Taxable Entities; Tax Formula; Introduction to Property Transactions
Solutions to Problem Materials
H and W are entitled to their basic standard deduction of $11,600 (2011) and two
extra deduction amounts of $1,150 (2011) each for being at least 65 years of age.
As a result, their standard deduction for 2011 is $13,900. In addition, they are
entitled to two exemption deductions or $7,400 ($3,700 in 2011 × 2). As a result,
their taxable income would be $18,700 ($40,000 – $13,900 – $7,400). (See
Example 12 and p. 3-21.)
Fred and Susan have A.G.I. of $56,000 ($57,200 – $1,200) and taxable income of
$29,600, determined as follows:
Less: Deductions for AGI
Adjusted gross income
Less the larger of Itemized deductions$ 8,900
Standard deduction (2011)
Less personal and dependency exemptions (4 × $3,700)
(See Exhibit 3.3 and pp. 3-15 through 3-23.)
The income is included in T's taxable income. T is able to reduce the U.S. tax
by $2,000 in the form of a foreign tax credit for the tax paid to the foreign
The foreign tax credit is limited to the U.S. tax on the foreign source income.
As a result, T may only claim a credit of $1,800.
Under the foreign earned income provisions, T may elect to exclude up to
$92,900 (2011) from gross income the income from personal services