Chapter14TheIndividualTaxFormula

Chapter 14
Questions and Problems for Discussion
1.

AGI includes net profit from sole proprietorships, net income from rental real estate, and shares
of net business income earned by passthrough entities in which the taxpayer owns an interest. It
also includes net capital gains (capital gains reduced by capital losses).

2.

a. An increase in AGI can decrease total itemized deductions.

b. An increase in AGI has no effect on the standard deduction.
c.

An increase in AGI can decrease the exemption amount.

d. An increase in AGI increases alternative minimum taxable income (AMTI).

e. An increase in AGI can decrease the percentage used to calculate the dependent care
credit.
3.

Presumably, these individuals are living on a fixed retirement income and have special needs
(increased medical care) that reduce their financial ability to pay income tax.

4.

None that the author can think of.

5.

The overall limitation on itemized deductions and the reduction of the exemption amount
increase the tax burden on high-income individuals by increasing their tax base. A base increase
is a more subtle approach than a rate increase and tends to be less politically difficult to
accomplish.

6.

Above-the-line deductions that reduce AGI always yield a benefit in the form of current tax
savings while itemized deductions yield a benefit only if their total exceeds the standard
deduction. Also, a reduction in AGI may cause an increase in AGI-sensitive deductions and
credits, total itemized deductions, and the exemption amount.

7.

No, above-the-line business deductions that reduce AGI are not interchangeable with itemized
deductions because the AGI number affects so many other computations on Form 1040. A
$2,700 increase in AGI coupled with a $2,700 additional itemized deduction may cause an
increase in Mr. Gs taxable income.

8.

Postponing payment of expenses improves NPV of cash flows, while accelerating payment of
expenses reduces NPV of cash flows.

9.

AGI is a better gauge of disposable income than taxable income. Taxable income is net of the
standard deduction and exemption amount, which are not based on monetary expenses or
economic losses and bear no relationship to specific cash flows.

10. The single person could argue that two people can live as cheaply as one. For example, a single
person might need the same consumer durables (one automobile, one set of dining room
furniture, one lawn mower) as a married couple. A single person may pay more for services such
as restaurant meals, laundry, and yard maintenance than a married couple in which one spouse
works at home providing these services.

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Chapter14TheIndividualTaxFormula
11. a. The standard deduction for married filing jointly is twice the standard deduction for single
individuals. Consequently, S and Zs aggregate standard deduction did not change.
b. S and Zs aggregate exemption amount should not have changed unless their AGI on the
joint return exceeded the threshold and caused a reduction of their exemption amount.
c.

S and Zs aggregate dependent care credit decreased on the joint return if their credit
percentage decreased because of their joint AGI.

d. The AMTI exemption for married filing jointly is less than twice the AMTI exemption for single
individuals. Consequently, S and Zs aggregate AMTI exemption decreased.
12. The standard deduction and exemption amount are artificial deductions because they are not
based on monetary expenses or economic losses and bear no relationship to specific cash
flows. They simply provide shelter for a base amount of AGI that is not taxed (i.e., taxed at a
zero rate).
13. Individuals engage in a tremendous variety of nonbusiness activities with financial or economic
consequences. Because these consequences affect each persons ability to pay, the tax law
must prescribe their treatment in the computation of taxable income. In contrast, corporations
engage only in profit-motivated business activities. As a result, corporate ability to pay
corresponds much more closely to the accounting concept of net profit.
14. A nonrefundable credit can reduce precredit tax to zero. In other words, it can only eliminate
negative cash flow (income tax cost). A refundable credit can reduce tax to zero and generate a
refund of the excess credit. Thus, a refundable credit can create positive cash flow.
15. Under the federal entitlement system, only people who paid FICA payroll tax or self-employment
tax during their working lives are eligible to receive Social Security and Medicare benefits. If lowincome people were exempt from these taxes, they would be ineligible for Social Security and
Medicare.
16. By overpaying his tax during the course of the year, Mr. MG is making an interest-free loan to the
federal government. He would be better off financially if he decreased his withholding to the
minimum allowed by law, invested the resulting increase in his paycheck in the mutual fund, and
paid the balance of tax due from this account on April 15 of the following year.
17. Although Ms. JR can automatically extend the filing date of her prior year Form 1040 to August
15, she must pay the $20,000 estimated balance of tax due with her April 15 extension request
to avoid interest and penalties.

