E Chapter 71, Problem 51PM Computation of Taxable Income During 2016, James, a s
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Question
E Chapter 71, Problem 51PM Computation of Taxable Income During 2016, James, a single, cash method taxpayer incurred the following expenditures Qualified medical expenses $8,000 Investment interest expense 16.000 My Text Other investment activity expenses 15.000 Qualified residence interest 12,000 Pearson's Federal. 10th Edition Interest on loan on personal auto 3.000 ew all solutic State income tax paid 7.000 Accounti who can State sales tax paid 500 Property taces 4.000 James income consisted of the following Salary $70,000 Interest income 20,000 Long-lerm capital gains 23,000 Long-lerm capital losses (15,000) a. Compute James taxable income for the year (assuming that he makes an election to have the net capital gain taxed at the regular tax rates) Also assume that James is 67 years old. Thus, his medical expense deduction is subiect to the 75% rather than the 10% limit b. What is James' investment interest carryover (if any)? Step-by-step solution
Explanation / Answer
Lets start the problem, by calculating Adjusted Gross Income(AGI) for James $ Income from Salary 70000 Add: Interest Income 20000 Long term Capital Gain(LTCG) 23000 Less: Long term capital losses(LTCL) 15000 Adjusted Gross Income (AGI) $ 98,000 Less: Deductions :- Qualified Medical expense 8000 (limited to 7.5% of AGI) 7350 Less: 7.5% of 98,000 Medical expense deduction 650 Investment interest expense (Note 1) 13000 Quaified residence interest 12000 Charitable contribution 3000 State Income tax paid 7000 property tax 4000 Total (A) 39650 Miscellaneous deduction:- other investment activity expense 15000 Tax return preparer and consulting fees 5000 Total 20000 (limited to 2% of AGI) Less: 2% of 98,000 1960 Total Miscellaneous deduction (B) 18040 Total Deduction (A+B) 57690 Less: Personal exemption for 2016 4050 Taxable Income $ 36,260 Note 1 Computation of deduction on Investment interest expense Long Term Capital Gain 23000 Less: Long Term Capital Loss 15000 Add: Interest Income 20000 Less: other investment activity expense 15000 Deduction on Investment interest expense 13000 b Hence investment interest carryover would be = 16000-13000 (total investment interest expense - deduction availed) = 3000
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