64.[LO 3] Cecil cashed in a Series EE savings bond with a redemption value of $14,000 and an original cost of $9,800. For each of the following independent scenarios, calculate the amount of interest Cecil will include in his gross income assuming he files as a single taxpayer: a.Cecil plans to spend all of the proceeds to pay his tuition at State University and estimates his modified adjusted gross income at $63,100. b.Cecil plans to spend $4,200 of the proceeds to pay his tuition at State University and estimates his modified adjusted gross income at $60,600. a. Cecil will report no Series EE interest in gross income. All of the $4,200 of interest income ($14,000-$9,800) is eligible for exclusion because Cecil is using all the proceeds for a qualified purpose. All of the eligible interest is excluded because Cecil’s modified gross income is below the 2012 threshold for the phase out of the exclusion ($72,850). b. Cecil will report $2,940 of Series EE interest in gross income. Cecil is eligible to exclude $1,260 or 30 percent of the $4,200 of interest income because he is only using 30 percent of the proceeds for a qualified purpose ($4,200/$14,000). Cecil is not required to phase-out the amount of the exclusion because his modified gross income is below the threshold for the phase out of the exclusion. 65.[LO 3] Grady is a member of a large family and received the following payments this year. For each payment, determine whether the payment constitutes realized income and determine the amount of each payment Grady must include in his gross income. a. The gift is realized income that is entirely excluded from gross income. 5- 30
Chapter 5 - Gross Income and Exclusions b. Inheritances are realized income but are entirely excluded from gross income. The increase in the value of the shares during the year has not yet been realized. c. The gift of the bonds is realized income that is entirely excluded from gross income. The interest accrued up to October 31 st is excluded because it was accrued at the time of the gift. Hence, the accrued income was part of the gift. Grady is taxed on $500 of interest that accrued after the date of the gift (he is taxed on it when he receives it). d. A bona fide loan is not realized income. If the loan is actually a disguised gift, the gift would be realized income but the value is excluded from gross income. 66. [LO 3] Bart is the favorite nephew of his aunt Thelma. Thelma transferred several items of value to Bart. For each of the following transactions, determine the effect on Bart’s gross income: a. Thelma gave Bart an auto worth $22,000. Thelma purchased the auto three years ago for $17,000.
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