Question

Read the case on which your Portfolio Project is based and determine all items that will be excluded from gross income. In an MS Excel spreadsheet, list all excluded items in column A. In column B, explain why the item is excluded. You may reference the specific tax law, the text (make sure you include the page number), or a link to another trusted source. A trusted source is either supported by the IRS or academic literature (that includes textbooks) under which tax law for the year 2017 is applicable.

Brian and Sheila Williams were married in October of 2008. They live at 1000 Main Street, Atlanta, GA 33127. Brian is a postal service worker. Sheila is a teacher at Grady High School. Brian’s social security number is 555-11-1111 and Sheila’s social security number is 555-22-2222. They have a dependent daughter Jayla who is 10 years old (Born on May 12th). Jayla’s social security number is 555-33-3333. In 2016, Brian's wages was $45,860 while Sheila's was $43,590.
Included or Excluded Items
Two years ago, the taxpayer loaned a friend $2000. The friend has filed for bankruptcy this year and will not be able to repay
Earned $100 interest on county municipal bonds
Found a diamond worth $1000 on the ground
Received $500 in death benefits fron Brian's father
Received $4,000 court settlement. $1,000 was punitive damanges.
Brian paid $400/month in child support
Received a $1000 gift from his brother
Sheila won $100 playing bingo
Brian paid $200/month in alimony to his ex-wife
Sheila received a $1000 gift from her mother
Sheila spent $300 on supplies for her classroom
Portfolio Investments
Stock	Acquired	Sold	Sales Price	Cost (Basis)	Qualified Dividends
Red Stock	2/1/2016	10/5/2016	$6,000	$2,500	$0
White Stock	6/11/2009	10/15/2016	$5,000	$4,000	$100
Blue Stock	10/1/2005	8/3/2016	$2,000	$10,000	$0
Black Stock	3/6/2016	12/15/2016	$3,000	$5,000	$0
Yellow Stock	4/5/2006	N/A	N/A	$5,000	$300
Interest Income Source	Amount
Money Market Account	$200
Savings Account	$25
State Municipal Bonds	$35
Rental Property
They own and rent two pieces of residential real estate in Miami, FL. These properties were acquired with cash (so there are no mortgages on the homes). They both have real estate broker licenses in Georgia and Florida. They dedicate enough hours (through their business) to qualify as a “real estate professional” with regard to these properties.
Property 1
The first property is located at 17750 NW 17th Ave, Miami, FL. They collect $1,000 monthly in rent. The property was purchased June 30, 2016 for $150,000. The tax records show that the value of the land is $30,000 and the value of the home was $90,000 when purchased. They actively participate in the management of the real property.
The property has the following expenditures:
Property tax		$7,000/yr
Repairs		$   900/yr
Insurance		$1,200/yr
Washing Machine		$300		(purchased 6/2/2015)
Refrigerator		$700		(purchased 7/1/2016)
Furniture		$2,000		(purchased 4/1/2014)
Property 2
The second property is located at 5610 NW 11th Ave, Miami, FL. They collect $1,500 monthly in rent. The property was purchased on June 12, 2016 for $100,000. The tax records show that the value of the land is $20,000 and the value of the home was $80,000 when purchased. They actively participate in the management of the real property.
The property has the following expenditures:
Property tax		$6,200/yr
Repairs		$3,000/yr
Insurance		$1,200/yr
Legal fees		$   500/yr
Advertising Expense		$   500/yr

Review the Portfolio Project Milestone Rubric to understand how you will be graded.

This assignment should be delivered using the MS Excel spreadsheet that lists the excluded items and the supporting information on which your decision is based.

Answer 1

1. $100 earened as interest on County Municipal Bonds : There is exemption from taxes for interest on municipal bonds, taxpayers are still required to repoet such interest on their federal income tax returns pursuant to section 6012(d) of the code. This interest is reported only for information purpose.
2. $500 received as death benefit from Brian's mother : death benefit are exempt form state and federal taxation as benefit recived is less than $300,000, according to IRS Publication 525.
3. Paid $400/month in child support : IRS Publication 504 states that child supprot payments are not deductible by the payer and non taxable by the payee
4. Received $1,000 as gift : There is an annual gift exemption of $14,000 per person per year according to IRS 709
5. Paid $200/month as alimony : As per IRS 452, amount paid as alimony is deductible by the payer spouse, and the recipient spouse must include it in income
6. Received $1,000 as gift : There is an annual gift exemption of $14,000 per person per year according to IRS 709
7. $300 paid on supplies of Sheila's classroom : This expense is exempted as Sheila is an employee at the school, therefore any money spent on behalf of the employer will be reimbursed to her.
8. $135 earened as interest on State Municipal Bonds : There is an exemption from taxes for interest on municipal bonds, taxpayers are still required to report such interest on their federal income tax returns pursuant to section 6012(d) of the code.
9. Property tax of $7,000/year on rental property: exemption is allowed as per IRS 527
10. Repairs of $900/month on rental property : exemption is allowed as per IRS 527
11. Insurance of $1,200/year on rental property : exemption is allowed as per IRS 527
12. Property tax of $6,200/year on rental property : exemption is allowed as per IRS 527
13. Repairs of $3,000/year on rental property : exemption is allowed as per IRS 527
14. Insurance of $1,200/year on rental property : exemption is allowed as per IRS 527
15. Legal Fees of $500/year on rental property : exemption is allowed as per IRS 527
16. Advertisment Expense of $500/year on rental property : exemption is allowed as per IRS 527