Question

1.

Scott is a self-employed plumber and his wife, Emily, is a full-time employee for a University. Emily has health insurance from a qualified plan provided by the University, but Scott has chosen to purchase his own health insurance rather than participate in Emily's plan. Besides paying $5,590 for his health insurance premiums, Scott also pays the following expenses associated with his plumbing business:

Plumbing tools and supplies       $1,490​

Rent on Scott's plumbing shop   6,440​

Transportation between Scott's shop and various jobsites            690​

Plumber's uniform          70​

Plumbing truck rental    7,390​

Total self-employment tax          590​

What is the amount of deductions for AGI that Scott can claim this year (2019)?

2.

This year Tiffanie files as a single taxpayer. Tiffanie received $71,000 of salary and paid $3,050 of qualified educational interest. This year Tiffanie paid moving expenses of $6,100 and received $9,250 of alimony (from her ex-husband, whom she divorced in 2012). What is Tiffanie's AGI?

3.

This year, Benjamin Hassell paid $15,600 of interest on a mortgage on his home (Benjamin borrowed $520,000 in 2015 to buy the residence and it is currently worth $832,000), $11,200 on a $140,000 home-equity loan on his home, and $9,750 of interest on a mortgage on his vacation home (loan of $325,000; home purchased for $425,000 in 2016; home is not rented out at any time). How much interest expense can Benjamin deduct as an itemized deduction?

Answer 1

Deductions for AGI that scott can claim this year 2019

Plumbing tools and supplies	1,490
Rent on scott's plumbing shop	6,440
Transportation between scott's shop and jobsites	690
plumber's uniform	70
plumbing truck rental	7,390
self employment tax(590*0.5)	295
Total deductions	16,375

All of the expenses are deductible for AGI except for Scott's health insurance and 50% of the self employment tax.Thus the deductions for AGI is calculated by adding the expenses except health insurance and 50% of self-employment tax.

2.($71,000 + $9,250 - $792) = $79,458

The Alimony and salary are income, the moving expense is not deductible, and part of the educational interest is deductible for AGI. (Tiffanie's maximum educational interest deduction (amount paid upto $2,500) is limited to $792. The deduction for educational interest ($2,500) is subject to phase out because Tiffanie's modified AGI exceeds $70,000. The phase out is calculated by subtracting $70,000 from Tiffanie's modified AGI ( $71,000 + $9,250 = $80,250) and dividing by $15,000 as follows: $2,500 * [(80,250 - $70,000) / $15,000] = $1,708. Thus the amount deductible is $792 [ $2,500 - $1,708].

Tiffanie's AGI = $79,458

3.

• Benjamin's acquisition debt on his home and vacation home does not exceed $100,000.
• Thus he can deduct the $15,600 mortgage interest on his home and $9,750 of mortgage interest on his vacation home.
• Because his home equity exceeds $100,000, he can deduct a portion of interest on the $140,000 home equity debt ( ie; the portion attributable to $100,000 of debt.)
• Thus, Benjamin can also deduct $8,000 of home equity interest

= $11,200 interest expense * ( $100,000 home equity debt limit / $140,000 home equity debt amount)

= $8,000

Itemized deduction = $15,600+ $9,750+$8,000 = $33,350.