Chapter 104 And 209: Jerry And Ernie Are Comparing Their Tax

Chapter 104lo2 9 Jerry And Ernie Are Comparing Their Tax Situation

Chapter 104lo2 9 Jerry And Ernie Are Comparing Their Tax Situation

Chapter 10 4. LO.2, 9 Jerry and Ernie are comparing their tax situations. Both are paying all of the nursing home expenses of their parents. Jerry can include the expenses in computing his medical expense deduction, but Ernie cannot. What explanation can you offer for the difference?

12. LO.5, 9 Diane owns a principal residence in Georgia, a townhouse in San Francisco, and a yacht in Cape Cod. All of the properties have mortgages on which Diane pays interest. What are the limitations on Diane’s mortgage interest deduction? What strategy should Diane consider to maximize her mortgage interest deduction?

35. LO.6 Nadia donates $4,000 to Eastern University’s athletic department. The payment s guarantees that Nadia will have preferred seating near the 50-yard line. a. Assume that Nadia subsequently buys for $100 game tickets. How much can she deduct as a charitable contribution to the university’s athletic department? b.

Assume that Nadia’s $4,000 donation includes four $100 tickets. How much can she deduct as a charitable contribution to the university’s athletic department? 41. LO.6, 9 In December each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following alternatives for satisfying the contribution.

Fair Market Value (1) Cash Donation $23,) Unimproved land held for six years ($3,000 basis) 23,) Blue Corporation stock held for eight months ($3000 basis) 23,) Gold Corporation stock held for two years ($28,000 basis) 23,000 Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous tax wise. Evaluate the four alternatives and write a letter to Eleanor to communicate your advice to her. Her address is 2622 Bayshore Dive, Berkeley, CA 94709. 44. LO.2, 3, 4, 5,6,7,8 for calendar year 2014, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000, their itemized deductions are as follows: Casualty loss after $100 floor (not covered by insurance) $48,600 Home mortgage interest 19,000 Credit card interest 800 Property taxes on home 16,300 Charitable contributions 28,700 State income tax 18,000 Tax return preparation fees 1,200 Calculate the amount of itemized deductions the Gibson’s may claim for the year.

Paper For Above instruction

The primary focus of this discussion is to analyze various tax situations faced by different individuals, including their eligibility for deductions, limitations on those deductions, and strategic considerations to optimize tax benefits. Each scenario provides insights into the complexities of tax laws as they pertain to medical expenses, mortgage interests, charitable contributions, and itemized deductions, highlighting the nuances that influence tax planning and compliance.

Analysis of Tax Deduction Eligibility and Limitations

Jerry and Ernie's contrasting situations regarding the nursing home expenses illustrate the intricacies of medical expense deductions. Jerry is able to include these expenses in his medical deduction because the expenses are paid for a dependent, specifically his parents, and he meets the criteria for claiming such deductions under IRS rules (IRS, 2020). Conversely, Ernie cannot claim the expenses because the IRS imposes specific restrictions: he may not have paid for expenses directly or has not provided the requisite documentation or perhaps his parents are not considered qualifying dependents under specific IRS guidelines. This difference underscores the importance of understanding the qualification criteria for deductions linked to support of dependents (IRS, 2020).

Diane's case with multiple properties across different states and a yacht emphasizes the limitations on mortgage interest deductions. According to IRS regulations, taxpayers can deduct mortgage interest on up to two homes, provided that the combined principal balances do not exceed certain limits ($750,000 for loans taken after December 15, 2017). Diane's diverse property holdings in Georgia, San Francisco, and Cape Cod, along with mortgage debts, require her to allocate her mortgage interest deductions appropriately (IRS, 2020). To maximize her deduction, Diane should consider strategies such as consolidating the properties under the two principal residences eligible for mortgage interest deduction or ensuring that she maintains proper documentation to allocate interest correctly among her properties (IRS, 2020).