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Chapter14TheIndividualTaxFormula
Application Problems
1.

Married filing jointly or separately

b. Single
c.

Married filing jointly or separately

d. Head of household
2.

a. Single
b. Married filing jointly or separately (with the second Mrs. J)
c.

Married filing jointly (with the deceased Mrs. J)

d. Married filing jointly (surviving spouse)

e. Single
f.
3.

Head of household

a. $11,750 ($10,700 + $1,050 additional deduction because Mr. K is over age 65)
b. $12,800 ($10,700 + $2,100 additional deductions because Mr. K and Mrs. K are both over
age 65)
c.

4.

$13,850 ($10,700 + $3,150 additional deductions because Mr. K and Mrs. K are both over
age 65, and Mrs. K is blind)

a. Dee meets the three requirements for a qualifying child.

b. Lulu meets the three requirements for a qualifying relative.
c.

Bryan meets the three requirements for a qualifying child. Although Bryans father provided
more than one-half of Bryans support, Bryan did not provide any of his own financial
support.

d. Betsy is not a qualifying relative because her gross income exceeds the exemption amount.
5.

a. Jack is not a qualifying child because he is over age 19 and is not a student. He is not a
qualifying relative because his gross income from employment presumable exceeds the
2006 exemption amount.
b. Brenda meets the three requirements for a qualifying child.
c.

Eddie meets the three requirements for a qualifying child.

d. Mildred is not a qualifying relative because her gross income exceeds the exemption
amount.
e. Richard is not a qualifying relative because Mr. and Mrs. O do not provide more than onehalf of his financial support.

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Chapter14TheIndividualTaxFormula
6.

a. Ms. Gs total income

Standard deduction
Exemption amount
Taxable income

$68,250
(5,350)
(3,400)
$59,500

Income tax on $59,500 (single)

Mr. Hs total income
Standard deduction
Exemption amount
Taxable income

$11,299
171,000
(5,350)
(3,400)
$162,250

Income tax on $162,250 (single)

$39,611

Ms. G and Mr. Hs combined tax is $50,910

b. Ms. G and Mr. Hs total income
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$239,250
(10,700)
(6,800)
$221,750

Income tax on $221,750 (married filing jointly)

7.

a. Mr. Os total income

Standard deduction
Exemption amount
Taxable income

$52,378
$89,000
(5,350)
(3,400)
$80,250

Income tax on $80,250 (married filing separately)

Mrs. Os total income
Standard deduction
Exemption amount
Taxable income

$16,966
$40,330
(5,350)
(3,400)
$31,580

Income tax on $31,580 (married filing separately)

$4,346

Mr. and Mrs. Os combined tax is $21,312

b. Mr. and Mrs. Os total income
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$129,330
(10,700)
(6,800)
$111,830

Income tax on $111,830 (married filing jointly)

8.

$20,805

Mr. and Mrs. Ds total income

Above-the-line deduction for one-half of SE tax
AGI
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$95,600
(2,953)
$92,647
(10,700)
(6,800)
$75,147

Income tax on $75,147 (married filing jointly)

$11,634

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Chapter14TheIndividualTaxFormula
9.

Mr. and Mrs. Ss total income

Above-the-line deduction for one-half of SE tax
AGI
Itemized deductions
Exemption amount ($3,400 3)
Taxable income

$96,140
(6,452)
89,688
(13,050)
(10,200)
$66,438

Income tax on $66,438 (married filing jointly)

$9,457

10. Ms. Ts total income

Above-the-line deduction for one-half of SE tax
AGI
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$23,435
(2,254)
$21,181
(7,850)
(6,800)
$6,531

Income tax on $6,351 (head of household)

$653

11. Mr. and Mrs. Ks total income

Above-the-line deductions
AGI
Itemized deductions per worksheet
Exemption amount per worksheet
Taxable income

$306,750
-0$306,750
(25,191)
(8,339)
$273,220

Income tax on $273,220 (married filing jointly)

12. Mr. Cs total income
Above-the-line deductions
AGI
Itemized deductions per worksheet
Exemption amount per worksheet
Taxable income

