Question

This year Jack intends to file a married-joint return. Jack received $175,600 of salary and paid $9,250 of interest on loans used to pay qualified tuition costs for his dependent daughter, Deb. This year Jack has also paid moving expenses of $5,050 and $33,000 of alimony to his ex-wife, Diane, who divorced him in 2012.

a. What is Jack's adjusted gross income?

b. Suppose that Jack also reported income of $5,600 from a half share of profits from a partnership. Disregard any potential self-employment taxes on this income. What AGI would Jack report under these circumstances?

Please show work.

Answer 1

a.

AGI is $135,262.5 i.e. $135263

Jack’s modified AGI calculated without adjustment for educational interest expense is 137,550. He is allowed to deduct part of his student loan interest because his modified AGI is not above $165,000. Jack’s maximum deduction before the phase-out is $2,500 (the amount of interest paid up to $2,500). The maximum deduction of $2,500 is phased-out proratedly over a $30,000 range beginning with modified AGI over $135,000. Consequently, Jack’s education interest expense deduction is $2,287.5 = ($2,500 - $2,500 * [($137,550-135,000)/30,000]).

Jack’s AGI is computed as follows;

Salary and gross income $ 175,600

Less: Alimony - -33,000

Moving Expense Deduction - 5,050

Modified AGI $ 137,550

Student Loan Interest Deduction - 2,287.5

AGI $ 135,262.5

b)

AGI is $141329

Jack’s modified AGI calculated without adjustment for educational interest expense is $143,150. He is allowed to deduct part of his student loan interest because his modified AGI is not above $165,000. Jack’s maximum deduction before the phase-out is $2,500 (the amount of interest paid up to $2,500). The maximum deduction of $2,500 is phased-out proratedly over a $30,000 range beginning with modified AGI over $135,000. Consequently, Jack’s education interest expense deduction is $1820.83333 i.e. $1821 = ($2,500 - $2,500 * [($143,150-135,000)/30,000]).

Jack’s AGI is computed as follows;

Salary and gross income $ 175,600

Partnership income $5600

Less: Alimony - -33,000

Moving Expense Deduction - 5,050

Modified AGI $ 143,150

Student Loan Interest Deduction - 1821

AGI $ 141329