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    Individual tax calculations and deductions

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    53) Chee, single, age 40, had the following income and expenses during the year (not a leap year):

    Income:
    Salary .................................................................... $43,000

    Rental of vacation home (rented 60 days, used
    Personally 60 days, vacant 245 days)............................... $4,000

    Municipal bond interest ............................................... $2,000

    Dividend from General Motors....................................... $400

    Expenses:
    Interest
    On home mortgage.................................................... $8,400
    On vacation home .................................................... $4,758
    On loan used to buy municipal bonds.............................. $3,100

    Taxes:
    Property tax on home.................................................. $2,200
    Property tax on vacation home....................................... $1,098
    State income tax....................................................... $3,300
    Charitable contributions.............................................. $1,100
    Tax return preparation fee............................................ $300
    Utilities and maintenance on vacation home....................... $2,600
    Depreciation on rental 50% of vacation home..................... $3,500

    Calculate Chee's taxable income for the year before personal exemptions.

    28) During the current year, Susan incurred and paid the following expenses for Beth (her daughter), ED (her father), and herself.

    Surgery for Beth........................................................ $4,200
    Red River Academy charges for Beth
    Tuition.................................................................. $5,600
    Room, board, and other expenses................................... $4,800
    Psychiatric treatment ................................................ $5,100
    Doctor Bills for ED.................................................... $2,200
    Prescription drugs for Susan, Beth, and ED........................ $780
    Insulin for ED...........................................................$540
    Nonprescription drugs for Susan, Beth, and ED................... $570
    Charges at Heartland Nursing Home for ED
    Medical Care........................................................ $4,800
    Lodging.............................................................. $3,700
    Meals................................................................. $2,650

    Beth qualifies as Susan's dependent and Ed would also qualify except that he receives $7,400 of taxable retirement benefits from his former employer. Beth's psychiatrist recommended Red River Academy because of its small classes and specialized psychiatric treatment program that is needed to treat Beth's illness. Ed is a paraplegic and diabetic and Heartland offers the type of care that he requires.
    Upon the recommendation of a physician, Susan has an air filtration system installed in her personal residence. She suffers from severe allergies. In connection with this equipment, Susan incurrrs and pays the following amounts during the year.

    Filtration system and cost of installation......................... $6,500
    Increase in utility bills due to the system.......................... $700
    Cost of certified appraisal........................................... $360

    The system has an estimated useful life of 10 years. The appraisal was to determine the value of Susan's residence with and without the system. The appraisal states that the system increased the value of Susan's residence by $2,200. Ignoring the 7.5% floor, what is the total of Susan's expenses that qualify for the medical expense deduction?

    31) In 2005 Heather sold her personal residence to Keith for $300,000. Before the sale, Heather paid the real Estate taxes of $8,030 for the calendar year. For income tax purposes, the deduction is apportioned as follows: $4,400 to Heather and $3,630 to Keith.
    a) What is Keith's basis in the residence?
    b) What is Heather's amount realized from the sale of the residence?
    c) What amount of real estate taxes can Keith deduct?
    d) What amount of real estate taxes can Heather deduct?

    See attached file for full problem description.

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    https://brainmass.com/business/accounting/individual-tax-calculations-deductions-111055

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    Solution Preview

    53. The problem is shown on the attached Excel, subject to the following two notes:

    Note 1: vacation home deductions are limited to income in the following order: rental portion of interest, taxes, expenses and depreciation. In our case, we use up all the interest, taxes and most of the utilities: $4000 - 2379 - 549 - 1072 = 0; Carryover is 228 + 3500.

    Note 2: In order to compute the allowable portion of the tax preparation fee, AGI needs to be computed. In ...

    Solution Summary

    There are three problems dealing with individual itemized tax deductions. The solution explains the deductible amounts and expands on the explanation where there are mitigating circumstances.

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