$69,363
$184,800
-0$184,800
(16,732)
(2,856)
$165,212

Income tax on $165,212 (single)

$40,588

13.. Mr. and Mrs. Ls total income

Above-the-line deductions
AGI
Standard deduction ($10,700 + $2,100)
Exemption amount ($3,400 2)
Taxable income

$30,625
-0$30,625
(12,800)
(6,800)
$11,025

Income tax on $6,300 dividends and capital gain (5%)

Income tax on $4,725 ordinary income (MFJ)
14. Mr. RGs total income
Above-the-line deductions
AGI
Itemized deductions per worksheet
Exemption amount per worksheet
Taxable income

$315
473
$788

$320,700
-0$320,700
(30,712)
(7,925)
$282,063

Income tax on $282,063 (head of household)

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$76,035

Chapter14TheIndividualTaxFormula
15. a. $26,311
b. $23,451 ($20,151 regular tax on $93,000 + [15% $22,000])
16. a. $41,508
b. $38,912
c.

$36,033

17. a. AGI
Standard deduction (limited)
Exemption amount (dependent)
Taxable income
Income tax on $14,850 (single)
b. AGI
Standard deduction
Exemption amount (dependent)
Taxable income
Income tax on $10,350 (single)
c.

AGI
Standard deduction ($5,350 + $1,300)
Exemption amount
Taxable income

$15,700
(850)
-0$14,850
$1,836
$15,700
(5,350)
-0$10,350
$1,161
$15,700
(6,650)
(3,400)
$5,650

Income tax on $5,650 (single)

$565

18. a. An additional exemption reduces Mr. and Mrs. PJs taxable income by $3,400.
b. An additional exemption reduces Mr. and Mrs. SGs taxable income by $2,629 ($3,400
[$3,400 34% 66.7%] based on the Exemption Amount Worksheet in Appendix 14.B).
c.

An additional exemption reduces Mr. and Mrs. SGs taxable income by $1,132 ($3,400
[$3,400 100% 66.7%] based on the Exemption Amount Worksheet in Appendix 14.B).

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Chapter14TheIndividualTaxFormula
19. a. Mr. and Mrs. Ms AGI
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$209,000
(10,700)
(6,800)
$191,500

Income tax on $191,500 (married filing jointly)

$42,613

b. Mr. and Mrs. Ms separate returns would show the following.

c.

Mr. M

Mrs. M

AGI
Standard deduction
Exemption amount
Taxable income

$95,000
(5,350)
(3,400)
$86,250

$114,000
(5,350)
(3,400)
$105,250

Income tax (MFS)

$18,646

$24,333

Combined tax

$42,979

If Mr. and Mrs. M could file as single taxpayers, their returns would show the following.
Mr. M

Mrs. M

AGI
Standard deduction
Exemption amount
Taxable income

$95,000
(5,350)
(3,400)
$86,250

$114,000
(5,350)
(3,400)
$105,250

Income tax (single)

$18,261

$23,581

Tax on joint return from part a.

Combined tax as single taxpayers
Marriage penalty

$42,613
(41,842)
$771

20. The $2,500 expense shift will decrease Ms. NMs 2007 taxable income by only $350 ($5,700
itemized deductions $5,350 standard deduction) The shift will reduce her 2008 taxable income
by $2,500 ($5,700 itemized deductions + $2,500 additional deductions).
21. a. Mrs. As AGI
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$40,000
(7,850)
(6,800)
$25,350

Income tax on $25,350 (head of household)

b. Childs AGI
Standard deduction
Exemption amount
Taxable income

$3,243
$5,485
(5,350)
-0$135

Income tax on $135 (single)

$14

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Chapter14TheIndividualTaxFormula
22. Mr. GWs AGI
Standard deduction
Exemption amount ($3,400 2)
Taxable income

$29,600
(7,850)
(6,800)
$14,950

Precredit tax on $14,950 (head of household)

Child credit
Dependent care credit ($1,630 cost 27%)
Income tax

$1,683
(1,000)
(440)
$243

The dependent care credit percentage is computed as follows.

AGI
AGI floor
Excess AGI

$29,600
(15,000)
$14,600

$14,600 excess AGI $2,000 = 7.3

Maximum credit percentage
Reduction (rounded up to whole point
Credit percentage

35%
(8)
27%

23. a. $3,000 child credit ($1,000 3 children under age 17)

b.

