Agi 90000 22000 112000 rate x 2 floor on deducting

This preview shows page 16 - 19 out of 36 pages.

AGI ($90,000 + $22,000)$112,000RateX 2%Floor on deducting miscellaneous itemized deductions$ 2,240Antique books activity expenses ($17,400 + $1,200)$ 18,600Less: Floor on miscellaneous itemized deductions(2,240)Deductible miscellaneous itemized deductions$ 16,360Sandra’s taxable income is calculated as follows:Gross income:Net income from orthodontic practice$ 90,000Income from sale of antique books22,000AGI$112,000Personal exemption deduction(2,900)Itemized deductions:Taxes, interest, and charitable contributions($19,000)Miscellaneous itemized deductions[$18,600 – 2% ($112,000)](16,360)(35,360)Taxable income$ 73,740b.If the antique book activity is classified as a business, Sandra’s taxable income is calculated as follows:Adjusted gross income:Net income from orthodontic practice$90,000Net income from antique business:Income from the sale of books$22,000Expenses:Cost of goods sold$12,000Show registration costs3,000Advertising1,000Dealer’s license500Insurance900Depreciation on display1,200(18,600)3,400AGI$93,400Personal exemption deduction(2,900)Itemized deductions (taxes, interest, and charitable contributions)(19,000)Taxable income$71,500pp. 5-16 to 5-1850.Since the house was rented for less than 15 days, the rental income of $2,500 is excluded from Arlene’s gross income. The only expenses that can be deducted in this case are the real property taxes of $3,500 and the mortgage interest of $7,000. These expenses are classified as itemized deductions (i.e., deductions fromAGI). Therefore, there is no effect on AGI. pp. 5-18 and 5-19
Deductions and Losses: In General5-1751.a.Gross income$6,000Deduct: Taxes and interest (60/365 X $11,000)(1,808)Remainder to apply to rental operating expenses and depreciation$4,192Utilities and repairs [60/80 X ($600 + $1,000)](1,200)Remainder$2,992Depreciation (60/80 X $8,000 = $6,000), limited to remainder)(2,992)Net rental income$ -0-She can itemize $9,192 of property taxes and mortgage interest ($11,000 total less $1,808 allocated to rental). Thus, under the court’s approach, Anna has no net rental income and has an itemized deduction of $9,192. Example 29The roof replacement of $12,000 is a capital expenditure. p. 5-25b.Gross income$6,000Deduct: Taxes and interest (60/80 X $11,000 = $8,250), but limited to income(6,000)$ -0-Anna can deduct the remaining taxes and interest of $5,000 ($11,000 less rental allocation of $6,000) as itemized deductions. Under the IRS’s approach, she has no net rental income and has an itemized deduction of $5,000. Example 2852.Since Anna used it for less than 15 days, it is classified as rental property.RentalPersonalPercentage of use88%12%Gross income$ 6,000$ -0-Expenses:Interest and taxes ($9,000 + $2,000)9,6801,320Utilities and repairs ($600 + $1,000)1,408192Depreciation ($8,000)7,040960Total expenses$18,128$2,472Net income (loss)($12,128) $ -0-Anna could deduct $240 ($2,000 X 12%) of property taxes as itemized deductions and take a rental loss deduction forAGI of $12,128. The mortgage interest of $1,080 ($9,000 X 12%) is not deductible as an itemized deduction because it is not qualified residence interest. Example 25The roof replacement of $12,000 is a capital expenditure. p. 5-2553.Income:Salary$43,000Dividend400Rental of vacation home (Note 2)-0-Adjusted gross income$43,400Itemized deductions:State income taxes$3,300Property tax on home2,200Interest on home mortgage8,400
5-18 2002 Comprehensive Volume/Solutions Manual

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture