house property lecture 1

okay. in our last session, we started withchapter 3. so i want to just back up and just review just slightly and then i want to doa problem on our rental and then we will continue on and hopefully be able to finish this chapterin this session, which i'm pretty sure we should be able to finish this chapter.we started off chapter 3, just to do a little review before we work on a problem, is thatwe started off talking about our rental income, and we began by talking about when -- whattype of rental may you have. you may have a rental that's considered, i'm sorry, primarilyfor personal purposes, where you have just little incidental days and none of that incomeis going to be taxable to you and you can take your mortgage and interest on your schedulea. or you may have a rental that is deemed

to be primarily rental use. in that case,it's really rental and you just have a couple of personal days, not to exceed 14 days or10% of the rental days. and in that instance, you want to allocate your expenses betweenthe rental and the personal days and then you can deduct your expenses, including aloss on schedule e. and then you may have a rental that's consideredprimarily rental/personal split, kind of a dual purpose. and in that instance, you stillallocate the difference between the two, but you cannot take a loss. you're not allowedto take a loss on that particular rental, and in that instance, you can only deductyour expenses up to your income. so that's -- we start it there. and so what i want todo just briefly is i want to do a problem

just to kind of -- we didn't get a chanceto do that. so i want to do a problem. and so if you look in the back of chapter3, and we're going to look at number 2, which appears on page 3-34. okay. so let's lookat that problem, number 2, which appears on page 3-34. and let's just do that quicklyand then just so you kind of get an idea of how that works. we have shari, she runs hervacation home for six months and lives in it for six months. during that year, her grossrental income during the year was $4,000. the real estate taxes is 950. and then theinterest on the home mortgage was 3,000. and utilities and maintenance was 1800. and thedepreciation was 4,500. so with hers being 50/50, even without goingto the calculations, that is going to be a

dual, a rental/personal split because herrented days equal her -- her rental days were more than 15 days and her personal days werethe greater of 14 or -- 14 days or 10%, so we know that's going to be that split. solet's look at what we need to do for this problem, and this is problem -- this is problemnumber 2, or question 2 that's on page 3-34. that's on page 3-34.so they tell us that she had rental income for the year of $4,000. so rental income was$4,000. and because this is a dual property, then she is only going to be able to takeexpenses up to her income. she's only going to be able to take expenses up to her income.and remember this is 50/50. so we have to consider that as we allocate the expenses.so the expenses that she's able to deduct

or that they're able to deduct is we haveto deduct them in that order. we first start with the real estate taxes, and that's thefirst. and the real estate taxes were 950, okay. and for the real estate taxes, becausethis was half personal, half rental, we can only take half of them. so we're only goingto take half of those. and then also we're going to look at the rentalportion for the interest, for the interest. and the interest on the home was 3,000. andso we can only take half of those. okay. so when we're looking at they're tellingus the order in which we have to take them in, we started off with 4,000. she gets todeduct half of the taxes and then half of the interest, and so that leaves her 2,025of income in which she can deduct expenses

against. the next thing in order, they tellus to take the other items, the utilities, maintenance, anything else that you may havebefore depreciation, and in this instance she had utilities and maintenance expensesof $1,800. so we had utilities and maintenance expenses of $1,800.okay. but she's only going to get half of that, once again, because half of it's personal,half of it's business. so we only want to take half of that. and that gets us down to1,125 left of income in which she can deduct expenses against. and the depreciation, whichis what's left, the depreciation on it is $4,500. okay. technically she would be ableto take half of that, which is -- which would be 2,250. but we don't have enough incomeleft to take that. so we're only going to

take what's left because we cannot take aloss. we cannot take a loss.so net income ends up being zero. we deduct it, depreciation of 1,125. we deducted utilitiesand maintenance of 900. interest of 1500 and we deducted taxes of 475. so those are expensesthat we're allowed to deduct. up to the income. so you cannot take more than the income becausethat was a split. now, had this been a piece of property thatwas not a split and we could have taken or had it been primarily rental, we could havetaken all the applicable -- and let's just say it was still 2,050, we could have takenall the applicable depreciation and, therefore, we would have been able to take a loss of1,250 -- 1,125.

