problem2.xlsxPR 8-1
| During the current year, Angela sustains serious injuries from a snow skiing accident. She incurs the following expenses: | ||||||||
| Review Medical Expenses starting on page 7-3 | ||||||||
| Solution | ||||||||
| Item | Amount | Enter your solution in the box below. | ||||||
| Doctor bills | $ 11,700 | |||||||
| Hospital bills | 9,400 | |||||||
| Legal fees in suit against ski resort | 3,000 | |||||||
| Angela is single and has no dependents. During the current year, her salary is $58,000. She pays $600 in medical and dental insurance premiums, $2,750 in mortgage interest on her home, and $1,200 in interest on her car. Her health insurance provider reimburses her for $10,000 of the medical expenses. What is her current year taxable income? | ||||||||
| Required: | ||||||||
| What is her current year taxable income? Show all calculations. | ||||||||
| You have to calculate the AGI limitation on medical expenses | ||||||||
| Use the greater of the standard or itemized deduction. | ||||||||
| Do not forget the personal exemption | ||||||||
PR 8-2
| Dawn, a single, cash method taxpayer, paid the following in the current year: | ||||||||
| Item | Amount | Review Taxes starting page pg 7-9 paying careful attention to the property taxes and apportionment | ||||||
| Federal income tax (employer withheld) | $ 5,400 | of real estate taxes (county property tax). HINT: 104 days, if you studied the chapter you will know what this means. | ||||||
| State income tax (employer withheld) | 2,000 | |||||||
| FICA (employer withheld) | 3,800 | |||||||
| Sales tax on a new car | 600 | |||||||
| License for new car | 70 | |||||||
| Dawn's new car has a FMV of $20,000 and it weighs 3,000 pounds. The county also assessed a property tax on the car. The tax was 2% of its FMV and $10 per hundred weight. The car is used 100% of the time for personal purposes. Dawn sold her house in the current tax year on April 15th. The county's property tax on the home for the tax year was $1,850, payable on February 1st of the following year. The county's property tax year is the calendar year. Dawn's AGI for the current tax year is $50,000 and her other itemized deductions exclusive of taxes are $4,000. | ||||||||
| Required: | Solution | |||||||
| Enter your solution in the boxes below. | ||||||||
| a. What is Dawn's deduction for taxes in 2013? | ||||||||
| Note: Show all calculations. | ||||||||
| b. Where on Dawn's tax return should she report her deduction for taxes? | ||||||||
PR 8-3
| Several years ago, Magdelena purchased a new residence for $300,000. Currently, the outstanding mortgage on the residence is $260,000. The current fair value of the home is $330,000. Magdelena wants to borrow a sizable sum of money to pay for the college education costs of her two children and believes the interest would be deductible if she takes out a home equity loan. | ||||||||
| Study Qualified Residence Interest starting on pg 7-17 with special attention to qualified | ||||||||
| acquisition indebtedness and home equity indebtedness. | ||||||||
| The maximum amount of indebtedness for which an individual can deduct qualified | ||||||||
| residence interest if $1,100,000. | ||||||||
| Required: | ||||||||
| For each of the independent situations below, determine the amount of the loan on which Magdelena may deduct the interest as qualified residence interest. | ||||||||
| Solution | ||||||||
| Enter your answers in the boxes below. | ||||||||
| a. Magdelena borrows $50,000 as a home equity loan. | ||||||||
| b. Magdelena borrows $80,000 as a home equity loan. | ||||||||
| c. Alternatively, assume the current fair market value of her home is $410,000 and she borrows $110,000 as a home equity loan. | ||||||||
| d. Alternatively, assume the current outstanding balance of the mortgage Magdelena incurred to purchase the home is $1,200,000, the home's fair market value is $1,400,000, and she borrows $80,000 as a home equity loan. | ||||||||
PR 8-4
| During the current year, Doug incurs the following deductible expenses: | ||||||||
| Item | Amount | |||||||
| State income taxes | $ 2,300 | |||||||
| Local property taxes | 3,000 | |||||||
| Medical expenses | 800 | |||||||
| Charitable contributions | 2,000 | |||||||
| Doug is single, has no dependents, and has $35,000 of AGI for the year. | ||||||||
| Required: | Solution | |||||||
| What is the amount of Doug's taxable income? | Enter your solution in the boxes below. | |||||||
| Use the greater of the standard or itemized deduction. | ||||||||
| Do not forget the personal exemption | ||||||||
| You have to calculate the AGI limitation on medical expenses | ||||||||
PR 8-5
| Donna is an attorney who renders volunteer legal services to a Legal Aid Society, which provides legal advice to low-income individuals. The Legal Aid Society is a qualified charitable organization. During the current year she spends a total of 200 hours in this volunteer work. Her regular billing rate is $150 per hour. In addition, she spends a total of $800 in out-of-pocket costs in providing these services. She receives no compensation and is not reimbursed for her out-of-pocket costs. | ||||||||
| Review Contribution of Services starting on page 7-24 | ||||||||
| Required: | Solution | |||||||
| Enter your answer in the box below | ||||||||
| What is Donna's charitable contribution for the year because of these activities. | ||||||||
PR 8-6
| In each of the following independent cases, determine the amount of the charitable contribution and the limitation that would apply. In each case, assume that the donee is a qualified public charity. | ||||||||
| Study Charitable Contributions starting on page 7-21 | ||||||||
| Solution | ||||||||
| Enter your answers in the boxes below | ||||||||
| a. Sharon donates a tract of land to a charitable organization. She has held the land for seven years. Her basis in the land is $10,000 and its FMV is $40,000. | ||||||||
| b. Assume the same facts in Part A, except that Sharon has held the land for only 11 months and the FMV is $23,000. HINT: Ordinary Income Property pg 7-24 | ||||||||
| c. Jack purchases a historical document for $50,000. He donates the historical document to a charitable organization two years later. The organization plans to use of for research and study. Its FMV at the time of the donation is $100,000. HINT: Property NOT put to its related use (p. 7-23 & 7-25) | ||||||||
| d. Assume the same facts as in Part c, except that the organization plans to sell the document and put the money into an endowment fund. Hint: related use | ||||||||
| e. Valerie donates some inventory to a charitable organization. The inventory is not food or clothing. The inventory is purchased for $500 and its FMV is $1,200 at the time of the donation. She held the inventory for seven months. HINT: Ordinary income property | ||||||||
PR 8-7
| Bonnie's charitable contributions and AGI for the past four years were as follows: | ||||||||||||||
| Solution | ||||||||||||||
| Enter your solution below | ||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2010 | 2011 | 2012 | 2013 | |||||||
| AGI | $ 50,000 | $ 55,000 | $ 58,000 | $ 60,000 | Amount of deduction | $ 25,000 | ||||||||
| Contributions subject to the | Amount of carryover | |||||||||||||
| 50% limitation | 40,000 | 29,000 | 25,000 | 10,000 | from 2010 | 15,000 | ||||||||
| from 2011 | ||||||||||||||
| Required: | from 2012 | |||||||||||||
| What is the amount of the charitable deduction for each year and the order in which the deduction and carryovers are used. | from 2013 | |||||||||||||
| HINT: Ordinary Income Property pg 7-24 | ||||||||||||||
| Remember - charitible contributions are limited to 50% of AGI | ||||||||||||||
| I have done 2010 for you. | ||||||||||||||
| $50,000 AGI = maximum $25,000 deduction | ||||||||||||||
| $40,000 - 25,000 = 15,000 carryover for 2010 |
