Question

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather's support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and Heather spent two days driving the 1,426 miles to Georgia. Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January and throughout the rest of the year at a nearby university. She was awarded a $3,000 partial tultion scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses. Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in state income taxes and $12,500 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather: Insurance premiums Medical care expenses Prescription medicine Nonprescription medicine New contact lenses for Heather $7,952 $1,100 $ 350 $ 100 $ 200

Answer 1

Description	Amount	Explanation
Gross Income:
Salary	$38000
Alimony received	14400	$1,200 per month × 12 months
Rental receipts	50000
Disability insurance payments	1200	$800 of $2000 (40%) of payment excluded because taxpayer paid 40% of premium on insurance policy
Interest income from corporate bonds	2200
Interest income from municipal bonds	0
(1) Gross income	$105800
Deductions for AGI:
Expenses for rental property	19500
(2) Total for AGI deductions	19500
(3) AGI	$86300	(1) – (2)
From AGI deductions:
Medical expenses	972	7952+1100+350+200 = $9602 – 8630 [10% × (3)] = $972
State income taxes	5800
Charitable contributions	12500
(4) Total itemized deductions	19272
(5) Standard deduction	18350	Head of household filing status.
(6) Greater of itemized deductions or standard deduction	19272	Greater of (4) or (5)
(7) Taxable income	$67028	(3) – (6)
(8) Tax on taxable income	$9184	$6065 + 3478 [22% × (67028 – 52850)] (using head of household tax rate)
(9) Credits	1000	American opportunity credit of $500 for tuition paid on Heather’s behalf (full amount qualifies for credit) and $500 credit for other dependent
(10) Tax prepayments	10,000	Withholding
Tax refund with return	$(1816)	(8) – (9) - (10).