IND 14 CHP 04 2A Textbook Problems 2012 Solutions

Chapter 04 - Individual Income Tax Overview
Chapter 4
Individual Income Tax Overview
SOLUTIONS MANUAL
Problems
26. [LO 1] Jeremy earned $100,000 in salary and $6,000 in interest income during the year. Jeremy has two
qualifying dependent children who live with him. He qualifies to file as head of household and has $17,000 in
itemized deductions. Neither of his dependents qualifies for the child tax credit.
a. Use the 2011 tax rate schedules to determine Jeremy’s taxes due.
Jeremy will owe $14,243 calculated as follows:
Description Amount Computation

(1) Gross income 106,000 $100,000 salary + $6,000 interest
income
(2) For AGI deductions 0
(3) Adjusted gross income $106,000 (1) – (2)
(4) Standard deduction 8,500 Head of household
(5) Itemized deductions 17,000
(6) Greater of standard deductions or itemized 17,000 (5) > (4)
deductions
(7) Personal and dependency exemptions 11,100 3,700 × 3 (personal exemption and two
dependency exemptions)
(8) Taxable income $77,900 (3) - (6)- (7)
Income tax liability $14,243 (77,900 – 46,250) × 25% + $6,330 (see
tax rate schedule for head of household)
b. Assume that in addition to the original facts, Jeremy has a long-term capital gain of $4,000. What is
Jeremy’s tax liability including the tax on the capital gain (use the tax rate schedules rather than the tax
tables)?

(1) Gross income 110,000 $100,000 salary + $6,000 interest income + 4,000
long-term capital gains
(6) Greater of standard deductions 17,000 (5) > (4)
or itemized deductions
(7) Personal and dependency 11,100 3,700 × 3 (personal exemption and two dependency
exemptions exemptions)
(8) Taxable income $81,900 (3) – (6) – (7)
Income tax liability $14,843 ($77,900 – 46,250) × 25% + 6,330 + 4,000 × 15%
(See tax rate schedule for head of household. Also
note that the qualifying dividend is taxed at a
maximum rate of 15%.)
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c. Assume the original facts except that Jeremy had only $7,000 in itemized deductions. What is Jeremy’s
total income tax liability (use the tax rate schedules rather than the tax tables)?

(1) Gross income 106,000 $100,000 salary + $6,000 interest income
(6) Greater of standard deductions or itemized 8,500 (4) > (5)
deductions
(7) Personal and dependency exemptions 11,100 3,700 × 3 (personal exemption and two
dependency exemptions)
(8) Taxable income $86,400 (3) – (6) – (7)
Income tax liability $16,368 (86,400 – 46,250) × 25% + 6,330 (see tax
rate schedule for head of household)
27. [LO 1] David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,700.
They have made prepayments of $1,500 and also have a child tax credit of $1,000. What is the amount of their
tax refund or taxes due?
David and Lilly will receive a tax refund of $800 calculated as follows:
(1) Total tax $1,700

(2) Child tax credit 1,000
(3) Prepayments 1,500
Tax (refund) ($800) (1) – (2) – (3)
Prepayments are fully refundable when payments exceed the taxes after credits because the refundable amount
is essentially an overpayment of taxes.
28. [LO 1] {Planning} In 2011, Rick, who is single, has been offered a position as a city landscape
consultant. The position pays $125,000 in cash wages. Assume Rick files single and is entitled to one
personal exemption. Rick deducts the standard deduction instead of itemized deductions
a. What is the amount of Rick’s after-tax compensation (ignore payroll taxes)?
Rick’s after-tax compensation is $99,043 calculated as follows:

(1) Gross income 125,000
(4) Standard deduction 5,800 Single taxpayer
(5) Personal and dependency exemptions 3,700 3,700 × 1 (personal exemption)
(6) Taxable income $115,500 (3) – (4) – (5)
(7) Income tax liability $25,957 (115,500 – 83,600) × 28% + 17,025 (see
tax rate schedule for Single individuals)
After-tax compensation $99,043 (1) – (7)
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b. Suppose Rick receives a competing job offer of $120,000 in cash compensation and nontaxable
(excluded) benefits worth $4,000. What is the amount of Rick’s after-tax compensation for the
competing offer? Which job should he take if taxes were the only concern?
Rick’s after-tax compensation is $99,443 calculated as follows:

(1) Gross income 120,000 120,000 cash compensation
(4) Standard deduction 5,800 Single
(5) Personal and dependency exemptions 3,700 3,700 × 1 (personal exemption)
(6) Taxable income $110,500 (3) – (4) – (5)
(7) Income tax liability $24,557 (110,500 – 83,600) × 28% + 17,025 (see tax
rate schedule for single individuals)
After-tax compensation $99,443 (1) – (7) + $4,000 excluded benefits
Note that Rick’s after-tax benefit is higher with lower salary and more nontaxable benefits. Rick is likely
to take the second option, particularly if he would have paid for the benefits had they not been provided
to him as compensation.
29. [LO 1] {Planning} Through November 2011, Tex has received gross income of $120,000. For
December, Tex is considering whether to accept one more work engagement for the year. Engagement 1
will generate $7,000 of revenue at a cost of $4,000, which is deductible for AGI. In contrast, engagement
2 will generate $7,000 of revenue at a cost of $3,000, which is deductible as an itemized deduction. Tex
files as a single taxpayer.
a. Calculate Tex’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement
2. Assume he has no itemized deductions other than those generated by engagement 2.
Description Engagement 1 Engagement 2 Computation

(1) Gross income before new work $120,000 $120,000
engagement
(2) Income from engagement 7,000 7,000
(3) Additional for AGI deduction (4,000) 0
(4) Adjusted gross income $123,000 $127,000 (1) + (2) + (3)
(5) Greater of itemized deductions (5,800) (5,800) $3,000 itemized deductions
or standard deduction of $5,800 for engagement 2
(6) Personal exemption (3,700) (3,700)
Taxable income $113,500 $117,500 (4) + (5) + (6)
b. Calculate Tex’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement
2. Assume he has $4,500 of itemized deductions other than those generated by engagement 2.

