Jesse Brimhall is single. In 2020, his itemized deductions were $9,000 before considering any real property...

Jesse Brimhall is single. In 2020, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before considering any property tax deductions). In 2020, he paid real property taxes of $3,000 on property 1 and $1,200 of real property taxes on property 2. He did not pay any other deductible taxes during the year.

b. If property 1 is Jesse’s business building (he owns the property) and property 2 is his primary residence, what is his taxable income after taking property taxes into account (ignore the deduction for qualified business income)?

Expert Solution

A) Computable for taxable income for 2020 (neither property used for business)

Description	Amount
Adjusted Gross Income (AGI) (1)	$70,000
Standard Deduction (2)	$(12,000)
Itemized Deduction (3)	$(13,200)
Taxable income after property taxes (1+3)	$56,800

standard deduction = Both standard and personalized deductions combined together.

Itemized deduction = 9000 + 3000 + 1200 = 13,200

Greater of standard or itemized deduction has to be taken in order to calculate taxable income that's why 13,200 has been subtracted from 70,000.

B) Computation of taxable income for 2020 (if property 1 is used for business)

Description	Amount
AGI before property tax	$70,000
Business property tax	$(3,000)
AGI {70,000 + (3,000)}	$67,000
Standard deduction	$(12,400)
Itemized Deduction (9000 + 1200)	$(10,200)
Greater of standard or itemized deduction	$(12,400)
Taxable Income after property Taxes {67,000 + (12,400)}	$54,600

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ekkarill92 answered 4 months ago

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