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Computing Taxable Income and Deductions For/From AGI

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1. Robert Reed, a bachelor, maintains his parents in a nursing home. They have no income of their own and are completely dependent on their son. His parents are 75 and 72 years of age. Robert has the following sources of income.

Salary... $45,000
Interest on municipal bonds... 750
Interest on bank accounts... 800
Dividends on common stock of US corporation... 500

Robert has itemized deductions of $12,000. Robert owns several apartment buildings. His net rental income was $3,000for the year. Then, on Dec 31 one of his best tenants brought in a check for $500. This money covers the months of Dec and Jan. Robert is confused on how to account for this rental income. It is not included in the $3,000 listed above. Compute Robert's taxable income.

2. Are any of the following losses deductible on an individual's income tax return? If so, is the loss deductible "for" or "from" AGI? Explain each loss?

Loss Amount
loss on sale of stock by
individual's business $4,000

Hobby loss in excess of hobby
gross income $3,000

gambling losses in excess of gambling
winnings $8,000

Loss on sale of stock on individual's
investment portfolio $9,000

Decline in value of stock held in individual's
investment portfolio $7,000

Loss on sale of personal automobile $2,000

Total $33,000

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Solution Summary

This solution has two parts. In the first, the taxable income of a taxpayer with dependent parents is computed. Then, the determination is made whether certain deductions are used to arrive at adjusted gross income or deducted therefrom.

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1. Robert's taxable income is as follows:
Salary $45,000
Interest on bank accounts 800
Dividends on common stock of US corporation 500
Net rental income 3,500
Adjusted Gross Income $49,800
Itemized Deductions ( 12,000)
Exemptions ( 10,500)
Taxable Income ...

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