so that is the difference between on our rental.so i just kind of wanted to back up and do a problem together so that you kind of understandthe calculations and how they work for this when we're dealing with our rental.so that's where we started on -- in our last session, started talking about our rental,and then we went over our passive loss rules, we went over the real estate being a passiveactivity and the possibility of taking up to a $25,000 loss there, and then we endedup by looking at our bad debts. so that's where we want to start, basically where weleft off there, where they're talking about our bad debts, where they're talking aboutour bad debts. so let's look at -- let's get you on the correctpage that we're on and then we'll pick up

at that point. at the bottom of page 3-8,we start bad debts. basically when we're talking about businesses, just briefly, we're reallytalking about uncollectible accounts receivables, and we spoke about the -- the situation whereit has to be a situation that you've taken the income on it in order to be able to takethe bad debt on it. then we looked at business bad debts, and basically debt from a tradeor business is going to get an ordinary income deduction and it's going to be taken againstordinary income on schedule c. it's going to be taken against ordinary income on schedulec. and so now we want to pick up at our non-businessbad debt. these are our personal debts. and so basically these particular debts, all theseother bad -- and let me blow that up so you

can see that -- all these other bad debts,these are going to be taken or considered short-term capital losses. they're going tobe considered short-term capital losses. and they're going to be limited to a $3,000 losseach year against ordinary income. so the most loss that i can take and offsetmy regular income is going to be $3,000. if i had more than that, any unused amount canbe carried forward, okay. and this is all done on schedule d. it's going to be all doneon schedule d. it's going to be done on schedule d.so kind of like what i'm referring to, let me get a little space, is that if i had thisloss of $10,000, okay, kind of as an example, let's say i had a loss of $10,000, and theni also had -- i can only take -- i'm sorry,

if i had a bad debt of $10,000, i can onlytake 3,000 of that. the other 7,000 is going to have to be carried forward, okay. so that'sthe most i can take is the $3,000. the other 7,000 is going to have to be carried forward.okay. that's our bad debt. in this class we do not cover inventory, so we will not coverthat as you're looking through your text. and then they deal with net operating losses,which that is not covered in this basic income tax class either. and so now i want to pickup and we want to deal with the rest of our session, this particular class period, andwe want to deal with retirements. we want to deal with retirements.how do we deal with iras, individual retirement accounts? and that starts on page 315. sowe want to pick up there and that's what we

want to cover and look at.okay. iras, or individual retirement accounts, there's two types. there are -- there's atraditional ira and then there is a roth ira. okay. so we want to look at both of those.the traditional ira and then the popular roth ira. traditional iras are deductible. youmake deductible contributions, meaning when i put money in, it is a deduction for me.but when i take money out, my distributions are taxable. so you have deductible contributionsand taxable distributions for a regular ira. okay. for a roth ira, you have non-deductiblecontributions. so when i'm making contributions to my roth ira, i cannot deduct them. andmy distributions are not taxable. so i have non-taxable distributions. okay.so when we're looking at an ira, we have if

it's traditional all my -- not all. we'relooking at there's some limits. my contributions are going to be deductible, meaning i getto deduct it from income, and my distributions are going to be taxable. so when i begin todraw, there's a portion that's going to be taxable. the roth on the other hand, as imake contributions to it, they're not going to be deductible, but my distributions willnot be taxable. okay. and then the earnings on both of these, theearnings on both of these are not taxable. so current earnings. so basically, as youleave the money in there and it earns money, those current earnings are not taxable. socurrent earnings are not taxable. okay.so let's begin to focus in on first starting

with our contributions to traditional iras,our contributions to traditional iras. first of all, for those contributions to a rothor a traditional ira, you have until april the 15th, in this case for a 2008 return,you would have until april the 15th of 2009 to make that contribution. so you're not tiedby the end of the year. you have until april the 15th in order to make that contribution.for a traditional ira, the maximum contribution amount is going to be the lesser of 100% of earnedincome, meaning all my income, if that's the lesser number. the lesser of 100% of earnedincome or $5,000, okay. and if you're married filing jointly, it could possibly be 10,000,which it would be $5 apiece, and so you can take, if you can take that additional $5,000for the spouse. okay. we're going to look

at when those rules apply. so if we can endup taking that additional 5,000, technically you can get up to 10,000 on a return. andthen they have what they call some catch-up. they have what they call catch-up contributions.you can make an additional thousand in catch-up contributions, and this is only for taxpayersand spouses who are age 50 and over. okay. so if you're 50 and over, i can even makean additional, so it can be up to $6,000 per person for the -- for that purpose. okay.so there's a possibility that a portion or your contributions could not be tax -- i meannot be deductible. generally, the contributions to an ira is deductible, but it depends onwhether you're already participating in a plan. it depends on a number of things asto whether it's going to be deductible or

