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1) Monique is single, 40 and blind. She has the following items of income and expenses during 2012.

The home mortgage interest and points are paid on loan of $110,000 used to purchase her principal residence. Salary $100,000 Cash Dividends from owning Nike Stock $10,000 Interest income on City of Eugene Bonds $100,000 Interest income on US Treasury Bills $5,000 Net Rental Income $8,000 Alimony paid to ex-husband $13,000 Child support paid $6,000 Stock held for 2 years (AB 15,000) sold for $40,000 Investment property held 2 months (AB $4,000) sold for $100 Home mortgage interest of $5,000 Home mortgage interest points $1,000 Charitable Contributions (all cash) $20,000 Gross Medical Expenses for a Broken Leg $12,000. Insurance reimbursed Monique $9,000 for this procedure. Gross Medical Expenses for a Nose Enlargement $20,000. Insurance reimbursed Monique $18,000 for this procedure.

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Net LTCG = 25.000 LTCG Stock held for 2 months.000 is below AGI floor so can’t deduct any of it. so Itemize.000 5.5*131.000 of itemized > $7.000 for this procedure.000+1.950 plus an additional standard deduction of $1.000 – 3. $3.000 = 6.000 Gross Medical Expenses for a Nose Enlargement $20.100 Net LTCG Standard deduction or Itemize? 40.800) 101.000 = 3. Thus her charitable contribution is under the applicable limits and all of it is allowed in the current year.000 from charitable contributions = 26.450 = $7.450 for an individual filing single.000 8.5% * AGI = .000.900 = 21. P&D Exemptions (1) Taxable Income $100. Insurance reimbursed Monique $9. Thus the standard deduction is $5.100 = 9. AB is 15.400 of standard deduction.000) (3.000 = 3. So total potential allowable of $3.000) 131. 26.075*131.000-9. Net LTCG Alimony Paid AGI Itemized Ded.000 21.900 STCL. Insurance reimbursed Monique $18. Medical Expenses: Gross Medical Expenses for a Broken Leg $12.832.000 10.000 Charitable Contributions: Cash so 50% property. So Standard deduction is basic standard deduction for a single person in 2012 of $5.a) What is Monique’s Taxable Income for 2012? (see below for relevant calculations) Salary Cash Dividends Treasury bills Rental Inc. 2 . 50% of AGI is . So potential net allowable medical expenses of 12.100 (26. Itemized Deductions for Medical expenses for cosmetic purposes are not allowed.100 (13.300 Calculations for above numbers: Net LTCG: Stock held for 2 years.5.5% agi floor. So total itemized deductions of 6.000. AB is 4. single and blind. Sold for 100.950+1. AGI floor = 7.000 from home mortgage interest and points + 20. = 25.000. Medical expenses are subject to 7.000.400 Itemized Deductions: Home mortgage interest and points both qualify so $5.550.000.100 = 65. Sold for 40.000 for this procedure.000 itemized contributions.

000 is still > than the $7. since he earns more than the value of the P&D exemption during the year ($3.400 standard deduction.800).100 (13.000 21. P&D Exemptions Taxable Income $100. The 4 year old son is incredibly ambitious and relatively intelligent and earned $50.000) (3. However since her son qualifies as a qualifying child. New taxable income is as follows. and Monique was the full-time caretaker of her 4 year old son.500 3 . the home mortgage interest and points would not be deductible. so still itemize. However this $20.000 8.000) 131.000.000 during the year teaching Oregon State Students how to add and subtract.000) 131.000 10. Child support is not taxable when received. so nothing changes for Monique here.000 5. The son fails the Gross income tests.000 10. This would decrease our itemized deductions to $20.000.800) 107.300 c) How would the answer on the previous page (#5 a) change if instead of paying child support.100 (20. Salary Cash Dividends Treasury bills Rental Inc. Net LTCG Alimony Paid AGI Itemized Ded.000 21. Net LTCG Alimony Paid AGI Itemized Ded. Monique received child support of $20.600) 97. Red items are the only ones that have changed from before.000 8.100 (26.000) (7. she may still take a personal and dependency exemption for her son. Red items are the only ones that have changed from before: Salary Cash Dividends Treasury bills Rental Inc.b) How would the answer on the previous page (#5 a) change if the home mortgage interest and points were paid on a loan that was used to purchase Moniques 3rd home.000 5. which would be used as a vacation home? In this case.100 (13. P&D Exemptions (2) Taxable Income $100. New taxable income is as follows. She has a 4 year old Son.

5 (70.000 21. income taxed at normal rates of $70.712.25 = 8.000-21. What is Monique’s remaining Federal Income tax liability (benefit) in 2012? From Part A.000 5.000 and net LTCG of $21. Since our marginal tax rate is 25%. P&D Exemptions (1) Taxable Income $100.100 (26.665 = 18.100 are taxed at special rates.200 results in a marginal tax rate of 25%.300-10.245 4 . we now know that the tax rate on our net LTCG and dividends is 15%. Net LTCG Alimony Paid AGI Itemized Ded.000 * .000 8.350-8700) *.5 13.997.800) 101.500 Net LTCG 21.d) Using the taxable income calculated in and information from #5 part “a”.100 (13. the cash dividends of $10.200 taxed at normal rates: We say that for a single taxpayer.165 4. we have the following: Salary Cash Dividends Treasury bills Rental Inc.000) 131.245 – 0 = 18. So we have 101.300.100 = $70.15 = 1.000) (3.100* .245 Remaining tax liability = Total Tax Liability – Federal withholding Remaining tax liability = 18.300 So our taxable income is 101. So we have the following tax liability: “Normal Rates” (8700-0) * .10 = 870 (35.580 “Capital Rates of 15%” Cash Dividends 10. Out of this income.15 = 3.200-35.000 10.665 So total tax liability is 13.15 = 3.580+4.350) * .