Question

Daniel, age 38, is single and has the following income and expenses in 2017:

Salary income $123,000 Net rent income 7,500 Dividend income 700 Payment of alimony 22,000 Mortgage interest on residence 7,000 Property tax on residence 600 Contribution to traditional IRA (assume the amount is fully deductible) 4,800 Contribution to United Church 1,100 Loss on the sale of real estate (held for investment) 450 Medical expenses 5,650 State income tax 1,050 Federal income tax 8,000

Daniel's standard deduction for 2017 is $6,350 and his personal exemption is $4,050.

a. Classify the following expenses as either "Deductible for AGI", "Deductible from AGI", or "Not deductible".

Payment of alimony Mortgage interest on residence Property tax on residence Contribution to traditional IRA (assume the amount is fully deductible) Contribution to United Church Loss on the sale of real estate (held for investment) Medical expenses State income tax Federal income tax

b. Daniel's gross income is $ and his AGI income is $.

c. Calculate Daniel's total itemized deductions (after any limitations).
$

Answer 1

Part 1)

The items have been classified as below:

Payment of alimony	Deductible for AGI
Mortgage interest on residence	Deductible from AGI
Property tax on residence	Deductible from AGI
Contribution to traditional IRA (assume the amount is fully deductible)	Deductible for AGI
Contribution to United Church	Deductible from AGI
Loss on the sale of real estate (held for investment)	Deductible for AGI
Medical expenses	Deductible from AGI
State income tax	Deductible from AGI
Federal income tax	Not Deductible

_____

Part 2)

Daniel's gross income and AGI is determined as below:

Salary Income	123,000
Net Rent Income	7,500
Dividend Income	700
Gross Income	$131,200
Less Payment of Alimony	-22,000
Contribution to Traditional IRA	-4,800
Loss on Sale of Real Estate (held for investment)	-450
AGI	$103,950

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Part 3)

The value of Daniel's total itemized deductions is calculated as follows:

Mortgage Interest on Residence	7,000
Property Tax on Residence	600
Contribution to Church	1,100
State Income Tax	1,050
Medical Expenses (5,650 - 7.5%*103,950)	0
Total Itemized Deductions	$9,750

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Notes:

As per the rules of IRS, for the year 2017, medical expenses in excess of 7.5% of adjusted gross income can be claimed as itemized deduction. In the given case, the medical expenses of $5,650 are less than $7,796.25 (103,950*7.5%). Therefore, the amount of medical expenses that can be itemized would be 0.