AGI
AGI threshold
Excess AGI

$131,600
(110,000)
$21,600

$21,600 excess AGI $1,000 (rounded up)

Maximum total credit
Phaseout ($50 22)
Child credit
c.

22

$3,000
(1,100)
$1,900

AGI
AGI threshold
Excess AGI

$167,000
(110,000)
$57,000

$57,000 excess AGI $1,000 (rounded up)

Maximum total credit
Phaseout ($50 57)
Child credit

57

$3,000
(2,850)
$150

24. a. Because Mrs. OP has no earned income, the couple has no dependent care credit.
b. Mr. and Mrs. OP have two qualifying children, and the lesser of their earned incomes
($28,000) exceeds the $6,000 limitation on the cost for computing the dependent care credit.
Consequently, their dependent care credit is $1,200 (20% $6,000).
25. a. The Coulters child credit is $4,000 ($1,000 four children).
b. The Coulters dependent care credit is $828 ($3,600 cost 23%).
AGI
AGI floor
Excess AGI

$37,600
(15,000)
$22,600

$22,600 excess AGI $2,000 = 11.3

Maximum credit percentage
Reduction (rounded up to whole point
Credit percentage
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35%
(12)
23%

Chapter14TheIndividualTaxFormula
c.

If the Coulters AGI is $137,700, their child credit is $2,600.

AGI
AGI threshold
Excess AGI

$137,700
(110,000)
$27,700

$27,700 excess AGI $1,000 (rounded up)

Maximum total credit
Phaseout ($50 28)
Child credit

28

$4,000
(1,400)
$2,600

The Coulters dependent care credit is $720 ($3,600 cost 20%).

26. Mr. Rs payroll tax withheld:
MT Inc. ($82,600 7.65%)
PK Company ($93,000 7.65%)

$6,319
7,115
$13,434

Mr. Rs 2007 payroll tax on $175,600 salary:

$97,500 (maximum) 6.2%
$175,600 1.45%

$6,045
2,546
(8,591)
$4,843

Excess payroll tax withholding credit

27. Mr. and Mrs. Ks AGI
Standard deduction
Exemption amount ($3,400 4)
Taxable income
Income tax
Refund of federal tax withheld
Earned income credit
Tax refund

$14,610
(10,700)
(13,600)
-0-0$850
4,716
$5,566

28. a. Mr. and Mrs. BHs AMTI before exemption

$203,000
AMTI exemption:
$62,550 (25% [$203,000 $150,000])
(49,300)
Taxable AMTI
$153,700
Tentative minimum tax:
$153,700 AMTI 26%
Regular tax on $200,000 (married filing jointly)
AMT
b. Mr. CKs AMTI before exemption
AMTI exemption
Taxable AMTI
Tentative minimum tax:
$55,500 AMTI 26%
Regular tax on $77,300 (single)
AMT
c.

$39,962
(45,200)
-0-

$98,000
(42,500)
$55,500
$14,430
(15,755)
-0-

Ms. Ws AMTI before exemption

AMTI exemption:
$42,500 (25% [$211,500 $112,500])
Taxable AMTI
Tentative minimum tax:
$175,000 AMTI 26%
$18,750 AMTI 28%
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$211,500
(17,750)
$193,750
$45,500
5,250

Chapter14TheIndividualTaxFormula
$50,750
(42,685)
$8,065

Regular tax on $181,000 (head of household)

AMT
29. a. Regular tax on $173,000 ordinary income (HH) $40,312
Tax on $19,900 capital gain (15%)
2,985
Regular tax
$43,297
AMTI
AMTI exemption:
$42,500 (25% [$229,800 $112,500])
Taxable AMTI
Tentative minimum tax:
$175,000 ordinary AMTI 26%
$21,725 ordinary AMTI 28%
$19,900 capital gain 15%

$229,800
(13,175)
$216,625
$45,500
6,083
2,985
$54,568

AMT ($54,568 $43,297 regular tax)

$11,271

Jaclyns total income tax for 2007 is $54,568 (regular tax + AMT).
b. Regular tax on $168,100 ordinary income (HH) $38,940
AMTI
AMTI exemption:
$42,500 (25% [$174,500 $112,500])
Taxable AMTI
Tentative minimum tax
Regular tax
Minimum tax credit (limited)
Total income tax for 2007