engagement
(5) Greater of itemized deductions or (5,800) (7,500) $3,000 + 4,500 for
standard deduction of $5,800 engagement 2
Taxable income $113,500 $115,800 (4) + (5) + (6)
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c. Calculate Tex’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement
2. Assume he has $7,000 of itemized deductions other than those generated by engagement 2.

engagement
(5) Greater of itemized deductions or (7,000) (10,000) $7,000 + $3,000*
standard deduction of $5,800 *engagement 2 only
Taxable income $112,300 $113,300 (4) + (5) + (6)
30. [LO 1] {Planning} Matteo, who is single and has no dependents, was planning on spending the weekend
repairing his car. On Friday, Matteo’s employer called and offered him $500 in overtime pay if he would
agree to work over the weekend. Matteo could get his car repaired over the weekend at Autofix for $400. If
Matteo works over the weekend, he will have to pay the $400 to have his car repaired, but he will earn $500.
Assume Matteo pays tax at a flat rate of 15 percent rate?
a. Strictly considering tax factors, should Matteo work or repair his car if the $400 he must pay to
have his car fixed is not deductible?
If Matteo works, he will receive $500, but he will have to pay $75 in taxes ($500 x 15%), netting him
$425. He then must pay $400 for his car to be repaired which means he will save $25 ($425 – 400) by
working. If he doesn’t work, he won’t have any income, he won’t pay any taxes, and he won’t have to pay
to have his car repaired. Overall, he would be $25 better off by working.
Note that taxes may not be the only concern here. Matteo would also need to factor in how much he
enjoys repairing his car and how much he enjoys working. He could also consider whether he will do a
better job repairing his car or whether Autofix could do a better job. There are several nontax factors
Matteo would need to consider to make the decision.
b. Strictly considering tax factors, should Matteo work or repair his car if the $400 he must pay to
have his car fixed is deductible for AGI?
If Matteo works, he will receive $500, and he will be allowed to deduct the $400 repair expense, leaving
him with taxable income of $100 ($500 – 400) on which he will pay $15 in taxes. So, if he works, he will
receive $500, pay $400 to have his car fixed, and pay $15 in taxes, leaving him with $85. If he doesn’t
work, he won’t have any income, he won’t pay any taxes, and he won’t be out of pocket because he will
do his own repair work (assuming the repair only requires labor). So, he’s $85 better off by working and
having his car repaired by Autofix.
Note that taxes may not be the only concern here. Matteo would also need to factor in how much he
enjoys repairing his car and how much he enjoys working. He could also consider whether he will do a
better job repairing his car or whether Autofix could do a better job. There are several nontax factors
Matteo would need to consider to make the decision.
31. [LO 1, 2] Rank the following three single taxpayers in order of the magnitude of taxable income for 2011
(from lowest to highest) and explain your results.
Ahmed Baker Chin
Gross Income $ 80,000 $ 80,000 $ 80,000
Deductions For AGI 8,000 4,000 0
Itemized Deductions 0 4,000 8,000
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Chin has the highest taxable income, followed by Baker and then Ahmed. Chin’s taxable income is
highest because he had no for AGI deductions, and Ahmed has the lowest because he had the most for
AGI deductions. Baker did not benefit from the itemized deductions because they did not exceed the
standard deduction. Chin only benefited from the itemized deductions to the extent the deductions
exceeded the standard deduction. See the following analysis:
Description Ahmed Baker Chin Computation

