Question

1.

Kaylee is a self-employed investment counselor who also owns a rental property. This year, she collected $85,800 in fees and paid the following expenses:

Health insurance premiums (not through an exchange)   $4,280​

Life insurance premiums (whole life)                    $1,980​

Books on investing                      $280​

Repairs of the rental property                 $530​

Advertising for investment clients                         $1,850​

State income taxes                      $4,380​

Total self-employment tax                       $11,812​

Kaylee files single. Calculate her adjusted gross income.

2.

Larry recorded the following donations this year:

$620 cash to a family in need

$2520 to a church

$620 cash to a political campaign

To the Salvation Army household items that originally cost $1320, but are worth $420.

What is Larry's maximum allowable charitable contribution if his AGI is $61,200?

3.

Margaret Lindley paid $15,160 of interest on her $301,600 acquisition debt for her home (fair market value of $501,600), $4160 of interest on her $30,160 home-equity loan, $1160 of credit card interest, and $3,160 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,160 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

Answer 1

1. Kaylee earned $85,800 as fees for the year

Particulars	Amount (in $)
Gross Income	85,800
Less: Health insuance premium	4,280
Books on investing	280
Advertising for investment clients	1850
Self employment tax (50%)	5,906
Adjusted Gross Income	$73,484

Life insurance premium is not deductible

Assuming books on investing to be a requirement for his profession

Unless the income tac filer actively engage in rental activities, the IRS considers rental real estate a passive activity. Since, Kaylee has no other passive income, Kaylee cannot deduct her rental expenses without any rental income.

State income tax is deductible after computing Adjusted Gross Income

2) Larry deductible donations are as below:

a) Donation to a church $2,520

b) Houselhold items to Salvation Army $420

Total Allowable deduction $2,940

Donation to family in need is not deductible since donation to individuals is not deductible.

Cash paid for a political campaign is not deductible as donation to political party or politicial or campaign is not deductible

Larry's maximum allowable charitable contribution is $2,940 (it is less than limit of 20%/ 30%/ 50% of AGI)

3) Margaret Lindley interest expense deductible this year is as below:

a) Interest on acquisition debt for her home $15,160

b) Margin interest for purchase of stock $3,160

Total interest expense deductible $18,320

Interest on credit card is not deductible

Interest on home - equity loan is not deductible as it has been suspended

Margaret can deduct $18,320 of interest expense this year.