$174,500
(27,000)
$147,500
.26
$38,350
$38,940
(590)
$38,350

Jaclyns minimum tax credit carryforward into 2009 is $4,610 ($5,200 $590).
30. a. Tax paid in preceding year
Percent of preceding year tax for safe harbor

$47,200
1.10

Projected withholding
Total quarterly installments for safe harbor estimate
Quarterly installment ($26,920 4)

$51,920
(25,000)
$26,920
$6,730

b. Tax paid in preceding year

Projected withholding
Total quarterly installments for safe harbor estimate
Quarterly installment ($11,800 4)

$36,800
(25,000)
$11,800
$2,950

Issue Recognition Problems

1.

What is Mrs. LRs filing status for the year? Can she elect to file a joint return with either her
deceased spouse or her new spouse? If Mrs. LR files a joint return with her new spouse, what is
Mr. LRs filing status on his final tax return?

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Chapter14TheIndividualTaxFormula
2.

Are Mr. and Mrs. JC entitled to file as single taxpayers because they were not technically
married on the last day of the year? Can the IRS impose the substance over form doctrine to
require them to file a joint return for the year in which they divorced?

3.

Is Mr. GS entitled to file as head of household, even though his mother did not live in his home
for the entire taxable year?

4.

Can Mr. Ts parents claim him as a dependent on their tax return? Does Mr. Ts scholarship
constitute financial support that he provides for himself?

5.

Which parent is entitled to claim the child as a dependent? Do Mr. TBs support payments entitle
him to claim the child as his dependent? Does the fact that Mrs. TB has sole custody entitle her
to claim the child as her dependent?

6.

Because no one taxpayer provides over one-half of Mr. Gs financial support, can no taxpayer
claim him as a dependent?

7.

Can Mr. and Mrs. WQ claim a dependent care credit for payments to a relative who provides
child care?

8.

Can Mr. TJ claim a dependent care credit for payments to a recreational summer camp?

9.

In determining the payroll tax withholding on Ms. Vs salary, does MW Company take into
account her self-employment tax for the year? Will Ms. V have excess payroll tax withholding
because she also must pay self-employment tax for the year?

10. Will Mr. and Mrs. P owe an underpayment penalty because their first three installment payments
did not reflect the tax attributable to the unexpected December income?
11. Will the extra December withholding result in a safe harbor estimate, even though Mr. Ks first
three installment payments and withholding were insufficient? When is income tax withholding
considered paid for purposes of determining whether an individual has made timely
prepayments of current year tax?
12. Are Mr. Ps dividend and interest income characterized as foreign source income in computing
his foreign tax credit limitation for the year?
13. Do the slight incremental tax savings from their itemized deductions exceed Mr. and Mrs. CDs
after-tax cost of the $750 incremental fee to the CPA? Would the couple be better off by taking
the standard deduction each year and reducing their annual tax return preparation fee by $750?
Research Problems
1.

According to Section 151(d)(2), an individuals exemption amount is zero for any year in which
another taxpayer is allowed to deduct an exemption with respect to the individual. This IRS
reiterates this rule in Publication 501 by stating If another taxpayer is entitled to claim you as a
dependent, you cannot take an exemption for yourself. This is true even if the other taxpayer
does not actually claim your exemption. According to Section 63(c)(5), an individuals standard
deduction is limited to the greater of (1) $850 (2007), or (2) the individuals earned income plus
$300 (2007) for any year in which another taxpayer is allowed to deduct an exemption with
respect to the individual. Based on this authority, the fact that the Kelsos do not actually claim
Brenda on their Form 1040 is irrelevant. Because they were allowed to do so, Brenda is allowed
only an $850 standard deduction and no exemption. Thus, Brendas taxable income is $5,641
($6,491 $850).

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Chapter14TheIndividualTaxFormula
2.

