Question

Read the information below and then complete the 2018 Schedule A.

John and Julia are married and have two children. John works as a graphic designer for a design firm and Julia is a massage therapist. They own a vacation home in Colorado that is used 30% for personal purposes (assume it is used 70% as a rental property and the income and expenses related to the rental have been accounted). During the year they receive $600 in reimbursements from their medical plan and report $5,500 of investment income (included in AGI). They contributed stock, with a fair market value of $3,000, which they acquired in 2005 at a cost of $1,700 to Ohlone College. Their gambling winnings for the year were $1,000 and are included in their adjusted gross income. Their adjusted gross income for the year is $98,000 and they provide you with the following data:

Automobile insurance $ 1,450 / Homeowners insurance 625

Life insurance 1,000 / Disability insurance 375

Health insurance premiums (paid on an after tax basis) 1,600

Country club dues 1,800 / Health club dues 750

Hospital 5,000 / Doctor 1,275

Massage Therapists (they pay to receive messages, not related to Julia’s job) 700

Dentists 3,750 / Prescription drugs 275

Over-the-counter drugs 460 / State taxes withheld 8,475

Property taxes (ad valorem) 400 / Investment interest 1,600

Mortgage interest (primary residence) 6,850

Real estate taxes (primary residence) 2,240

Mortgage interest (vacation residence - unallocated) 2,700

Real estate taxes (vacation residence - unallocated) 1,350

Charitable contributions (cash; they have receipts) 7,750

Charitable contribution (clothes at FMV) 100

Subscriptions to investment journals 175

Dues to professional organizations 375

Tax prep fees 600 / Investment advice 525

Parking at work 190 / Safe-deposit box 75

Gambling losses 650

Unreimbursed employee business expenses (the full amounts paid and unreimbursed):

Airfare 500 / Lodging 450

Meals 290 / Entertainment 280

Incidentals 250

1. How many personal and dependency exemptions will they receive?

2. The box by 5a should be checked. T F

3. The box by 8a should be checked. T F

4. The box on line 18 should be checked. T F

Answer 1

1. How many personal and dependency exemptions will they receive?

As they are married and filing jointly they will get 2 personal exeptions one each for John and Julia, and 2 dependent exemption for each of their two childern.

2.The box by 5a should be checked.

True, it represents the State and local Income taxes paid. As there is State tax paid , it should be checked.

3. The box by 8a should be checked.

True,The box 8a represents Home mortgage interest . As the assessee is having a second home and they have resided in it for more than 10% of the total time they can claim it as personal expenses. As their mortgage interest is much below the limit, they can claim a total deduction of$9,550(6,850+2,700).

4.The box on line 18 should be checked.

True,Box 18 stands for electing to decide itemised deuction (even if it is less than standard deduction)

Standard deduction for 2018 married,filing jointly is $24,000, but their itemised deductions are more. Hence, the box should be checked.