax character.
- Separately Stated Items and Ordinary Income
  How pass-through entities separate items that must keep their tax character on owner returns.
- Owner Basis Calculations and Loss Utilization
  How partner and shareholder basis limits individual deductions from pass-through entities.
- Schedule K-1 Reporting and Compliance
  How individual owners read, classify, and report Schedule K-1 items from pass-through entities.

Revised on Monday, June 15, 2026

4. Property Txns

6. Entities

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