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Deductions and Losses: In General

Question

Deductions and Losses: In General
Daniel is single and has the following income and expenses in 2010:
Salary income $60,000
Net rent income 6,000
Dividend income 3,500
Payment of alimony 12,000
Mortgage interest on residence 4,900
Property tax on residence 1,200
Contribution to traditional IRA 5,000
Contribution to United Church 2,100
Loss on the sale of real estate (held for investment) 2,000
Medical expenses 3,250
State income tax 300
Federal income tax 7,000

a. Calculate Daniel’s AGI.

b. Should Daniel itemize his deductions from AGI or take the standard deduction?

Answers

a. (60,000 + 6,000 + 3,500 - 12,000 - 5000 - 2,000) = $54,500

b. Itemized deductions for the year equal:

$0 medical expense (only amount over 7.5% of AGI($4,087.50) is deductible)

Tax: $300 + $1,200 = $1,500

Interest: $1,200

Contributions: $2,100

Total: $4,800. Since the standard deduction for single taxpayers is $5,700, he should take the standard dedution.


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