Solutions Guide: Please do not present as your own.

I sometimes post solutions that are totally mine, from the books solutions manual, or a mix of my work and the books solutions manual. But this is only meant as a solutions guide for you to answer the problem on your own. I re ommend doing this with any ontent you buy online whether from me or from someone else. 72. Latrell recently used his Delta Sky miles to purchase a free roundtrip ticket to Milan, Italy (value $ ,2!!". #he fre$uent flyer miles used to purchase the ticket %ere &enerated from Latrell's (usiness travel as a )*+. Latrell's employer paid for his (usiness trips, and he %as not ta,ed on the travel reim(ursement. -se an availa(le ta, research service to determine ho% much Income, if any, does Latrell have to reco&ni.e as a result of purchasin& an airline ticket %ith Sky miles earned from (usiness travel. I!S "nnoun ement #$$#%&' states that fre(uent flier miles earned for business tra)el and redeemed for in%kind benefits *e.g., a free airline ti ket+ do not represent taxable in ome. ,his ruling only applies to in%kind benefits and not fre(uent flier miles on)erted to ash. Sin e -atrell used his fre(uent flier miles to pur hase an airline ti ket, he will ha)e no taxable in ome from the transa tion. /0. 1endetta, a hi&h2ta,2rate ta,payer, o%ns several rental properties and %ould like to shift some income to her dau&hter, 3enine. 1endetta instructs her tenants to send their rent checks to 3enine so 3enine can report the rental income. 4ill this shift the income from 1endetta to 3enine5 4hy, or %hy not5 .erely sending the he ks to /enine is not suffi ient to shift the rental in ome from Bendetta to /enine under the assignment of in ome do trine. ,o shift the rental in ome to /enine, she must earn the in ome. In this ase, this means that /enine must a tually own the rental property to report the rental in ome. /!. Marc and Michelle are married and earned salaries this year (2!!0" of $6/,!!! and $ 2,!!!, respectively. In addition to their salaries, they received interest of $78! from municipal (onds and $8!! from corporate (onds. Marc and Michelle also paid $2,8!! of $ualifyin& movin& e,penses, and Marc paid alimony to a prior spouse in the amount of $ ,8!!. Marc and Michelle have a !2year2old son, Matthe%, %ho lived %ith them throu&hout the entire year. #hus, Marc and Michelle are allo%ed to claim a $ ,!!! child ta, credit for Matthe%. Marc and Michelle paid $6,!!! of e,penditures that $ualify as itemi.ed deductions and they had a total of $8,8!! in federal income ta,es %ithheld from their paychecks durin& the course of the year. a. 4hat is Marc and Michelle's &ross income5 (. 4hat is Marc and Michelle's ad9usted &ross income5 c. 4hat is the total amount of Marc and Michelle's deductions from +:I5 d. 4hat is Marc and Michelle's

ta,a(le income5 e. 4hat is Marc and Michelle's ta,es paya(le or refund due for the year5 (-se the ta, rate schedules." a. 4hat is Marc and Michelle's &ross income5 $76,500. See analysis below. (. 4hat is Marc and Michelle's ad9usted &ross income5 $72,500. See analysis below. c. 4hat is the total amount of Marc and Michelle's deductions from +:I5 $22,350 . See analysis below. d. 4hat is Marc and Michelle's ta,a(le income5 $50,150 See analysis below.

e. 4hat is Marc and Michelle's ta,es paya(le or refund due for the year (use the ta, rate schedules"5 $188 taxes payable. See analysis below. Description (1) eali!e" in#ome from all so$r#es (2) 'x#l$"e" or "eferre" in#ome (3) )ross in#ome 350 76,500 Amount $76,850 Computation 6%,000 salary & 12,000 salary & 350 m$ni#ipal bon" interest & 500 #orporate bon" interest (ontaxable m$ni#ipal bon" interest (1) * (2)

(%) +or ,)- "e"$#tions (5) ,"1$ste" 0ross in#ome (6) Stan"ar" "e"$#tion (7) -temi!e" "e"$#tions (8) )reater of stan"ar" "e"$#tions or itemi!e" "e"$#tions (4) 5ersonal an" "epen"en#y exemptions (10) 6otal "e"$#tions from ,)(11) 6axable in#ome

%,000 72,500 11,%00 6,000

2,500 .$alifie" mo/in0 expenses & 1,500 alimony pai" (3) * (%) 2arrie" filin0 1ointly

(6) 3 (7) 11,%00 10,450 3,650 x 3 (two personal exemptions an" one "epen"en#y exemption) (8) & (4) (22,350) (5) & (10) $50,150

(12) -n#ome tax liability

$6,688

(50,150 * 16,700) x 157 & 1,670 (see tax rate s#8e"$le for marrie" filin0 1ointly) ,mo$nt ro$n"e" to w8ole "ollar.

