Question

In: Accounting

Omar paid the following taxes this year (2020): Real estate taxes on rental property he owns...

Omar paid the following taxes this year (2020):

Real estate taxes on rental property he owns

$5,000

Real estate taxes on his own residence

7,600

Federal income taxes

12,000

State income taxes

4,400

Local city income taxes

400

What amount can Omar deduct as an itemized deduction on his tax return?

A) $7,600                              

B) $10,000

C) $12,400

D) $29,400

LABEL AND SHOW ALL WORK.

Solutions

Expert Solution

The correct answer for the question is Option B - $10,000. Taxpayers who elect to itemize the deductions on their tax return can deduct a total of $10,000 for all the the local and state taxes paid. Hence, even though the combined total of State income taxes, Real estate taxes and Local city income taxes is greater than $10,000 , Omar's deduction will be limited to the ceiling of $10,000. Omar will hence be able to deduct $10,000 in order to arrive at his taxable income. Hence , this is the correct answer.

Option A is incorrect as state and local city income taxes are also eligbilbe for deduction but upto the maximum ceiling by Omar.

Option C is incorrect per the above calculations and considerations.

Option D is incorrect as this option includes all the amounts mentioned in the question which is incorrect per the above explanation.

Please let me know if you have any questions via comments and all the best :)

ekkarill92 answered 1 year ago
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