Question

6. Oliver, who is single, has come to you for tax advice. He says under the recent tax legislation he is never able to benefit by itemizing his deductions. He tells you that with the standard deduction being around $12,000, and with his home mortgage interest, taxes, and charitable contributions only coming to $11,500, he takes the standard deduction. Each year he gives $5,000 to his church, and that is his only charitable contribution. He wants to know if you have any suggestions. Advise. What do you tell him to do? 7. 5 points Explain the difference between a realized gain and a recognized gain? How does this relate to a tax deferred "like-kind" exchange.

Answer 1

Standard Deduction:

A taxpayer can claim for standard deduction if he doesn’t want to claim itemized deduction.

Taxpayer who are single can avail maximum standard deduction of $12,200.

Itemized Deduction:

A taxpayer can either claim standard or itemized deduction.

The itemized deduction with respect to mortgage interest, taxes and charitable contributions are different.

A charitable contribution is allowed 50% of deduction in itemized deduction.

Charitable Contribution for Oliver:

If Oliver Plans to get itemized deduction, then he claims $2500 as charitable contribution which is 50% of $5000.

However, if he plans to claim standard deduction then no other deduction shall be allowed to him.

Tax Advice to Oliver:

Oliver can claim total $14,000 ($11500+$2500) as itemized deduction being the sum of other itemized deductions and charitable contributions.

However, if he claims standard deduction he can claim maximum benefit of $12,000.

Hence, Oliver should go for Itemized deductions.