non- -- end up being non-deductible.so if we look on page 3-16, and we look at the chart at the top of that page and we'regoing to look at a couple examples as well when it comes to that. so there's a possibilitythat this $5,000 that i can take, maybe all my $5,000 may not be deductible. okay. solet's look at the chart at the top of page 3-16. that chart is titled 2008 agi phase-outranges for traditional iras. so we're talking about traditional iras. so they have a columnfor the taxpayer and then they have a column for the phase-out range. so if you are singleand you're filing head of household and you're not a plan participant, so that means thati am not participating in a plan at work, i'm not already in a retirement type plan,there's no phase-out, so therefore, i can

contribute the $5,000 and get the full $5,000deduction. if i am single or head of household and iam in an active plan, so i do also have a plan at work, if my income is between 53,000and 63,000, there's a possibility that i will not get a portion. there's going to be a portionof mine is phased out. if my income is over 63,000, i won't get to take the deductionat all. doesn't mean i can't make the contribution. it just means it's not going to be deductible.if i'm married filing joint, and both are in -- both are in an active plan, meaningme and my spouse both, and if our income's between 85,000 and 105, there's going to bea phase-out of the amount of deductions we can get. if it's over 105, we're not goingto be able to get that deduction.

and so i won't read the rest of the chartto you, but that's how the chart works, okay. it also tells us, note, and we're going tolook at an example of this, because they have three good examples in this particular textbook.it says when one spouse is an active participant in a retirement plan and the other is not,so if we got one in, one out, two separate income limitations apply. one is going toapply to the one who is not, the other one is going to apply to the one who is. the activeparticipant spouse may make a full deductible ira contribution as long as the income isnot between 85,000 and 105, which is the phase-out range.the spouse who had no active participant, the spouse who wasn't actively participatingin the plan, sorry, then they're going to

get the full deduction, okay, unless jointincome is higher than 159 and 169. so even though we may use separate qualifications,the income amount that we're going to use is going to be the joint, them combined together.so even though we may end up doing that, okay. so that is your traditional one.so let's write a note and then we'll look at the exercise. so but due to income limitations, so it's going to bebased off your income. that's what they're looking at. due to income limitations, okay,all of the 5,000, and i know it possibly could be 6,000 or 10,000, all of the 5,000 maximumamount may not be deductible. okay. so let's start by looking at the example,the first example that's on page 3-16. let's look at that example. ed, age 31, is singleand is covered by a retirement plan. if his

modified adjusted gross income is 59,000,ed's maximum deductible traditional ira that he can deduct is $2,000. it's $2,000. andthe way they got that, let me go ahead and show that even though it's in the book. buted, he had income of 59,000, okay. he was single. okay. and he was also already coveredby a retirement plan. so single, active plan participant, i'm sorry, the range is 53,000to 63,000. and so because he falls in the middle of that, then he's going to get a portionof it. if his income was over here, then he wouldn't get to deduct any of that, okay.so what we do is we take the upper limit, which is 63,000, minus ed's income, okay.and that gives us 4,000. so he is -- he has 4,000, as they say, left in the range to dealwith. and so that's how you kind of determine

how much or how do we -- how much we're goingto give him, the phase-out. and then we divided by 10,000. the 10,000 comes from 53,000 and63,000, there's 10,000 in the range. so there's $10,000 in the range and that's how they getthe $10,000. so we take 4,000 divided by 10,000, and thenwe multiply it by 5,000. you multiply it by 5,000. so that represents the allowed deductionportion. so he's going to end up getting a $2,000 ira deduction.okay. now, he can contribute the full 5,000, nothing says that he can't. he can contributethe full 5,000, but he's only going to get a deduction for the 2,000. so 40% ends uphe's getting -- he's able to get a 40% deduction. okay.let's also look at the example that's at the

top of page 3-17. this is when you have twodifferent people. i like this example as well. paul and lucy are married and both 36 yearsold. lucy is covered by a plan and earns $57,000. so we got lucy. so i'm visual, i have to seethese things. she's covered -- she's covered by a plan and she earns $57,000. paul is notcovered. so paul is our not covered person, okay. paul is not covered by a retirementplan. he earns 57,000. so we have her, lucy's 57,000, and we have paul's 50,000. so theirtotal income is 107,000. so we're looking at the charts, that's whatwe want to look at is the 107. lucy cannot make a deductible contribution because ifwe look, married filing jointly and we have one active participant, okay. when we haveone active participant, then the active participant

