Question

Daniel, age 38, is single and has the following income and expenses in 2019:

Salary income $141,000 Net rent income 8,500 Dividend income 2,300 Payment of alimony (divorce finalized in March 2019) 26,000 Mortgage interest on residence 8,300 Property tax on residence 1,000 Contribution to traditional IRA (assume the amount is fully deductible) 3,000 Contribution to United Church 900 Loss on the sale of real estate (held for investment) 2,075 Medical expenses 6,700 State income tax 2,100 Federal income tax 6,800

Daniel's standard deduction for 2019 is $12,200.

a. Classify the following expenses as either "Deductible for AGI", "Deductible from AGI", or "Not deductible".

Payment of alimony ________ Mortgage interest on residence ________ Property tax on residence Contribution to traditional IRA (assume the amount is fully deductible) Contribution to United Church Loss on the sale of real estate (held for investment) Medical expenses State income tax Federal income tax

What is Daniel's gross income and his AGI?
Gross income: $_____
AGI: $______

b. Should Daniel itemize his deductions from AGI or take the standard deduction?
Because Daniel's total itemized deductions (after any limitations) are $_______, he would benefit from ________ .

Answer 1

a.

Payment of alimony Not deductible Mortgage interest on residence Deductible from AGI Property tax on residence Deductible from AGI Contribution to traditional IRA (assume the amount is fully deductible) Deductible for AGI Contribution to United Church Deductible from AGI Loss on the sale of real estate (held for investment) Deductible for AGI Medical expenses Deductible from AGI State income tax Deductible from AGI Federal Income Tax Not Deductible

Beginning January 1, 2019, alimony is not deductible from the income of the payer spouse, or included in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.

In general, one can deduct qualified, unreimbursed medical expenses that are more than 7.5% of the adjusted gross income in 2019.

Federal Income tax is not deductible

Gross income:
Salary income $141,000
Net rent income $8,500
Dividend income $2,300

Total Gross Income $151,800

Deductions for AGI
Alimony paid (divorce finalized in March 2019) $ 0
Contribution to traditional IRA $3,000
Loss on sale of real estate $2,075

Total Deduction (5,075)
Adjusted gross income $146,725

b. Itemized deductions
Mortgage interest on residence $ 8,300
Property tax on residence 1,000
Contribution to church 900
State income tax 2,100
Medical expenses [$6,700 − ($146,725 × 7.5%)] =0
Total itemized deductions $12300

The standard deduction for 2019 is $12,200 is less than Daniel's itemized deductions $12,300.

Because Daniel's total itemized deductions (after any limitations) are $12,300 , he would benefit from itemized deductions.