1. Kenneth has an adjusted gross income of $114000. His Schedule A expenses were as follows:...

1. Kenneth has an adjusted gross income of $114000. His Schedule A expenses were as follows:

•		Interest on home mortgage, $12500
•		Property taxes on home, $4000
•		State income tax, $8000
•		Charitable contributions, $1000

What will he be able to claim for total itemized deductions?

A) $23500

B) $13500

C) $25500

2. Nicole sold shares of Disney Company that were given to her 20 years ago by her grandmother to pay for her down-payment on her new home. She has a 22% marginal tax rate and a 17.0% average tax rate. How much tax will she pay on her $70000 gain in the stock?

A) 15%

B) 0%

C) 17.0%

Solutions

Expert Solution

1.The answer is option C I. E $25,500

Reason:a)The interest on house mortgage is eligible for deduction as per itemized deduction list.Hence $12,500 is eligible for deduction

b) The property and state or local taxes also eligible for deduction as per itemized deductions.hence $4,000 of property taxes and $8000 of state income tax are qualifies as itemized deductions

c) Contribution to charitable organizations will be qualified for deduction under itemized deduction,if it is a qualified organisation not for political purpose and it should be donated other than cash mode to claim 100‰ deduction,in cash mode 50‰ of Adjusted gross income is qualified and if it is proper donation you are eligible to deduct only 30‰ of adjusted gross income

*it is assumed that she is donated to qualified charitable organization and had a supporting receipt of donation and donated other than in cash mode.

Total expense qualified for itemized deductions is

=$12500+$4000+$8000+$1000

=$25,500

2)Since Nichole sold shares which is gifted by grandmother 20 years back. The holding period of shares is more than a year.The gain acquired by selling shares is Long term capital gain" and since the long term capital gain is less than 1 Lakh I. E 70000 .The long term capital gain on stock above 1 Lakh is 15 ‰ and long term capital gain up to 1 Lakh is exempted. Therefore there is no tax on capital gain of $70,000.

The marginal and average tax rate is of no use in this question

jeff jeffy answered 2 years ago

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