Question

Bill and Alice Savage, husband and wife and both age 42, have the following transactions during 2016:

a. They sold their old residence on January 28, 2016, for $380,000. The basis of their old residence, purchased in 2006, was $70,000. The selling expenses were $20,000. On May 17, 2016, they purchased and moved into another residence costing $150,000.

b. On April 28, 2016, they sold for $8,000 stock that Alice had received as a gift from her mother, who had purchased the stock for $10,000 in 2011. Her mother gave Alice the stock on November 15, 2015, when the fair market value was $9,400.

c. On May 24, 2016, Bill sold for $21,000 stock inherited from his father. His father died on June 14, 2015, when the fair market value of the stock was $9,000. Bill's father paid $7,000 for the stock in 2009.

d. On August 11, 2016, they sold a personal automobile for $8,000; basis of the automobile was $20,000 and it was purchased in 2013.

e. They had a carryover and other stock transactions as follows:

LTCL carryover from 2015	($7,000)
STCG	$2,000
LTCG	$3,500

Bill had a salary of $40,000 and Alice had a salary of $28,000. They have no children. They paid state income taxes of $3,200, sales tax of $400, federal income taxes of $15,000, and property taxes of $1,800. In addition, they contributed $5,600 to their church and paid $4,000 interest on their home mortgage.

Compute bill and Alice's taxable income for 2016.

Answer 1

Gain on sale of residence is not taxable as it is less than $500,000.

Taxable income is:

Filing status	Joint
Particulars	Amount	Amount
Gross income:
Salary	$          68,000
Capital gains	$            5,100
Gross income		$          73,100
For AGI deductions		$                   -
Adjusted gross income		$          73,100
Less:
Standard deduction	$          12,600
Itemized deduction	$          14,600
Higher of the two	$          14,600	$         (14,600)
Personal exemptions		$           (8,100)
Taxable income		$          50,400

Taxable income is $50,400

Capital gains are:

Capital gains	Short-term	Long-term
Carryover	$           (2,000)	$           (3,500)
Sale of home		$                   -
Stock from Mother		$           (1,400)
Stock from Father		$          12,000
Loss on automobile	$                   -	$                   -
Net gains	$           (2,000)	$            7,100
Adjustment	$            2,000	$           (2,000)
Net long-term capital gain	$                   -	$            5,100

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