(1) Gross income $80,000 $80,000 $80,000
(2) For AGI deductions (8,000) (4,000) 0
(3) Adjusted gross income $72,000 $76,000 $80,000 (1)+ (3)
(4) Standard deduction (5,800) (5,800) (5,800) Single taxpayer
(5) Itemized deductions 0 (4,000) (8,000)
(6) Greater of standard deductions or (5,800) (5,800) (8,000) Ahmed: (4) > (5)
itemized deductions Baker: (4) > (5)
Chin: (5) > (4)
(7) Personal, dependency exemptions (3,700) (3,700) (3,700) 3,700 × 1 (personal exemption)
Taxable income $62,500 $66,500 $68,300 (3) + (6)+ (7)
32. [LO 2] Aishwarya’s husband passed away in 2010. She needs to determine whether Jasmine, her 17-year
old step-daughter who is single, qualifies as her dependent in 2011. Jasmine is a resident but not a citizen of the
United States. She lived in Aishwarya’s home from June 15 through December 31, 2011. Aishwarya provided
more than half of Jasmine’s support for the 2011.
a. Is Aishwarya allowed to claim a dependency exemption for Jasmine for 2011?
Yes, Aishwarya may claim a dependency exemption for Jasmine in 2011. Jasmine meets the
citizenship/residency test because she is a resident of the United States, and she meets the requirements
to be considered Aishwarya’s qualifying child as follows:
Test Jasmine
Relationship Yes, stepdaughter qualifies
Age Jasmine is under 19 at the end of the year
Residence Jasmine had the same principal residence as Aishwarya for more than half the year
Support Jasmine does not provide more than half her own support.
b. Would Aishwarya be allowed to claim a dependency exemption for Jasmine for 2011 if Aishwarya provided
more than half of Jasmine’s support in 2011, Jasmine lived in Aishwarya’s home from July 15 through
December 31 of 2011, and Jasmine reported gross income of $5,000 in 2011?
No. Jasmine would fail the qualifying child test because she did not have the same principal residence as
Aishwarya for more than half the year. Jasmine would fail the qualifying relative test because her gross income
exceeds the $3,700 exemption amount for 2011.
c. Would Aishwarya be allowed to claim a dependency exemption for Jasmine for 2011 if Aishwarya provided
more than half of Jasmine’s support in 2011, Jasmine lived in Aishwarya’s home from July 15 through
December 31 of 2011, and Jasmine reported gross income of $2,500 in 2011?
Yes, Jasmine would qualify as Aishwarya’s qualifying relative as follows:
Test Jasmine
Relationship Yes, stepdaughter qualifies
Support Aishwarya provided more than half of Jasmine’s support
Gross income Jasmine’s gross income does not exceed the dependency exemption amount for 2011.
33. [LO 2] The Samsons are trying to determine whether they can claim their 22-year-old adopted son, Jason, as
a dependent. Jason is currently a full-time student at an out-of-state university. Jason lived in his parents’ home
for three months of the year, and he was away at school for the rest of the year. He received $9,500 in
scholarships this year for his outstanding academic performance and earned $3,900 of income working a part-
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time job during the year. The Samsons paid a total of $4,000 to support Jason while he was away at college.
Jason used the scholarship, the earnings from the part-time job, and the money from the Samsons as his only
sources of support.
a. Can the Samsons claim Jason as their dependent?
Yes, the Samsons may claim Jason as their dependent. He is their qualifying child. See the following
analysis.
Test Jason
Relationship Yes, adopted son qualifies
Age Yes, under age 24 and a full-time student (and younger than parents).
Residence Yes, temporary absences away at school count as time in the parents’ home.
Support Yes. The Samsons provided $4,000 of support for Jason. Jason provided $3,900 of his
own support (Jason did not provide more than half his own support). Jason also
received $9,500 of scholarship money, but this does not count as support provided for
himself because he is an actual child of the Samsons.
b. Assume the original facts except that Jason’s grandparents, not the Samsons, provided him with the
$4,000 worth of support. Can the Samsons (Jason’s parents) claim Jason as their dependent? Why or why
not?
Yes, the Samsons may claim Jason as their dependent. Jason is their qualifying child. See the
following analysis.
Test Jason
Relationship Yes, Jason is the their son.
Age Yes, under age 24 and a full-time student (and younger than his parents).
Support Yes, even though the Jason’s parents did not provide any of his support, Jason did not
provide more than half of his own support because his grandparents provided $4,000 of
support for Jason. Jason provided $3,900 of his own support. Jason also received
$9,500 of scholarship money, but this does not count as support provided for himself
because he is an actual child of the Samsons, who are claiming him as a dependent.
c. Assume the original facts except substitute Jason’s grandparents for his parents. Determine whether
Jason’s grandparents can claim Jason as a dependent.
No, the grandparents may not claim Jason as a dependent. He is neither a qualifying child nor a
qualifying relative.
Test Jason
Relationship Yes, Jason is the descendant of the taxpayers’ child (one of Jason’s parents is the child of
the taxpayer’s grandparents)
Age Yes, under age 24 and a full-time student (and younger than his grandparents).
Residence Yes, temporary absences away at school count as time in the grandparents’ home since that
is his permanent residence.
Support No, Jason’s grandparents provided $4,000 of support. Jason provided $3,900 of his own
support through his part time job. He also provided $9,500 of his own support through a
scholarship. In this case, because the taxpayers are not Jason’s parents, the $9,500
scholarship counts as support provided by Jason. So, he provides more than half his own
support and he does not meet the support test to qualify as a qualifying child of his
grandparents. Because the grandparents did not provide more than half of Jason’s
support, Jason would not qualify as a qualifying relative either.
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d. Assume the original facts except that Jason earned $4,500 while working part-time and used this amount
for his support. Can the Samsons claim Jason as their dependent? Why or why not?
No, the Samsons may not claim Jason as their dependent. He is neither their qualifying child nor their
qualifying relative. See the following analysis.
Test Jason
Relationship Yes, adopted son qualifies
Age Yes, under age 24 and a full-time student (and younger than his parents).
Support No, the Samsons provided $4,000 of support for Jason. Jason provided $4,500 of his own
support. Jason also received $9,500 of scholarship money, but this does not count as
support provided for himself because he is an actual child of the Samsons. Nevertheless,
because Jason provided more than half of his own support, he is neither a qualifying child
nor a qualifying relative to his parents.
34. [LO 2] John and Tara Smith are married and have lived in the same home for over 20 years. John’s uncle
Tim, who is 64 years old, has lived with the Smiths since March of this year. Tim is searching for employment
but has been unable to find any—his gross income for the year is $2,000. Tim used all $2,000 toward his own
support. The Smiths provided the rest of Tim’s support by providing him with lodging valued at $5,000 and
food valued at $2,200.
a. Are the Smiths able to claim a dependency exemption for Tim?
Yes. The Smiths may claim Tim as a dependent as a qualifying relative as analyzed below
Test Tim
Relationship Yes, Tim meets qualifying relative test.
Age Not applicable to qualifying relative
Residence Not applicable to qualifying relative
Support Yes. The Smiths provided more than half of Tim’s support ($7,200/$9,200).
Gross income Yes, Tim’s gross income is less than the $3,700 exemption amount.
b. Assume the original facts except that Tim earned $10,000 and used all the funds for his own support.
Are the Smiths able to claim Tim as a dependent?
No. The Smiths may not claim Tim as a dependent because he is not a qualifying relative as analyzed
below.
Test Tim
Relationship Yes, Tim meets qualifying relative test.
Support No, the Smiths did not provide more than half of Tim’s support ($7,200/$17,200).
Gross income No, Tim’s gross income ($10,000) is more than the $3,700 exemption amount.
c. Assume the original facts except that Tim is a friend of the family and not John’s uncle.
No. The Smiths may not claim Tim as a dependent because he is not a qualifying relative as analyzed below.
Test Tim
Relationship No. No relationship, and Tim did not live with the Smiths for the entire year.
Support Yes, the Smiths provided more than half of Tim’s support ($7,200/$9,200).
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d. Assume the original facts except that Tim is a friend of the family and not John’s uncle and Tim lived
with the Smiths for the entire year.
Yes. The Smiths may claim Tim as a dependent because he is a qualifying relative as analyzed below.
Test Tim
Relationship Yes. Tim is not related, but he lived with the Smiths for the entire year.
Support Yes. The Smiths provided more than half of Tim’s support ($7,200/$9,200).
35. [LO 2] Francine’s mother Donna and her father Darren separated and divorced in September of this year.
Francine lived with both parents until the separation. Francine does not provide more than half of her own
support. Francine is 15 years old at the end of the year.
a. Is Francine a qualifying child to Donna?
Yes, see analysis below.
Test Francine
Relationship Yes, Francine is Donna’s daughter.
Age Yes, under age 19 at end of year (and younger than Donna)
Residence Yes, Francine lived with Donna for more than half the year.
Support Yes, Francine does not provide more than half her own support.
b. Is Francine a qualifying child to Darren?