(13) 9t8er taxes (1%) 6otal tax

0 (12) & (13) $6,688

(15) :re"its (16) 5repayments

(1,000) (5,500)

:8il" #re"it for 10;year ol" son 2att8ew

6axes payable wit8 ret$rn $188

(1%) & (15)& (16)

/ . Demarco and 3anine 3ackson have (een married for 2! years and have four children %ho $ualify as their dependents. #heir income from all sources this year (2!!0" totaled $2!!,!!! and included a &ain from the sale of their home, %hich they purchased a fe% years a&o for $2!!,!!! and sold this year for $28!,!!!. #he &ain on the sale $ualified for the e,clusion from the sale of a principal residence. #he 3acksons incurred $ 6,8!! of itemi.ed deductions. a. 4hat is the 3ackson's ta,a(le income5 (. 4hat %ould their ta,a(le income (e if their itemi.ed deductions totaled $6,!!! instead of $ 6,8!!5 c. 4hat %ould their ta,a(le income (e if they had $! itemi.ed deductions and $6,!!! of for +:I deductions5 d. +ssume the ori&inal facts e,cept that they also incurred a loss of $8,!!! on the sale of some of their investment assets. 4hat effect does the $8,!!! loss have on their ta,a(le income5 e. +ssume the ori&inal facts e,cept that the 3acksons o%ned investments that appreciated (y $ !,!!! durin& the year. #he 3acksons (elieve the investments %ill continue to appreciate, so they did not sell the investments durin& this year. 4hat is the 3ackson's ta,a(le income5 a. 4hat is the 3acksons' ta,a(le income5 $111,600. See analysis below. Description (1) eali!e" in#ome from all so$r#es (2) 'x#l$"e" or "eferre" in#ome (3) )ross in#ome (%) +or ,)- "e"$#tions (5) ,"1$ste" 0ross in#ome (6) Stan"ar" "e"$#tion (7) -temi!e" "e"$#tions (8) )reater of stan"ar" "e"$#tions or itemi!e" "e"$#tions (4) 5ersonal an" "epen"en#y exemptions Amount $200,000 50,000 150,000 0 $150,000 11,%00 16,500 16,500 21,400 Computation )ain on sale of 8ome (250< * 200<) (1) * (2) (3) * (%) 2arrie" filin0 1ointly= )reater of (6) or (7) 6 exemptions (0i/en) x 3,650 (2004 exemption (10) 6otal "e"$#tions from ,)(11) 6axable in#ome 38,%00 $111,600 amo$nt) (8) & (4) (5) * (10)

(. 4hat %ould their ta,a(le income (e if their itemi.ed deductions totaled $6,!!! instead of $ 6,8!!5 $116,700. See analysis below. Description (1) eali!e" in#ome from all so$r#es (2) 'x#l$"e" or "eferre" in#ome (3) )ross in#ome (%) +or ,)- "e"$#tions (5) ,"1$ste" 0ross in#ome (6) Stan"ar" "e"$#tion (7) -temi!e" "e"$#tions (8) )reater of stan"ar" "e"$#tions or itemi!e" "e"$#tions (4) 5ersonal an" "epen"en#y exemptions Amount $200,000 50,000 150,000 0 $150,000 11,%00 6,000 11,%00 21,400 Computation )ain on sale of 8ome (250< * 200<) (1) * (2) (3) * (%) 2arrie" filin0 1ointly )reater of (6) or (7) 6 exemptions (0i/en) x 3,650 (2004 exemption (10) 6otal "e"$#tions from ,)(11) 6axable in#ome 33,300 $116,700 amo$nt) (8) & (4) (5) * (10)

c. +ssume the same facts as in part (. e,cept that the 3ackson's report $6,!!! of for +:I deductions and $! itemi.ed deductions. 4hat is the 3ackson's ta,a(le income5 $110,700. See analysis below. Description (1) eali!e" in#ome from all so$r#es (2) 'x#l$"e" or "eferre" in#ome (3) )ross in#ome Amount $200,000 50,000 150,000 Computation )ain on sale of 8ome (250< * 200<) (1) * (2)

(%) +or ,)- "e"$#tions (5) ,"1$ste" 0ross in#ome (6) Stan"ar" "e"$#tion (7) -temi!e" "e"$#tions (8) )reater of stan"ar" "e"$#tions or itemi!e" "e"$#tions (4) 5ersonal an" "epen"en#y exemptions

6,000 $1%%,000 11,%00 0 11,%00 21,400

(3) * (%) 2arrie" filin0 1ointly )reater of (6) or (7) 6 exemptions x 3,650 (2004 exemption amo$nt) (8) & (4) (5) * (10)

(10) 6otal "e"$#tions from ,)(11) 6axable in#ome

33,300 $110,700

(ote t8at if t8e $6,000 expense is a for ,)- "e"$#tion, t8e >a#?sons are able to "e"$#t all of t8e expense, b$t if it@s a from ,)- "e"$#tion an" t8ey are not able to itemi!e "e"$#tions, t8ey "on@t 0et to "e"$#t any of it. d. +ssume the ori&inal facts e,cept that they also incurred a loss of $8,!!! on the sale of some of their investment assets. 4hat effect does the $8,!!! loss have on their taxable in#ome5 Ae#a$se in"i/i"$al taxpayer@s "e"$#tible losses on t8e "isposition of in/estment (or #apital) assets is limite" to $3,000. 68e >a#?sons wo$l" be allowe" to "e"$#t $3,000 of t8e $5,000 loss a0ainst t8eir taxable in#ome in 2004. 68e remainin0 $2,000 loss wo$l" #arryo/er to next year. :onse.$ently, wit8 t8e loss t8eir taxable in#ome wo$l" be $108,600 ($111,600 from part a min$s $3,000). e. +ssume the ori&inal facts e,cept that the 3acksons o%ned investments that appreciated (y $ !,!!! durin& the year5 #he 3acksons (elieve the investments %ill continue to appreciate, so they did not sell the investments durin& this year. 4hat is the 3ackson's ta,a(le income5 Same as it is in part a. $111,600. 68o$08 t8e assets 8a/e appre#iate", t8ey will not reali!e or re#o0ni!e t8is 0ain for in#ome tax p$rposes $ntil t8ey sell t8eir in/estment assets, at w8i#8 time t8ey will in#rease t8eir 0ross in#ome (an" #orrespon"in0 taxable in#ome) by t8e 0ain