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Compute taxable income for Demarco Jackson

See attached file.

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?

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.

$2.19