Problem 6-34 (Algorithmic) (LO. 1) Daniel, age 38, is single and has the following income and...

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Problem 6-34 (Algorithmic) (LO. 1) Daniel, age 38, is single and has the following income and expenses in 2019: Salary income

a. Classify the following expenses as either Deductible for AGI, Deductible from AGI, or Not deductible. Payment of ali

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Answer 1

Answer #1

(a) -- Classify the following expenses as either "Deductible for AGI", "Deductible from AGI", or "Not deductible".

Answer -

Particulars
Payment of alimony	Not Deductible
Mortgage interest on residence	Deductible From AGI
Property tax on residence	Deductible From AGI
Contribution to traditional IRA (assume the amount is fully deductible)	Deductible For AGI
Contribution to United Church	Deductible From AGI
Loss on the sale of real estate (held for investment)	Deductible For AGI
Medical expenses	Deductible From AGI
State income tax	Deductible From AGI
Federal income tax	Not Deductible

What is Daniel's gross income and his AGI?

Answer -

	Particulars	Explanation	Amount ($)
I.	Gross income	Salary income + Net rent income + Dividend income = $141000 + $21500 + $2500	165000
II.	AGI	Gross income - (Contribution to traditional IRA + Loss on sale of real estate) = $165000 - ($1500 + $2075)	161425

.

(b) -- Should Daniel itemize his deductions from AGI or take the standard deduction?

Answer -

Because Daniel's total itemized deductions (after any limitations) are $14600 (Refer working note - (1)), he would benefit from itemize his deductions from AGI.

.

# Working note - (1) - Calculation of Itemized deductions -

	Particulars	Explanation	Amount ($)
I.	Mortgage interest on residence	Given in question	8300
II.	Property Tax on Residence	Given in question	3000
III.	Contribution to United Church	Given in question	1500
IV.	State Income Tax	Given in question	1800
V.	Medical Expenses	Medical expenses that are more than 10% of Adjusted gross income are allowed for tax deduction	0
Total itemized deductions		I + II + III + IV + V	14600

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