Question

Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent children, Charlene, age 17, and Jordan, age 18. Charlene’s Social Security number is 123-45-6788, and Jordan’s Social Security number is 123-45-6787. In 2019, Martin and Michele had the following transactions:

1. Martin received $120,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA taxes were as follows: $7,049 ($113,700 × 6.2%) for Social Security and $1,740 ($120,000 × 1.45%) for Medicare. Martin worked in Mexico from January 1, 2018, until February 15, 2019. His $120,000 salary for 2019 includes $18,000 he earned for January and one-half of February 2019 while working in Mexico.

2. Martin and Michele received $400 interest on Montgomery County (Virginia) school bonds.

3. Martin received $2,300 interest from a Bahamian bank account.

4. Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2,500 at the time Michele received them, and she did not have the option of receiving cash.

5. Martin and Michele received a $1,200 refund on their 2018 Virginia income taxes. Their itemized deductions in 2018 totaled $34,000.

6. Martin paid $6,600 alimony to his former wife, Rose T. Morgan (Social Security number 123-45-6786). The divorce was finalized in 2016.

7. Martin and Michele kept the receipts for their sales taxes paid of $1,100.

8. Martin and Michele’s itemized deductions were as follows:

   • State income tax paid and withheld totaled $5,100.

   • Real estate taxes on their principal residence were $3,700.

   • Mortgage interest on their principal residence was $2,500.

   • Cash contributions to the church totaled $2,800.

     Part 1—Tax Computation

     Compute the Alberts’ net tax payable (or refund due) for 2019.

     Part 2—Tax Planning

     The Alberts are considering buying another house. Their house mortgage payments would increase by $500 (to $1,500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortgage payments would increase net of any change in their income tax. What will be your advice to the Alberts? Write an explanation and show all of your calculations.

Answer 1

Martin Albert tax comoutation
		Amount ($)
Salary		1,20,000
Less		(2,268)
Foreign earned Income Exclusion( working Note1)
Interest on US savings Bonds and Bahamian Account ( working Note2)		2,300
State Income Tax refund ( working Note 3)		1,200
Stock Dividend ( working Note 4)
Gross Income		1,21,232
Less - Deduction for adjusted Gross Income
Alimony paid		(6,600)
AGI		1,14,632
Less -Itemized Deductions
State Income Tax	5100
Real Estate on taxes on their Principal	3700
Mortgage Interest on Principal residence	2500
Cash contribution to church	2800	(14,100)
Less Personal and dependency Exemption(4*$3950)		(15,800)
( 2 person + 2 dependent) $ 3950 maximum deduction allowed
Taxable Income (a)		84,732
Standard Deduction (b)		(13,346)
Less - federal Income Tax Withheld		(10,750)
Net tax payable (a-b)		60,636

Tax computation
$10612.50+25%*($84732-$73800)
13,345.50
Working Note1
Since Albert meets 330 days ( Jan to 1/2 feb)
out of 365 days , so he is eligible for 46 days
Foreign Earned Income
Exclusion Amount
( same period he earned $ 18000	2,268
($18000*46/365)
Working Note2
$ 400 Interest On Montogomery County School bonds- Excludes
Received $ 2300 Interest from Bahamian Bank Account
Working Note 3
The state Income tax refund is included
in gross Income under the tax benefit rule
because the state Income taxes were taken
Working Note 4
The fair market value of the stock dividend
is not included in Gross Income