Contents

C H A P T E R T W O2The United States Tax System:An Overview§ 2.1 Concept of Income 28§ 2.2 Gross Income 29§ 2.3 Exclusions from Income 30§2.4 Concept of AdjustedGross Income 30§ 2.5 Deductions 31(a) Business ExpenseDeductions 31(b) Personal ExpenseDeductions 32(c) Itemized DeductionLimitation 32§ 2.6 Standard Deduction 33§ 2.7 Concept of Taxable Income 33(a) Personal Exemption 33(b) Dependent Exemption 34(c) Phaseout of Exemptions 34§ 2.8 Taxable and NontaxableEntities 34§ 2.9 Annual Accounting Period 36§ 2.10 Accounting Method 36§2.11 Timing 36§ 2.12 Property 37(a) Real Property 37(b) Personal Property 38(c) Tangible PersonalProperty 38(d) Intangible PersonalProperty 38§ 2.13 Inventory 38§2.14 Gain 40(a) Basis 41(b) Adjusted Basis 42(c) Determination of Gain 43(d) Realization 43(e) Appreciation 43(f) Recognition 44§ 2.15 Tax Treatment ofIncome 45§ 2.16 Capital Assets, Gains,and Losses 47(a) Capital Assets 48(b) Ordinary Income;Capital Gains andLosses 48(c) Long- and Short-TermCapital Gains andLosses 49§ 2.17 Carryovers andCarrybacks 50§ 2.18 Alternative Minimum Tax 50§ 2.19 Depreciation 52§ 2.20 Tax Credits 52§ 2.21 Foreign Tax Credits 53 27