Pedro, who is a single taxpayer, had AGI of $283,600 for 2015. He incurred the f
ID: 2447206 • Letter: P
Question
Pedro, who is a single taxpayer, had AGI of $283,600 for 2015. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI limitation $12,000 State and local income taxes $8,900 Real estate taxes $1,600 Home mortgage interest $16,000 Charitable contributions $2,200 Deductible investment interest expense $1,700 Compute the amount of Pedro's itemized deductions after any applicable reductions. Round your computations to the nearest dollar and use rounded amounts in subsequent calculations. $
Explanation / Answer
Pedro's itemized deductions after applicable reductions would be calculated under 2 different scenarios - before the application of overall limitation and after application of the overall limitation.
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Scenario One: Before the Application of Overall Limitation
Total Itemized Deductions have been calculated with the use of following table:
_________
Scenario Two: After the Application of Overall Limitation
For the year 2015, the reduction will be taken as the lower of the following 2 values:
a) 3%*(AGI - Limit for Single Taxpayer) = 3%*(283,600 - 258,250) = $760.50 or $761
or
b) 80% of Total Value Calculated in the above table = 80%*28,700 = $22,960
Therefore , the total amount of reduction would be $761.
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The total itemized deductions (subject to overall limitation) can be calculated with the use of following formula:
Total Itemized Deductions = Total Value as Calculated in Above Table - Amount of Reduction + Investment Interest Expense
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Total Itemized Deductions = 28,700 - 761 + 1,700 = $29,639
Notes:
1) Deductible investment interest expense is not subject to overall limitation and therefore, included seperately at the time of calculating total itemized deductions.
Amount Medical Expenses (12,000 – 10%*283,600) 0 State and Local Income Taxes 8,900 Real Estate Taxes 1,600 Home Mortgage Interest 16,000 Charitable Contributions 2,200 Deductible Investment Interest Expense 1,700 Total Itemized Deductions $30,400Related Questions
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