Question

Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine Jr., Michael, and Candice). The couple received salary income of $100,000 and qualified business income of $10,000 from an investment in a partnership, and they sold their home this year. They initially purchased the home three years ago for $200,000 and they sold it for $250,000. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $16,500 of itemized deductions, and they had $3,050 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children. However, because Candice is 18 years of age, the Jacksons may claim a child tax credit for other qualifying dependents for Candice. The Jacksons are also allowed to claim a $2,400 recovery rebate credit for themselves and a $500 credit for each of their three youngest children. Assume they did not receive the rebate credit in advance.(Use the tax rate schedules.)

c. What would their taxable income be if their itemized deductions totaled $28,000 instead of $16,500?

Tax rate schedule:

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$          0	$ 19,750	10% of taxable income
$ 19,750	$ 80,250	$1,975 plus 12% of the excess over $19,750
$ 80,250	$171,050	$9,235 plus 22% of the excess over $80,250
$171,050	$326,600	$29,211 plus 24% of the excess over $171,050
$326,600	$414,700	$66,543 plus 32% of the excess over $326,600
$414,700	$622,050	$94,735 plus 35% of the excess over $414,700
$622,050	—	$167,307.50 plus 37% of the excess over $622,050

c. What would their taxable income be if their itemized deductions totaled $28,000 instead of $16,500?

	Description	Amount
1)	Gross Income	110000
2)	For AGI Deductions	0
3)	Adjusted Gross Income	110000
4)	Standard deduction	24800
5)	Itemized deductions	28000
6)	Greater of standard or itemized deductions	28000
7)	Deductions for Qualified business income
8)	Total deductions from AGI
	Taxable Income

d. What would their taxable income be if they had $0 itemized deductions and $6,000 of for AGI deductions?

	Description	Amount
1)	Gross Income	110000
2)	For AGI Deductions	6000
3)	Adjusted Gross Income	110000
4)	Standard deduction	24800
5)	Itemized deductions	0
6)	Greater of standard or itemized deductions	24800
7)	Deductions for Qualified business income
8)	Total deductions from AGI
	Taxable Income

e. Assume the original facts but now suppose the Jacksons also incurred a loss of $5,000 on the sale of some of their investment assets. What effect does the $5,000 loss have on their taxable income? Does it increase or decrease taxable income, if so by what amount, or is there no change.

f. Assume the original facts but now suppose the Jacksons own investments that appreciated by $10,000 during the year. The Jacksons believe the investments will continue to appreciate, so they did not sell the investments during this year. What is the Jacksons’ taxable income?

I filled out what I could, not sure if it's correct. Please explain how you get answers.

Answer 1

(c)

JACKSONS' TAXABLE INCOME AND TAX LIABILITY
Particular	Amount($)	Amount($)
Salary		100000
Income from investment		10000
Sale of residence	250000
Less : Cost of acquistion	-200000
Gain from sale of residence	50000
Exclusion from taxability	50000
Taxable long term gain	0
Gross income		110000
For AGI deduction
Standard deduction (a)	24800
Itemized Deduction (b)	28000
Higher of ( a) or (b)		28000
Taxable Income		82000
Income tax liability ( working )		9620
Less : Child tax credit ( 2000 * 3 )		-6000
less : Tax with holding		-3050
Tax due		570
Working :	Rate	Tax amount($)
0 - 19750	10%	1975
19750 - 80250	12%	7260
80250 - 82000	22%	385
		9620

(d)

JACKSONS' TAXABLE INCOME AND TAX LIABILITY
Particular	Amount($)	Amount($)
Salary		100000
Income from investment		10000
Sale of residence	250000
Less : Cost of acquistion	-200000
Gain from sale of residence	50000
Exclusion from taxability	50000
Taxable long term gain	0
Gross income		110000
For AGI deduction		-6000
Adjusted Gross income		104000
Standard deduction (a)	24800
Itemized Deduction (b)	16500
Higher of ( a) or (b)		24800
Taxable Income		79200
Income tax liability ( working )		9109
Less : Child tax credit ( 2000 * 3 )		-6000
less : Tax with holding		-3050
Tax due		59
Working :	Rate	Tax amount($)
0 - 19750	10%	1975
19750 - 79200	12%	7134
		9109

(e)

JACKSONS' TAXABLE INCOME AND TAX LIABILITY
Particular	Amount($)	Amount($)
Salary		100000
Income from investment		10000
Loss from investment		-5000
Sale of residence	250000
Less : Cost of acquistion	-200000
Gain from sale of residence	50000
Exclusion from taxability	50000
Taxable long term gain	0
Gross income		105000
For AGI deduction
Standard deduction (a)	24800
Itemized Deduction (b)	16500
Higher of ( a) or (b)		24800
Taxable Income		80200
Income tax liability ( working )		9229
Less : Child tax credit ( 2000 * 3 )		-6000
less : Tax with holding		-3050
Tax due		179
Working :	Rate	Tax amount($)
0 - 19750	10%	1975
19750 - 80200	12%	7254
		9229

(f)

JACKSONS' TAXABLE INCOME AND TAX LIABILITY
Particular	Amount($)	Amount($)
Salary		100000
Sale of residence	250000
Less : Cost of acquistion	-200000
Gain from sale of residence	50000
Exclusion from taxability	50000
Taxable long term gain	0
Gross income		100000
For AGI deduction
Standard deduction (a)	24800
Itemized Deduction (b)	16500
Higher of ( a) or (b)		24800
Taxable Income		75200
Income tax liability ( working )		8629
Less : Child tax credit ( 2000 * 3 )		-6000
less : Tax with holding		-3050
Tax due		-421
Working :	Rate	Tax amount($)
0 - 19750	10%	1975
19750 - 75200	12%	6654
		8629

Note : Child tax credit is $ 2000 each child upto the age of 17 years

2000 * 3 = $ 6000

Candice is 18 years of age therefore he is not eligible for child tax credit.

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