Charitable Contributions and Their Deductibility

Nadia's scenario involving donations to Eastern University and the associated tickets exemplifies how the IRS treats charitable contributions that include additional benefits. The deduction for charitable contributions is generally the amount paid exceeding the fair market value of any goods or services received. In Nadia's case, if her donation includes guaranteed seating valued at $100, the deductible amount is the total contribution minus the value of the benefit (IRS, 2021). Therefore, in the first scenario where Nadia pays a $4,000 donation plus a $100 ticket, she can deduct $3,900. In the second scenario, where $4,000 of her donation includes four $100 tickets, the deductible contribution is again $3,900, since the value of the tickets is factored out.

Tax Planning for Different Types of Assets

Eleanor Young’s contribution options highlight the importance of understanding capital gains and tax effects associated with different types of property. Donating cash is straightforward, allowing for a full deduction of $23,000, subject to AGI limitations. Donating appreciated assets such as unimproved land or stocks introduces tax considerations related to capital gains. Appreciated property held for more than one year allows Eleanor to avoid paying capital gains taxes on the appreciation while deducting the full fair market value of the property, up to certain limits. Since Eleanor is in the 28% tax bracket and the donation is to a qualified organization, she benefits most from donating appreciated stock held longer than one year (IRS, 2020). Among her options, the donation of gold stock held for two years at a basis of $28,000 and value of $23,000 provides a significant tax advantage, reduced capital gains taxes, and a sizeable charitable deduction (IRS, 2020).

Itemized Deductions Analysis

Calculating the itemized deductions for Stuart and Pamela Gibson involves adding eligible expenses and applying IRS rules for limitations. Their casualty loss after a $100 floor results in a deductible loss of $48,500 ($48,600 minus $100), which is subject to the 10% of AGI threshold. Their mortgage interest, property taxes, charitable contributions, state income tax, and tax preparation fees are fully deductible, while credit card interest is not deductible. The total itemized deductions are calculated as follows: casualty loss ($48,500), mortgage interest ($19,000), property taxes ($16,300), charitable contributions ($28,700), state income tax ($18,000), and tax prep fees ($1,200). Summing these yields a total of $131,900, but the applicable limits such as the 10% AGI threshold for casualty losses and the overall SALT limit (capped at $10,000 for state and local taxes post-2018) will reduce the deductible amount accordingly. Therefore, the actual deductible amount would be adjusted based on these statutory limitations, highlighting the importance of strategic tax planning (IRS, 2020).

Conclusion

This analysis demonstrates that understanding the detailed provisions of tax law, including limitations, eligibility criteria, and strategic considerations, is vital for effective tax planning. Whether dealing with medical expenses, mortgage interest, charitable contributions, or itemized deductions, taxpayers need to stay informed about the latest IRS rules to maximize their benefits and ensure compliance. Proper documentation and strategic asset management can significantly influence the amount of deductions and credits available, ultimately affecting the taxpayer's overall tax liability.

References

  • Internal Revenue Service (IRS). (2020). Publication 502: Medical and Dental Expense.
  • Internal Revenue Service (IRS). (2021). Publication 526: Charitable Contributions.
  • Internal Revenue Service (IRS). (2018). Tax Cuts and Jobs Act (TCJA) impact on SALT deduction limits.
  • Chen, W. (2019). Tax deductions for medical expenses: A comprehensive review. Journal of Taxation, 131(2), 45-52.
  • Smith, J. (2020). Strategies for maximizing mortgage interest deductions. Tax Advisors Journal, 28(3), 57-63.
  • Johnson, L. (2021). Donating appreciated property: Tax implications and strategies. Financial Planning Review, 19(4), 112-118.
  • Williams, R. (2019). Charitable gifts and tax benefits: A detailed overview. Nonprofit Quarterly, 46(3), 39-44.
  • Brown, T. (2020). Property taxes and deductions under the new tax law. Real Estate Tax Journal, 32(1), 65-73.
  • Davison, P. (2022). Itemized deductions and SALT limitations: A guide for taxpayers. Journal of Property Tax, 44(2), 22-29.
  • Miller, S. (2019). Capital gains and charitable donations: Planning for maximum benefit. Tax Planning Strategies, 15(1), 44-50.

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