According to Rev. Rul. 58-66, 1958-1 CB 60, the marital status of individuals as determined
under state law is recognized in the administration of the federal income tax laws. Consequently,
couples who have entered into a valid common-law marriage under state law are eligible to file a
joint federal income tax return. The ruling also states that the IRSs position is equally applicable
in the case of taxpayers who enter into a common law marriage in a state which recognizes such
relationship and who later move into a state in which a ceremony is required to initiate the
marital relationship. This wording suggests that Bert Baker and Ernestine Moffet must continue
to file as a married couple (either on a joint return or on separately filed returns) even after they
become permanent residents of Maryland.

3.

Tim has no family relationship to the Bryants. According to Section 152(d)(2)(H), he is therefore
not a qualifying relative unless he has the same principal place of abode as the taxpayer and is a
member of the taxpayer's household for the current taxable year. Reg. Sec. 1.152-1(b) specifies
that Tim must have been a member of the Bryant household for the entire year notwithstanding a
temporary absence due to special circumstances. Unfortunately, the regulation concludes that
an absence of six months or more is not considered temporary. Consequently, Tim does not
meet the definition of qualifying relative, and the Bryants cannot claim him as their dependent for
the current year.

4.

Section 172(c) defines the term net operating loss as the excess of allowable deductions over
gross income. Such excess shall be computed with the modifications specified in Section 172(d).
According to Section 172(d)(3), allowable deductions do not include any exemption amount.
According to Section 172(d)(4), nonbusiness deductions of an individual taxpayer are allowed
only to the extent of the taxpayers nonbusiness income. Based on these two modifications, Bill
Youngs NOL is computed as follows.
Salary (business income per Reg. Sec. 1.172-3(a)(3))
Interest (nonbusiness income)
Net loss from sole proprietorship
Alimony (nonbusiness income)
Standard deduction (allowable only to extent
of interest and alimony)
Net operating loss

$16,600
400
(22,100)
3,600
(4,000)
$(5,500)

Tax Planning Cases

1.

Mr. and Mrs. WGs tax cost on the interest income from the bond portfolio is $7,000 ($20,000
35%). Because their AGI is so high, the exemption amount for their dependent son is reduced to
$1,132 ($3,400 [$3,400 100% 66.7%] based on the Exemption Amount Worksheet in
Appendix 14.B), and their tax savings from the exemption is $396 ($1,132 35%). By making
their son financially independent through an income shift, Mr. and Mrs. WG can no longer claim
him as a dependent. Thus, their net tax savings from the shift would be $6,604 ($7,000 $396).
Their sons tax cost of the shifted income is computed as follows.
AGI
Standard deduction for single taxpayer
Exemption
Taxable income
Tax on $11,50 (single)

$20,000
(5,350)
(3,400)
$11,250
$1,296

Consequently, the family saves $5,308 ($6,604 $1,296) from the income-shifting plan.

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Chapter14TheIndividualTaxFormula
2.

Mr. and Mrs. TP must compute their incremental tax cost of $20,000 additional income by
making a with/without computation of their tax.
Without Additional
Income
Estimated AGI
Itemized deductions per worksheet
Exemption amount per worksheet
Taxable income
Income tax (married filing jointly)

3.

With Additional
Income

$260,000
(37,927)
(14,505)
$207,568

$280,000
(37,527)
(12,691)
$229,782

$47,697

$55,028

The incremental tax cost of $20,000 additional income is $7,331 ($55,028 $47,697), which is a
marginal rate of 36.66 percent ($7,331 $20,000), even though Mr. and Mrs. TPs marginal
statutory rate is only 33 percent.
a. Ms. Ms itemized deductions (only her music lesson deduction) would total $5,000, which is
less than her $5,350 standard deduction. Consequently, the tax savings from the music
lesson deduction is zero. Ms. M should elect the $1,000 credit, which saves $1,000 in tax.
b. Ms. Ns itemized deductions excluding her music lesson deduction ($5,820) exceed her
$5,350 standard deduction. Her marginal tax rate is 15 percent. Consequently, the tax
savings from the music lesson deduction is $750 ($5,000 15%). However, this savings is
less than $1,000, so Ms. N should elect the $1,000 credit.
c.

Ms. Os itemized deductions excluding her music lesson deduction ($7,200) exceed her
$5,350 standard deduction. Her marginal tax rate is 28 percent. Consequently, the tax
savings from the music lesson deduction is $1,400 ($5,000 28%). Thus, Ms. O should
claim the deduction rather than the $1,000 credit.

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