Yes, see analysis below.
Test Francine
Relationship Yes, Francine is Darren’s daughter.
Age Yes, under age 19 at end of year (and younger than Darren)
Residence Yes, Francine lived with Darren for more than half the year.
Support Yes, Francine does not provide more than half her own support..
c. Assume Francine spends more time living with Darren than Donna after the separation. Who may claim
Francine as a dependency exemption for tax purposes?
Darren. When a child is a qualifying child of both parents the parent with whom the child resides for the
longest period of time during the year is entitled to claim the exemption. In this case, because Francine lived
with Darren longer than she lived with Donna, Darren is entitled to the exemption. However, Darren could
release the exemption to Donna under the divorce agreement.
d. Assume Francine spends an equal number of days with her mother and her father and that Donna has AGI of
$52,000 and Darren has AGI of $50,000. Who may claim a dependency exemption for Francine?
Donna. Because Francine lived with Donna and Darren an equal amount of time during the year, the
tiebreaker on who may claim the exemption for Francine is based on each taxpayer’s AGI. In this case Donna’s
AGI is higher than Darren’s so she is entitled to the exemption deduction. However, Darren could release the
exemption to Donna..
36. [LO 2] By the end of 2011, Jamel and Jennifer have been married 30 years and have filed a joint return
every year of their marriage. Their three daughters, Jade, Lindsay, and Abbi, are ages 12, 17, and 22
respectively and all live at home. None of the daughters provide more than half of her own support. Abbi is a
full-time student at a local university and does not have any gross income.
a. How many personal and dependency exemptions are Jamel and Jennifer allowed to claim?
Jamel and Jennifer may claim five exemptions in total. Two personal exemptions for themselves and three
exemptions for their daughters who all qualify as their qualifying children as analyzed below.
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Test Jade Lindsay Abbi

Relationship Yes, daughter Yes, daughter Yes, daughter
Age Yes, under age 19 at end of Yes, under age 19 at end Yes, under age 24 at end of year
year (and younger than of year (and younger than and a full-time student (and
parents) parents) younger than parents).
Residence Yes, lived at home entire Yes, lived at home entire Yes, lived at home entire year
year year
Support Yes, did not provide more Yes, did not provide more Yes, did not provide more than
than half of own support than half of own support half of own support
b. Assume the original facts except that Abbi is married. She and her husband live with Jamel and Jennifer
while attending school and they file a joint return. Abbi and her husband reported a $1,000 tax liability on
their 2011 tax return. If all parties are willing, can Jamel and Jennifer claim Abbi as a dependent on their
2011 tax return? Why or why not?
No, Jamel and Jennifer may not claim Abbi as a dependent because she filed a joint return with her husband,
and they reported a tax liability on their joint return.
c. Assume the same facts as part b. except that Abbi and her husband report a $0 tax liability on their 2011
joint tax return. Also, if the couple had filed separately, Abbi would have not had a tax liability on her
return, but her husband would have had a $250 tax liability on his separate return. Can Jamel and Jennifer
claim Abbi as a dependent on their 2011 tax return? Why or why not?
No. Jamel and Jennifer may not claim Abbi as a dependent even though she is their qualifying child because
she fails the joint return test. Even though the couple had no tax liability on their joint return and Abbi would
not have had a tax liability on a separate return, because Abbi’s husband would have reported a tax liability on
his separate return, Jamel and Jennifer may not claim her as a dependent.
d. Assume the original facts except that Abbi is married. Abbi files a separate tax return for 2011. Abbi’s
husband files a separate tax return and reports a $250 tax liability. Can Jamel and Jennifer claim Abbi as a
dependent in 2011?
Yes. Because Abbi files a separate return, and she meets all other dependency requirements (see answer to part
a). Jamel and Jennifer may claim a dependency exemption for Abbi.
37. [LO 2] Dean Kastner is 78 years old and lives by himself in an apartment in Chicago. Dean’s gross income
for the year is $2,500. Dean’s support is provided as follows: Himself (5%), his daughters Camille (25%) and
Rachel (30%), his son Zander (5%), his friend Frankie (15%), and his niece Sharon (20%).
a. Absent a multiple support agreement, of the parties mentioned in the problem, who may claim a
dependency exemption for Dean as a qualifying relative?
Because they do not provide over half of Dean’s support, neither Camille, Rachel, Zander, Frankie, nor
Sharon is eligible to claim Dean as a dependent qualifying relative. In addition, Frankie fails the
relationship test because is unrelated to Dean, and he did not live with Dean for the entire year (he did not
live with him at all during the year).
b. Under a multiple support agreement, who is eligible to claim a dependency exemption for Dean as a
qualifying relative? Explain.
Camille, Rachel, and Sharon are eligible because of the following:

