Question

Lana and Rey are married, live in Berkeley California, and have a 12 year old dependent child named Del. The two have wages of $ 90,000 (Lana) and $ 85,000 (Rey) during the calendar year 2019 with total state income tax withholding of $16,200, total federal income tax withholding $ 35,000, total social security withholding of $ 10,850, and total medicare withholding of $2,538.

Lana has interest income of $ 4,300 for 2019 and Lana and Rey have the following gains and losses on sales of property.   Lana sold land held as an investment, with a cost of $ 23,000, bought on 5-7-2010 and sold on 3-4-2019 for $ 41,000.   Lana sold 5,000 shares of Pepsi Cola, Inc. stock, which were bought on 10-9-2018 for $ 57 a share and sold on 9/9/2019 for $ 55 a share (net proceeds after commission).

Rey had Tropico Inc., stock bought on 8-8-2011 for $ 74,210 which was sold on 8/23/2019 for $51,550 (also net). All the stocks were sold to unrelated parties.

Finally, Lana bought a Chevy Malibu at an auction on 6/21/2019 for $ 5,890 which Lana was able to sell to a collector for $ 7,650 on 8/21/2019.

Lana and Rey own their home outright, but have a $ 200,000 home equity loan, which they borrowed to buy stock with, the home value being about $ 1,200,000. Lana and Rey paid interest on this loan of $ 14,000 during the year 2019 for 2019, and have paid $ 12,500 for home property taxes on both 4-10-2019 and 12-10-2019.

Lana loaned a friend, Elizabeth Woolridge, $ 8,000 on 6-21-2011. Her friend signed a note and had paid all the interest due on the loan until this year, in 2019, when Lana’s friend declared bankruptcy. Ms. Woolridge paid Lana only $ 3,000 of the loan back during 2019 and no interest or any other payments during 2019 prior to when her personal finances went sour, and Lana will not receive the other $5,000 back.  

Total qualified dividends Lana and Rey received during 2019, for example, Pepsi Cola Inc., qualified dividends and Tropico Inc., (neither stock qualifies for section 1202, nor 1244 since bought from unrelated individuals) qualified dividends, added up to $ 9,840. Rey donated some shares of Interscope stock (all required documentation, and substantiation/appraisals were met) to the Salvation Army on 2-2-2019 which were originally bought on 12-14-2006 for $15,970 but were worth $ 18,840 on the date of the donation.  

What is Lana and Rey’s tax refund or amount due for tax year 2019 (separately state the AGI and taxable income totals as well as the capital items netting process and alternative minimum tax for full credit )?   

Answer 1

Taxable Income of Lana for the tax year 2016

Wages                       $ 100,000

Add : Interest income $ 7,410

Add : Long term capital gain on sale of land $ 24,000 ( 71,000 - 47,000 )

Add : Short term capital gain on sale of shares $ 0 [ 4,000 (76-76) ]

Add : Short term capital gain on sale of Chevy Malibu $ 4,910 ( 9,750 - 4,840 )

Add : Dividend income ( 22,800 / 2 ) $ 11,400

Less : Interest on loan ( 14,000 / 2 ) $ 7,000

Less : Home property taxes ( 13,500 / 2 ) $ 6,750

Less : Loss on loan to friend ( 11,000 - 3,000) $ 8,000

Total taxable income $ 125,970

Taxable Income of Rey for the tax year 2016

Wages                                     $ 80,000

Add: Long term capital gain on sale of stock $ 19,610 $ 0 ( 84,840 - 65,230 ) Adjust or less the long term capital loss $ (19,610) on shares that were given as donations and the remaining long term capital loss will be carried forward to next year to be adjusted with any long term capital gain because long term capital loss can be only adjusted with long term capital gain Long term capital loss $ 30,900 Adjusted $ 19,610 remaining $ 11,290 carried forward to next year

Less : Interest on loan (14,000 / 2 ) $ 7,000

Less : Home property taxes (13,500 / 2 ) $ 6,750

Less: Shares gave as donation $ 26,760

Total taxable income $ 39,490

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