Question

Daniel and Marion (ages 52 and 51, respectively) file a joint return. Their AGI is $167,900 (which includes taxable interest of $3,700). They have put together the following list of expenses:

Unreimbursed medical expenses	$27,743
Real estate taxes (main home)	4,400
State and local income taxes withheld	1,200
Federal income tax withheld	22,300
General sales tax paid	785
Mortgage interest (main home)	15,200
Credit card interest	945
Investment interest	5,000
Charitable contributions (cash, with receipts)	6,400

Compute their total itemized deductions.

		$50,450
		$71,380
		$47,350
		$46,835
		$83,973
		$46,050

Answer 1

Computation of the total itemized deductions

Deduction	amount	eligible amount
Unreimbursed medical expenses	27,743	15,150
Real estate taxes (main home)	4400	4400
State and local income taxes withheld	1200	1200
Federal income tax withheld	22,300	0
General sales tax paid	785	0
Mortgage interest (main home)	15,200	15,200
Credit card interest	945	0
Charitable contributions (cash, with receipts	6,400	6,400
Investment interest	5,000	5,000
Total		47,350

Unreimbursed medical expenses is allowed in excess of 7.5% of AGI

Actual unreimbursed medical expenses = 27,743

7.5% of AGI = 7.5%× 167900 = 12,593

Itemized deduction = 27,743-12,598= 15,150

Federal taxes withheld and credit card interest is not eligible for itemized deduction.

We can either claim state taxes or sales tax but not both. In this case it is beneficial to claim state taxes rather than sales tax because state taxes is more than sales tax.