1. No one taxpayer paid over half the support for Dean.
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2. Together, Camille, Rachel, Sharon, and Zander provided more than half of Dean’s support (80%) and
Camille, Rachel, Sharon, and Zander would have each been able to claim a dependency exemption for
Dean except for the fact that each did not meet the support test (Frankie fails the relationship test for
qualifying relative)
3. Camille, Rachel, and Sharon each provided over 10% of Dean’s support.
4. Camille, Rachel, and Sharon can claim the exemption, but the two parties who do not claim it must
provide a signed statement to the person claiming the exemption stating that she will not claim an
exemption for Dean. The person claiming the exemption would attach a Form 2120 to her return
indicating the names, addresses, and social security numbers of the two who did not claim Dean as a
dependent.
38. [LO 2] {Research} Mel and Cindy Gibson’s 12-year-old daughter Rachel was abducted on her way home
from school on March 15, 2011. Police reports indicated that a stranger had physically dragged Rachel into a
waiting car and sped away. Everyone hoped that the kidnapper and Rachel would be located quickly. However,
as of the end of the year, Rachel was still missing. The police were still pursuing several promising leads and
had every reason to believe that Rachel was still alive. In 2012, Rachel was returned safely to her parents.
a. Are the Gibsons allowed to claim an exemption deduction for Rachel in 2011 even though she only lived in
the Gibson’s home for two and one half months? Explain and cite your authority.
Yes, the Gibsons will be able to claim a dependency exemption for Rachel. IRC §152(f)(6) indicates that for
purposes of determining whether a child is considered to be a qualifying child of the taxpayer, a child who is (1)
presumed by law enforcement officers to have been kidnapped by someone who is not a member of the family of
the child or the taxpayer, and (2) who had, for the taxable year in which the kidnapping occurred, the same
principal place of abode as the taxpayer for more than half of the portion of the year before the date of the
kidnapping shall be treated as meeting the residence test for a qualifying child under §152(c)(1)(B). Because
Rachel did not provide more than half her own support for the year, she would qualify as a dependent of the
Gibsons as their qualifying child.
b. Assume the original facts except that Rachel is unrelated to the Gibsons, but she has been living with them
since January 2006. The Gibsons have claimed a dependency exemption for Rachel for the years 2006 through
2010. Are the Gibsons allowed to claim a dependency exemption for Rachel in 2011? Explain and cite your
authority.
No. In this case, because Rachel does not meet the relationship test for a qualifying child, the special
rule of §152(f)(6) does not apply. Rachel may only qualify as a dependent as a qualifying relative.
However, because she is not related to the Gibsons under §152(d)(2), and she did not live with the
Gibsons for the entire taxable year [§152(d)(2)(H)] she does not qualify as qualifying relative of the
Gibsons. So, they cannot claim her as a dependent.
39. {LO 2} {Research} Bob Ryan filed his 2011 tax return and claimed a dependency exemption for his 16-
year-old son Dylan. Both Bob and Dylan are citizens and residents of the United States. Dylan meets all the
necessary requirements to be considered a qualifying child; however, when Bob filed the tax return he didn’t
know Dylan’s Social Security number and, therefore, didn’t include an identifying number for his son on the tax
return. Instead, Bob submitted an affidavit with his tax return stating he had requested Dylan’s Social Security
number from Dylan’s birth state. Is Bob allowed to claim a dependency exemption for Dylan without including
Dylan’s identifying number on the return?
No. IRC §151(e) states, “No exemption shall be allowed under this section with respect to any individual unless
the TIN {tax identification number} of such individual is included on the return claiming the exemption.” A
taxpayer may include an affidavit stating a request for an identifying number has been made in lieu of the actual
identifying number, but only in situations where the number has been applied for for a foreign person or
nonresident alien[Reg. §301.6109-1(c)]. Since Dylan is not a foreign person or a nonresident alien, Ryan is not
allowed to claim a dependency exemption for Dylan. See also [2000-1 USTC ¶50,324] Thomas W. Furlow, Jr.
v. United States of America, (CA-4) where the taxpayer was denied a dependency exemption for his son because
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he failed to provide the child’s social security number or taxpayer identification number even though the father
attached an affidavit to the return in lieu of a tax identification number.
40. [LO 2, 3] Kimberly is divorced and the custodial parent of five-year-old twins, Bailey and Cameron. All
three live with Kimberly’s parents, who pay all the costs of maintaining the household (such as mortgage,
property taxes, and food). Kimberly pays for the children’s clothing, entertainment, and health-insurance costs.
These costs comprised only a small part of the total costs of maintaining the household.
a. Determine the appropriate filing status for Kimberly.
Single. To qualify as head of household, a taxpayer must pay more than half the costs of maintaining a
household that is the principal place of abode for a dependent who is a qualifying child (or for maintaining a
separate household for her mother or father if the mother or father also qualifies as a dependent of the
taxpayer). Kimberly does not provide more than half the costs of maintaining the household where her children
reside. Because she does not qualify as head of household, and she is not married, she must file as a single
taxpayer.
b. What if Kimberly lived in her own home and provided all the costs of maintaining the household?
Head of household. She meets the requirement of paying for more than half (for more than half the taxable
year) the costs of maintaining a household that is the principal place of abode for a dependent who is a
qualifying child.
41. [LO 3] Juan and Bonita are married and have two dependent children living at home. This year, Juan is
killed in an avalanche while skiing.
a. What is Bonita’s filing status this year?
Married filing jointly. For tax purposes, the couple is still considered married for the year of the spouse’s
death.
b. Assuming Bonita doesn’t remarry and still has two dependent children living at home, what will her
filing status be next year?
Qualifying widow. See the analysis below.
Qualifying widow test:

