Question

Required information Comprehensive Problem 4-56 (LO 4-1, LO 4-2, LO 4-3) [The following information applies to the questions displayed below.] Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine Jr., Michael, and Candice). The couple received salary income of $100,000 and qualified business income of $10,000 from an investment in a partnership, and they sold their home this year. They initially purchased the home three years ago for $200,000 and they sold it for $250,000. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $16,500 of itemized deductions, and they had $3,050 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children. However, because Candice is 18 years of age, the Jacksons may claim a child tax credit for other qualifying dependents for Candice. (Use the tax rate schedules.)

Answer 1

Amounts are in $

Since the tax rates schedule is not attached in the question, the year of taxation is taken as 2018

(If needed for any other year then substitute the respective years tax rates wherever applicable or ask in the comments section)

Answer to part A,B,C is attached as a picture (for part B and C only Taxable income is asked and not the the tax payable or refund)

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D.

If there is a loss of $5,000 from sale of investment. Only the loss of $3,000 will be adjusted against the taxable income and the remaining $2,000 will be carried forward to next years

Decrease in taxable income = $3,000

E.

If there is appreciation in investment value but nothing is sold in current year, then nothing of such gain will be taxed and the taxable income will remain intact

Taxable income = 84,000 (same as situation "a")

Note :

Sale of principal residence exclusion helps in ni including the gain from sale of their home.

A dependent who is not eligible for Child tax credit is eligible for a deduction of $500 per year

In the gross income, we have added the salary and qualified business income (100,000 + 10,000)