Problem 15-41 (LO. 3, 4) Gabriel, age 40, and Emma, age 33, are married with two
ID: 2561951 • Letter: P
Question
Problem 15-41 (LO. 3, 4) Gabriel, age 40, and Emma, age 33, are married with two dependents. They reported AGI of $110,000 for the year, including net investment income of $3,000 and gambling winnings of $2,500 They incurred the following expenses during the year, all of which resulted in itemized deductions for regular income tax purposes Medical expenses (before AGI floor) State income taxes Personal property tax Real estate tax Interest on personal residence Interest on home equity loan (proceeds were used to remodel the couple's kitchen) Investment interest expense Charitable contributions (cash) Unreimbursed employee expenses (before 296-of-AGI floor) $8,000 2,800 1,200 9,100 8,600 1,800 4,500 4,200 3,800 If an amount is zero, enter "O" a. Enter Gabriel and Emma's regular income tax itemized deductions; AMT itemized deductions; the net amount of adjustments (if any) and if the adjustment is a positive or negative adjustment. Regular AMT Amount of Positive, Income Tax Purposes Adjustment Negative, or None Medical expenses Positive Positive Positive State income taxes 2,800 0 2,800 Personal property tax Real estate tax Interest on residence 0 9,100 8,600 1,800 0 9,100 8,600 None Interest (home equity) Investment interest Charitable contributions 0 None 4,200 4,200 0 None Employee expenses 1,600 1,600 Positive Totals Positive b. Gabriel and Emma also earned interest of $5,000 on private activity bonds that were issued in 2013. They borrowed money to buy these bonds and paid interest of $3,900 on the loan The effect of this transaction is a tax preference of $ 1,100Explanation / Answer
a Gabriel and Emma's itemized deductions are calculated as follows: Regular Income Tax AMT Purposes Amount of Adjustment Positive, Negative, or None Medical expenses (see Note 1) $0 $ -0- $0 None State income taxes 2,800 -0- 2,800 Positive Personal property tax 1,200 -0- 1,200 Positive Real estate tax 9,100 -0- 9,100 Positive Interest on residence 8,600 8,600 -0- None Interest (home equity) 1,800 -0- 1,800 Positive Investment interest 3,000 3,000 -0- None Charitable contribution 4,200 4,200 -0- None Employee expenses (Note 2) 1,600 -0- 1,600 Positive Totals $32,300 $15,800 $16,500 Positive NOTES (1) Medical expenses: For regular income tax [$8,000 – (7.5% X $110,000)] $0 For AMT [$8,000 – (10% X $110,000)] -0- adjustment $0 (2) Unreimbursed employee expenses: Expenses $3,800 2% of AGI ($110,000) -2,200 Deduction for regular income tax $1,600 (b) Gabriel and Emma would have a positive adjustment of $16,500, as computed above. In addition, they would have a tax preference of $1,100 ($5,000 interest on private activity bonds – $3,900 related interest expense).