Test Bonita
Time Yes, within two years after the end of the year of the death of Juan
Unmarried Yes, Bonita has remained unmarried.
Dependents Yes, Bonita maintains a home for her two dependent children.
c. Assuming Bonita doesn’t remarry and doesn’t have any dependents next year, what will her filing status
be next year?
Single. Because Bonita is not a qualifying widow and is not married, she must file as a single taxpayer. See
the analysis below.
Qualifying widow test:
Test Bonita
Time Yes, within two years after the end of the year of the death of Juan
Unmarried Yes, Bonita has remained unmarried.
Dependents No, Bonita does not maintain a home for any dependent children.
42. [LO 3] Gary and Lakesha were married on December 31 last year. They are now preparing their taxes for the
April 15 deadline and are unsure of their filing status.
a. What filing status options do Gary and Lakesha have for last year?
To be married for filing status purposes, taxpayers must be married at the end of the year. Although Gary
and Lakesha were married on the last day of the year, they are still considered married for the entire year
for filing purposes. Gary and Lakesha may file as married filing jointly, or they may elect to file as married
filing separately.
4-11
b. Assume instead that Gary and Lakesha were married on January 1 of this year. What is their filing status
for last year (neither has been married before and neither had any dependents last year)?
Single. Gary and Lakesha were not married at the end of the year, therefore they must both file single.
43. [LO 3] Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills
relating to Irene’s home. He also buys all her groceries and provides the rest of her support. Irene has no gross
income.
a. What is Elroy’s filing status?
Head of household. An unmarried taxpayer may qualify as head of household by paying more than half
the costs of maintaining a separate household that is the principal place of abode for the taxpayer’s
mother or father if the mother or father also qualifies as a dependent of the taxpayer. Elroy pays more
than half the costs of maintaining Irene’s household. Furthermore, Irene qualifies as Elroy’s qualifying
relative as follows:
Test Irene
Relationship Yes. Irene is Elroy’s mother.
Support Yes. Elroy provides more than half of Irene’s support.
Gross income Yes, Irene’s gross income is less than the $3,700 exemption amount.
b. Assume the original facts except that Elroy has taken over the care of his grandmother, Renae, instead of
his mother. What is Elroy’s filing status?
Single. To qualify as head of household, an unmarried taxpayer pay more than half the costs of keeping up
a home of the year and must have lived with a qualifying person in the taxpayer’s home for more than half
the year (unless the qualifying person is a mother or father and then special rules apply). Because Elroy
did not live in the same home for more than half the year, Renae is not a qualifying person for purposes of
determining whether Elroy qualifies as for the head of household filing status. Consequently, Elroy will file
as a single taxpayer.
c. Assume the original facts except that Elroy’s mother Irene lives with him and that she receives an annual
$4,500 taxable distribution from her retirement account. Elroy still pays all the costs to maintain the
household. What is his filing status?
Single. Although Elroy provides more than half the cost of maintaining a household in which his
mother lives, she does not qualify as his dependent. She is not Elroy’s child (and she is older than
him) and thus cannot be a qualifying child. Further, she is not a qualifying relative, as analyzed
below.
Test Irene
Relationship Yes. Irene is Elroy’s mother.
Support Yes. Elroy provide more than half of Irene’s support.
Gross income No, Irene’s gross income of $4,500 is more than the $3,700 exemption amount.
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44. [LO 3] Kano and his wife Hoshi have been married for 10 years and have two children under the age of 12.
The couple has been living apart for the last two years and both children live with Kano. Kano has provided all
the means necessary to support himself and his children. Kano and Hoshi do not file a joint return.
a. What is Kano’s filing status?
Head of household. Kano provides more than half the cost of maintaining a home that is the principal place
of abode for a qualifying child. His two children are qualifying children, as analyzed below.
Kano qualifies as an abandoned spouse, as analyzed below.

Test Kano
Married Yes, Kano is still married to Hoshi at the end of the year.
Separate Return Yes, Kano files a separate return from Hoshi.
Maintains Home Yes, Kano provides more than half the cost of maintaining his home for a qualifying
child (see following table).
Time Separated Yes, Kano has not lived with Hoshi for the last six months of the year.
Test Two Children

Relationship Yes, Kano’s children.
Age Yes, under age 19 at year end (and younger than Kano).
Residence Yes, both children lived with Kano for more than half of the year.
Support Yes, Kano provides more than half of their support.
b. Assume the original facts except that Kano and Hoshi separated in May of the current year. What is
Kano’s filing status?
Head of household, determined as follows:
Kano qualifies as an abandoned spouse, as analyzed below.

Test Kano
Maintains Home Yes, Kano provides more than half the cost of maintaining his home for a qualifying
child (see following table).
Kano’s two children are qualifying children, as shown below.
Test Two Children