spouse, if you look at the top of page 3-16,the active participating spouse, the phase-out range is between 85,000 and 105,000.so given that, if lucy makes a $5,000 contribution, it is not deductible. okay. so lucy cannotdeduct hers because it falls on the outer range. it falls on the outer range. okay.if you look for the not active participating spouse, the range for paul is going to bebetween 159, so it's higher, and 169. so since their income is not in the range or the phase-outrange, that means paul gets to make a $5,000 deduction and it's going to be deductible.okay. so in this case, one spouse's is not deductible and the other spouse's is. so becauseone is a participant and one is not, we look at two different line items on the chart andtwo different qualifications. so it's very

well that one could be and one could not.okay. now, one thing we want to pick up there andtalk about is we want to talk about the roth ira. so even though in this case lucy couldnot make a deductible contribution to a traditional ira, there's a possibility that she couldmake a contribution, because remember they're not deductible anyway in a roth ira, so shemay choose to make a contribution to a roth ira. okay.so if we look at the roth ira, they begin to talk about that and a roth ira, as faras the contribution amounts, they are the same as the traditional ira. so they're goingto be the same as the traditional ira, and so these rules are going to apply. so theyapply for a traditional ira and they are also

the same for a roth ira. so same. so the contributionsare going to be same. now, the difference is, is that the phase-out,a little different. if we look at the bottom of page 3-15, so you want to look on page3-15 for the phase-out. okay. 2008 phase-out ranges for roth iras. and with the roth ira,if you are an active plan participant or not, versus not doesn't matter.so that's not what we're looking at here. we're just simply looking at income amounts.so single or head of household, the phase-out range is between 101 and 116, and for marriedfiling jointly the phase-out range is between 159 and 169. okay.so it doesn't matter if you're an active plan participant or not. so let's look at an example.they have an example that i want to look at

and kind of walk you through on page 3-16.and it's the last one that deals with the roth. it says ann, who is 36, would like tocontribute 5,000 to her roth ira. however, her agi is 110. so we got ann. she's got agiof 110. so when we look at our agi phase-out range for a -- and she's single, so the rangeis between 101 and 116 for a single person. so her number falls in between that range,means that it's phased out. just like with the other one, if it's over 116, that meansshe gets no deduction. if it's -- if her agi is less than 101, that means she would getthe full deduction. okay. so she wants to make a $5,000 contribution,and what we want to do is a similar calculation when we did the phase-out before. we wantto take the upper limit of 116 and subtract

from it her income, the 110.and when we do that, we get $6,000. then we want to divide that $6,000 by 15,000, similarto what we did on here, 101 to 116. there's a $15,000 range. so that's how we get ourbottom number. and so then we want to multiply that timesour $5,000 and it just happens to be 2,000. that's because that comes up to be 40% again.so that's how she would determine for her roth ira how much of her contribution shecan make, how much of her contribution she can make. and that is at the bottom of page3-15. so if you go back to lucy, if we go back toour example up here, remember, they had -- let me show you this. remember, lucy $5,000, notdeductible. their total agi was 107, and so

if we look at the married filing jointly range,theirs would be 159 to 169. so she would be able to make that full $5,000 contributionto an ira. so she would be able to make the full $5,000 contribution to an ira, whichwould be good. which would be good. okay.so let's continue. now, those deal with the contributions to an ira, are contributionsto an ira. we want to look at now how do we handle the distributions, the money that comesout? how do we handle the money that comes out of an ira? so when we talk about distributions,we're talking about withdrawals. when we talk about distributions, we're talking about withdrawalsthat we take out or that are coming out. okay. for a traditional ira, those withdrawals aretaxable as ordinary income. so basically they're

taxed at your regular ordinary income rate,okay. they could very well be subject to a 10% penalty and you can't take them out -- orto keep you from being subject to that penalty along at 59 and a half. okay.now, there are some situations that you can take it out penalty-free before you're 59and a half, and so those you want to look at. so for penalty-free withdrawals that youmake before you're 59 and a half, we want to look at page 3-17 for those. we want tolook at page 3-17, at the bottom. if you're disabled, they give us a couple of them. usinga special level payment option, if you're using the withdrawal for medical expensesin excess of 7.5% of your agi, if the recipients have at least 12 weeks of unemployment compensation.so this is very important as our economy finds

ourself in a situation where we have -- mayhave a number of people unemployed and to the extent that they're paying medical insurancepremiums for their dependents. so keep that in mind.paying the cost of higher education, including tuition, fees, books, room and board for thetaxpayer's, their spouse, children, or grandchildren. so if you're using it for that purpose. ora withdrawal of up to $10,000 for first-time home buyers. so you could also use that aswell for first-time home buyers. so you can very well take it out penalty-freebefore you reach the 59 and a half. you're still going to have to pay ordinary incometax on it. so you didn't alleviate that. but what you do is you alleviate the penalty.okay. and one last note on those is that those

withdrawals, you can't make them before 59and a half, but you have to begin to make them by the time you reach 70 and a half.so minimum annual distributions are going to be required at 70 and a half. i think isaid 79, but 70 and a half. so can't make it before 59 and a half. if you -- and ifyou reach 70 and a half and you haven't started withdrawing money out of those iras, you needto make those minimum annual distributions, and there's some charts and some calculationsthat goes along with that, what's considered -- what irs considers to be minimum.okay. next, what about our withdrawals or our distributions from a roth ira? these withdrawalsare tax-free and they're tax-free after five years, okay. if not, if it's not a five-year,let's look at one through four that's going

to be on page 3-18. so let's look at that.3-18. okay. for your roth. for your roth here, it tells us that you have a five-year holdingperiod on your roth if any of the following requirements are satisfied. so hold it forfive years, you can withdraw if these items are done. the distribution is made on or after,which you're 59 and a half, so we still have that age limit on there. the difference is,is that you only have a five-year waiting. the distributions is made to a beneficiaryor a -- after a participant's death. so if it's being distributed because it's a deathof an individual, of the individual, the participant becomes disabled, or the distribution is usedto pay for qualified first-time home buyer expenses. so once again, you can use it fora home buyer expense.

they have an example here on this page i wantto look at. bob establishes a roth ira at the age of 50 and contributions -- and contributesthe maximum each year for 10 years. the account is now worth 61,000 consisting of 35,000 ofnon-deductible contributions. so that means he put 35,000 of his own money, so it's notdeductible, and 26,000 of earnings that have not been taxed. so over those 10 years, $26,000of earnings. okay. get back to where -- bob may withdrawal the61,000 tax-free from the roth ira because he is over 59 and a half, because he startedat 50, now he's 60 and has met the five-year holding period requirements.so he's met those. and the thing about that is that it grew tax-free, so he's not havingto pay tax on $26,000 worth of earnings, which

is huge! if he would have put that same amountof money in a traditional ira, he would have got the deductions for those contributions,but he would have paid tax on those withdrawals, on that earnings piece. he would have hadto pay tax on that. okay.so basically let's say that i didn't meet that. let's say that i'm not 59 and a halfand i withdraw that money, okay. so the taxable situation with that one, so it's going tobe taxable if the requirements are not met. so it's going to be taxable if the requirementsare not met. and basically the way it works, the return of capital, meaning my portionthat i put in that i didn't get a deduction for, i'm going to get it back tax-free. i'mnot going to have to worry about still paying

tax on that. but the earnings is going tobe taxable to me. the earnings is going to be taxable to me. so i lose that tax-freepart of the earnings. i'm going to lose that tax-free part of the earnings.if we keep looking back at that example on page 3-18, they give us another example. assumethe same facts in the above except that bob is only the age 56 and he receives distributionof $10,000. remember, he contributed starting at 50 and so now he's 56 and he receives a$10,000 distribution. he has put in some money. in that instance, after ten years he had putin 35,000 and had earnings of 26. so situation is that now he's 56 and he receivesa distribution of 10,000. assumes that his adjusted basis for the roth is 12,000, meaningcontributions made of 2,000 for 6 years. so

let's assume he made $2,000 contributionsfor 6 years, okay. the distribution is tax-free and his adjusted basis is reduced to $2,000.so because he had put in 12, he got a distribution of 10, all that's tax-free. that's just likegetting his money back. that's getting his money back.so that would be tax-free. okay. a couple things i want to point outbefore we move away from our roth, if you turn to page 3-17 in your book, they talkabout taxpayers transferring roth -- traditional accounts to roth. it tells us taxpayers withagi not more than 100,000 may benefit from the rule allowing conversions of regular irasinto roth iras. okay. although that conversion is going to be subject to current income taxes,because remember, those distributions from

