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    Compute taxable income for Demarco Jackson

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    Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents. Their income from all sources this year (2009) totaled $200,000 and included a gain from the sale of their home, which they purchased a few years ago for $200,000 and sold this year for $250,000. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $16,500 of itemized deductions.

    a. What is the Jackson's taxable income?
    b. What would their taxable income be if their itemized deductions totaled $6,000 instead of $16,500?
    c. What would their taxable income be if they had $0 itemized deductions and $6,000 of for AGI deductions?
    d. Assume the original facts except that they also incurred a loss of $5,000 on the sale of some of their investment assets. What effect does the $5,000 loss have on their taxable income?
    e. Assume the original facts except that the Jacksons owned investments that appreciated by $10,000 during the year. The Jacksons believe the investments will continue to appreciate, so they did not sell the investments during this year. What is the Jackson's taxable income?

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    Solution Preview

    First are some definitions:

    1. Taxable income is defined as gross reportable income minus allowable deductions and exemptions.

    2. In 2009, the personal exemption amounts to $3650 each; the standard deduction for MFJ (married filing jointly) was $11,400.

    The problem:

    a. Taxable income = 200,000 - 50,000 (home ...

    Solution Summary

    For each scenario in the problem, the response shows the calculation plus an explanation for the answer.