Relationship Yes, Kano’s children.
Age Yes, under age 19 at year end (and younger than Kano).
Residence Yes, both children lived with Kano for more than half of the year.
Support Yes, Kano provides more than half of their support.
4-13
Because Kano qualifies as an abandoned spouse, he can be treated as though he was not married at the end
of the year. This enables him to qualify for head of household status because he is considered unmarried,
and he provides more than half the cost of maintaining a home which is the principal residence for a
dependent qualifying child.
c. Assume the original facts except that Kano and Hoshi separated in November of this year. What is
Kano’s filing status?
Married filing separately. Kano does not qualify as head of household because he does not qualify as an
abandoned spouse, analyzed as follows.
Test Kano
Maintains Home Yes, Kano provides more than half the cost of maintaining his home for a qualifying child.
Time Separated No, Kano has not been separated from his spouse for the last six months of the year.
d. Assume the original facts except that Kano’s parents, not Kano, paid more than half of the cost of
maintaining the home in which Kano and his children live. What is Kano’s filing status?
Married filing separately. Kano does not meet the criteria for an abandoned spouse. Consequently, he is
still considered married. See the analysis below for abandoned spouse requirements.
Test Kano
Maintains Home No, Kano does not provide more than half the cost of maintaining his home for a
qualifying child. His parents provide this cost.
45. [LO 3] Horatio and Kelly were divorced at the end of 2010. Neither Horatio nor Kelly remarried during
2011 and Horatio moved out of state. Determine the filing status of Horatio and Kelly for 2011 in the
following independent situations:
a. Horatio and Kelly did not have any children and neither reported any dependents in 2011.
Horatio and Kelly will both file as single taxpayers in 2011.
b. Horatio and Kelly had one child Amy who turned 10 years of age in 2011. Amy lived with Kelly
for all of 2011, and Kelly provided all of her support.
Horatio will file as a single taxpayer. Kelly will file as a head of household because during 2011 she
paid more than half the costs of maintaining a household for Amy (a qualified person), and Amy resided
with her for more than half the taxable year. Amy is a qualified person because she is a qualifying child
who qualifies as the taxpayer’s dependent (she meet the relationship, age, residence, and support test).
c. Assume the same facts as in b. but Kelly released the exemption for Amy to Horatio even though
Amy did not reside with him at all during 2011.
Horatio will file as a single taxpayer. Even though he is allowed to claim the exemption for Amy, she
did not reside with him during the year, so he cannot meet the head of household test. Kelly will file as
head of household because during 2011 she paid more than half the costs of maintaining a household
for Amy (a qualified person) and Amy resided with her for more than half the taxable year. Amy is a
qualified person because Kelly would have been able to claim an exemption for Amy as a qualifying
child (she meets the relationship, age, residence, and support test) except for the fact that she released
the dependency exemption to Horatio.
4-14
d. Assume the original facts except that during 2011 Madison a 17-year old friend of the family lived
with (for the entire year) and was fully supported by Kelly.
Horatio would file as single. Kelly would also file as single. Even though Kelly would be allowed to
claim a dependency exemption for Madison as a qualifying relative, Madison is not a qualifying person
for purposes of the head of household test because she is required to live with Kelly for the entire year
in order to meet the relationship test.
e. Assume the original facts except that during 2011 Kelly’s mother Janet lived with Kelly. For 2011,
Kelly was able to claim a dependency exemption for her mother under a multiple support
agreement.
Horatio would file as single. Kelly would also file as single. Even though Kelly may claim a
dependency exemption for Janet, Janet is not a qualifying person for purposes of the head of household
test because Janet qualifies as Kelly’s dependent under a multiple support agreement.
46. [LO 2, 3] In each of the following independent situations, determine the taxpayer’s filing status and the
number of personal and dependency exemptions the taxpayer is allowed to claim.
a. Frank is single and supports his 17-year-old brother, Bill. Bill earned $3,000 and did not live with
Frank.
Single with two exemptions; one personal and one dependency exemption for Bill.
Frank will file as single, not head of household. Bill is not a qualifying person for purposes of the
head of household test because Bill did not live as member of Frank’s household for more than half
the year.
Frank can claim an exemption for Bill because Bill qualifies as Frank’s qualifying relative
as follows:
Test Bill
Relationship Yes, Bill is taxpayer’s brother.
Support Yes, more than half of Bill’s support is provided by Frank.
Gross income Yes, Bill’s gross income ($3,000) is less than the $3,700 exemption amount.
b. Geneva and her spouse reside with their son, Steve, who is a 20-year-old undergraduate student at
State University. Steve earned $13,100 at a part-time summer job, but he deposited this money in a
savings account for graduate school. Geneva paid all of the $12,000 cost of supporting Steve.
Married filing jointly with two personal exemptions and one dependency exemption for Steve.
Steve meets the test to be Geneva and her husband’s qualifying child as follows:
Test Steve
Relationship Yes, Steve is the taxpayers’ son.
Age Yes, under age 24 and a full time student (and younger than parents).
Residence Yes, temporary absences away at school count as time in the parents’ home
Support Yes, even though the Steve earned $13,100, he did not use any of that money to provide for
his support. Steve’s parents provided more than half (all, in fact) of his support for the
year. A qualifying child is not subject to the gross income test.
c. Hamish’s spouse died last year, and Hamish has not remarried. Hamish supports his father Reggie,
age 78, who lives in a nursing home and had interest income this year of $2,500.
Head of household with two exemptions. Hamish is not a qualifying widower because he does not
maintain a household for a dependent child. However, he does qualify for head of household because
he is not married and he pays more than half the cost of maintaining a separate household that is the
principal place of abode for his father, and his father also qualifies as his dependent (as a qualifying
relative) as follows:
Test Reggie
4-15
Relationship Yes, Reggie is Hamish’s father.

Support Yes, Hamish provides more than half of Reggie’s support.
Gross income Yes, Reggie’s gross income of $2,500 is less than the $3,700 exemption amount.
Because Reggie is considered to be Hamish’s qualifying relative (and a qualifying person for purposes
of the head of household filing status), Hamish may also claim a dependency exemption for Reggie.
d. Irene is married but has not seen her spouse since February. She supports her spouse's 18-year-old
child Dolores, who lives with Irene. Dolores earned $4,500 this year.
Head of household with two exemptions. Irene qualifies as an abandoned spouse as follows:
Test Irene
Married Yes, Irene is still married at the end of the year.
Separate Return Yes, Irene files a separate return from her spouse.
Maintains Home Yes, Irene provides more than half the cost of maintaining a home for a qualifying child.
Time Separated Yes, Irene has not lived with her spouse for the last six months of the year.
Because she qualifies as an abandoned spouse, she may file as head of household because she
pays more than half the costs (for more than half the taxable year) of maintaining a household
that is the principal place of abode for a dependent who is her qualifying child. Dolores is
Irene’s qualifying child, as determined below:
Test Dolores
Relationship Yes, Dolores is the taxpayers’ stepchild.
Age Yes, under age 19 (and younger than Irene)
Residence Yes, Dolores lived with taxpayer for more than half of the year.
Support Yes, Dolores did not provide more than half of her own support.
Irene may claim one personal exemption for herself and one dependency exemption for Dolores.
47. [LO 2, 3] In each of the following independent cases, determine the taxpayer’s filing status and the
number of personal and dependency exemptions the taxpayer is allowed to claim.
a. Alexandra is a blind widow (spouse died five years ago) who provides a home for her 18-year-old
nephew, Newt. Newt’s parents are dead, and so Newt supports himself. Newt’s gross income is
$5,000.
Alexandra will file single with one personal exemption. Alexandra is single and does not qualify for
head of household because she does not provide more than half the costs of maintaining a home for a
dependent child or qualifying relative because Newt is neither a qualifying child (he provides more than
half his own support even if he is Alexandra’s sibling’s descendant) nor a qualifying relative. See the
analysis below.
Test Qualifying Child Test for Newt

