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Individual tax calculations and deductions

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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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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