Itemized Deductions (LO. 4) Jeff and Marion are married with 3 dependents. Their
ID: 2425731 • Letter: I
Question
Itemized Deductions (LO. 4) Jeff and Marion are married with 3 dependents. Their adjusted gross income in 2015 is $334,400. Their itemized deductions total $34,600, including $4,900 in investment interest. Round any division to the nearest whole number. Use the rounded value for subsequent computations. Click here to review Table 8-3. Jeff and Marion's 2015 taxable income is $ Assuming that Jeff and Marion's adjusted gross income is $479,900 and their itemized deductions remain the same, their 2015 taxable income will be $Explanation / Answer
Answer:a)
Because Jeff and Marion’s AGI is in excess of 309,900, their itemized deductions are subject to the 3% phase-out rule. The $4,900 of investment interest is not subject to the reduction rule, leaving $29,700($34,600 - $4,900) which can be reduced. The reduction cannot exceed$23,760 (80% x $29,700). Their AGI in excess of $309,900 is $24,500($334,400 - $309,900).The reduction in itemized deductions is $735 ($24,500 x 3%). Therefore, their deductible itemized deductions for the year are $33,865 ($34,600 -$735).They are allowed two personal and three dependency exemptions for a total exemption deduction of $20,000 ($4,000 x 5). They are also subject to the phase-out of their exemptions because their AGI exceeds $309,900.The $24,500 of excess AGI gives them 10 ($24,500 ÷ $2,500 = 9.8)phase-out increments at 2% per increment, for a total loss of 20%.Therefore, their exemption is reduced by $4,000 ($20,000 x 20%) and his personal exemption amount for the year is $16,000 ($20,000 - $4,000).Jeff and Marion's taxable income is $284,535 ($334,400 - $33,865 -$16,000).
Answer:b)
Because Jeff and Marion’s AGI is in excess of $309,900, their itemized deductions are subject to the 3% phase-out rule. The $4,900 of investment interest is not subject to the reduction rule, leaving $29,700($34,600 - $4,900) which can be reduced. The reduction cannot exceed$23,760 (80% x $29,700). Their AGI in excess of $309,900 is $170,000($479,900 - $309,900). The reduction in itemized deductions is $5,100($170,000 x 3%). Therefore, their deductible itemized deductions for the year are $29,500 ($34,600 - $5,100).In addition, they will lose their entire deduction for their personal and dependency exemptions because their AGI exceeds $432,500, which is the AGI level at which all exemptions are lost for a couple filing married filing joint. Jeff and Marion's taxable income is $450,400 ($479,900 - $29,500 - $0)
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