a traditional ira are going to be taxable,taxpayers with certain factors in favor such as many years to retirement, may mean theyhave a lot more years of retirement to go, a low current tax break, it may be currentlyi'm in a very low tax bracket maybe because of children, because of my mortgage on myhome, so i have a pretty low tax bracket to where a lot of times when people retire, theyhave no more mortgage deduction, the children are gone, it's sometimes -- even though theirincome is lower, but sometimes their tax bracket is higher due to the fact they don't haveas many deductions anymore, and so they go on say, you know, due to low current tax bracketor high expected tax bracket at retirement, may wish to make the conversion, because then,when they begin to take their money out of

the roth, that money is not going to be taxableto them when they're at the higher rate. okay. keep in mind when i make the conversion, nowi'm going to have to go ahead and pay tax on that. it says also taxpayers with negativetaxable income due to large personal deductions may wish to convert enough of their regulariras to roth iras to bring taxable income to zero. so instead of it being negative,maybe they'll make a contribution to bring it to zero. this way the conversion can bedone with no tax cost since deductions which would otherwise be lost because of the negativeare offset now by the ira income. so they can use that ira income to bring uptheir income so, therefore, instead of having negative taxable income, they can at leasthave a zero taxable income.

then it goes on to tell us for the years 2010and beyond, the rule that require taxpayers to have 100,000 or less agi for this conversionthat i just read from a regular ira to a roth ira accounts has been eliminated. so for thetax years 2010 and beyond, okay, that $100,000 limitation is gone. so congress expects thatmany high income taxpayers will take the advantage of this opportunity to pay income tax dueupfront on those conversions. so excellent opportunity to consider, justsomething to consider as you begin to look at your roth, maybe setting up a roth versusa traditional. so just know there are some irs benefits out there for that purpose. there'ssome irs benefits out there for that purpose. okay. on page 3-19, they talk about a keoghplan or a simplified employee pension plan,

okay. these plans are plans that mostly we'relooking at self-employed people setting up plans, okay, for retirement for their purposes,so we're talking about a keogh plan, we're looking at self-employed people. so if i'mself-employed, i want to set up this tax deferred plan, so tax deferred retirement plan.okay. so we're looking at self-employed tax deferred retirement plan. okay. and they callthese keogh plans, okay. now, for these plans, the contributions are going to be limited to, meaning the amountthat me as a self-employed person can put in there is going to be limited to the lesserof 20% of my net earned income or $46,000. okay.so my contributions are going to be -- going to be limited to the lesser of either 20%of my net earned income or $46,000. okay.

they have also what they call sep plans. sepplans. okay. and these are like simplified employee pension plans, or they're iras aswell. they're iras as well. the contributions into these plans are going to be the same,the same as our keogh plans, and so 20% of net earned income and $46,000, okay. now,we want to be careful. we're going to have some penalties as well with these plans. soto avoid penalties, you want to make sure that your distributions from these plans arenot before 59 and a half, and you want to make sure you're making minimum distributionsat 70 and a half. so those same type rules apply when we'redealing with those particular plans as well. those same type rules apply when we're dealingwith those particular plans. so you want to

make sure that you're not taking out before59 and a half and that at 70 and a half you make sure you're making minimum distributions,minimum distributions from those plans. okay. we have about five minutes left. andso i just kind of want to touch on, we still in our beginning of our next session willhave a little bit left to cover in here on 3.8, they talk about qualified retirementplans, including 401(k)s, which are also important plans. so i want to look at that. so let mejust kind of briefly introduce the 401(k)s. basically employers, this is where employersis going to receive deductions for any contributions they make that are made on behalf of the employee,okay. and as long as it is a qualified plan, it's got to be a qualified plan, so when we'relooking at those rules and those qualified

plan rules are on page 3-20, okay, and soas we look at that, we're going to be looking at a -- a defined contribution plan versusa defined benefit plan when we look at 401(k)s and then we're going to look at how much cani contribute to a 401(k). a lot of times some employers will match those contributions,and that's what i mean by the deductions that they can get.and so what we'll do is we just have like a page or two of chapter 3 and then we'regoing to go ahead and pick up with chapter 5. we're going to look at itemized deductions.we will look at itemized deductions, schedule a deductions. so we'll wrap up these lasttwo pages in chapter 3, not cover chapter 4, and then we're going to pick up chapter5, which deals with itemized deductions.

so make sure you're reading chapters and makesure you're doing multiple choice questions at the end of the chapter. you should be workingon your multiple choice questions for chapter 3 and, therefore, ready to turn those in whenwe complete the chapter. that's it. (music.)