Question

Tony and Pepper are married, under 65, and are not blind. Tony died in 2019. They have one child, Morgan (under the age of 17), that Pepper continues to provide a home and 100% support for. Tony had W2 earnings of $200,000 for the year, withholding of $35,000. Pepper didn’t have any earnings in 2019; however, she did receive a $2 million insurance policy payout as a result of Tony’s death.

Prior to his death, Tony sold an old business asset of his. At the time of the sale, the accumulated depreciation was $10,000. He had paid $50,000 for it, and he sold it for $12,000. As a result of a disaster (not a presidentially declared one), Pepper had to live in a hotel for 6 months, while her home was being repaired. The hotel cost her $4,500.

She also had the following:

Property taxes of $4,500

Sales taxes of $6,000

Mortgage interest of $5,000

Charitable Contributions of $30,000

Medical expenses of $2,000

Student Loan interest of $6,000 (for Pepper)

What is the amount of Pepper’s refund check or the amount of the check she has to send to the IRS for her 2019 tax return?

Answer 1

Note : The question involves amount to be disclosed by Pepper in her Tax Returns for 2019.

To arrive at this we need to compute Pepper Income for2019:

Sources of income:

Insurance income : 2,000,000

Share of tony earnings 200000-35000=165000

Capital loss of home (50000-10000-12000)= (28000)

   =========

Gross Income 21,37,000

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LESS EXPENSES :

1. Hotel Cost 4500

2. Property taxes 4500

3 sales taxes    6000

4 Mortgage interst 5000

5 charitable    30000

6 medical 2000

7 interst on student loan 6000

Total expenses 58000   

NET TAXABLE INCOME = 21,37,000-58,000=20,79,000

Take appropriate tax rate of20% on 20,79,000= 415800 >> amount of check to be prepared for IRS by Pepper.