Relationship Yes, if Newt is the son of Alexandra’s sibling (assumption).
Test Qualifying Relative Test for Newt
Age Yes, under age 19 (and younger than Alexandra)
Relationship Yes, Newt is the taxpayer’s nephew.
Residence Yes, Newt lived with Alexandra for more than half of the year.
Age Not applicable to qualifying relative.
Support No, Newt provides more than half his own support.
Residence Not applicable to qualifying relative.
Support No, Alexandra does not provide more than half of Newt’s support.
Gross income No. Newt’s gross income of $5,000 exceeds $3,700 exemption amount. b.
Bharati supports and maintains a home for her daughter, Daru, and son-in-law, Sam. Sam
earned $15,000 and filed a joint return with Daru, who had no income.
Single with one personal exemption. Bharati may not claim Daru and Sam as dependents because they
file a joint return. Couples filing a joint return may still qualify as dependents if neither would have a
4-16
tax liability if they had filed separately (Rev. Rul. 54-567 and Rev. Rul. 65-34). Sam would have had a
tax liability if he had filed a separate return. Because Bharati does not have any dependents, Bharati
does not qualify for head of household status.
c. Charlie intended to file a joint return with his spouse, Sally. However, Sally died in December.
Charlie has not remarried.
Married filing jointly with two personal exemptions. A taxpayer is still considered to be married for the
year in which his spouse died. Because there are two taxpayers on a joint return, Charlie is allowed
two personal exemptions [§152(b)].
d. Deshi cannot convince his spouse to consent to signing a joint return. The couple has not
separated.
Married filing separately with one personal exemption. Both spouses must consent to file a joint return.
e. Edith and her spouse support their 35-year-old son, Slim. Slim is a full-time college student who
earned $5,500 over the summer in part-time work.
Married filing jointly with two personal exemptions. They get one personal exemption each, but Slim
does not qualify as their dependent. He is neither their qualifying child nor their qualifying relative. See
the following analysis.
Test Slim—Qualifying child

Relationship Yes, Slim is the taxpayers’ son.
Age No, not under age 24 and attending school full-time.
Residence Yes, temporary absences away at school count as time in the parents’ home
Support Yes, Slim did not provide more than half of his own support.
Test Slim—Qualifying relative
Relationship Yes, Slim is the taxpayer’s son.
Support Yes, more than half of the Slim’s support is provided by the taxpayer.
Gross income No, Slim’s gross income ($5,500) is more than the $3,700 exemption amount.
48. [LO 3] Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2.
In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the
couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited
the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined
that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-
employment income causing the joint return year 2 tax liability to be understated by $4,000 and
Crewella’s year 3 separate return tax liability to be understated by $6,000. The IRS also assessed
penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate
Crewella, but they have been able to find Jasper.
a. What amount of tax can the IRS require Jasper to pay for the Dahvill’s year 2 joint return? Explain.
Because Jasper is jointly and severally liable for the year 2 return, he is responsible to pay the entire
$4,000.
b. What amount of tax can the IRS require Jasper to pay for Crewella’s year 3 separate tax return?
Explain.
Because they filed separately in year 3, Jasper is not responsible for any of the $6,000.
49. {LO 3} {Research} Janice Traylor is single. She has an 18-year-old son named Marty. Marty is Janice’s
only child. Marty has lived with Janice his entire life. However, Marty recently joined the Marines and was
4-17
sent on a special assignment to Australia. During 2011, Marty spent nine months in Australia. Marty was
extremely homesick while in Australia, since he had never lived away from home. However, Marty knew this
assignment was only temporary, and he couldn’t wait to come home and find his room just the way he left it.
Janice has always filed as head of household, and Marty has always been considered a qualifying child (and he
continues to meet all the tests with the possible exception of the residence test due to his stay in Australia).
However, this year Janice is unsure whether she qualifies as head of household due to Marty’s nine-month
absence during the year. Janice has come to you for advice on whether she qualifies for head of household
filing status in 2011. What do you tell her?
To qualify for head of household status a taxpayer must maintain a residence that is the principal place of
abode for more than one-half of the taxable year of a qualifying child. The issue here is whether Marty’s nine-
month military stay in Australia disqualifies Janice from head of household status. Reg. §1.2-2(c)(1) states that
temporary absences of a qualifying child from the household due to special circumstances does not preclude
taxpayers from qualifying for head of household status. Military service is one of the special circumstances
described in the regulation. However, this regulation indicates that it must be reasonable to assume that the
qualifying child will return to the household after the absence and that the taxpayer (head of household)
maintains the household in anticipation of the return of the qualifying child. Because Marty will be returning to
his home, Janice can file as head of household status.
50. {LO 3} {Research} Doug Jones timely submitted his 2011 tax return and elected married filing jointly
status with his wife Darlene. Doug and Darlene did not request an extension for their 2011 tax return. Doug
and Darlene owed and paid the IRS $124,000 for their 2011 tax year. Two years later, Doug amended his return
and claimed married filing separate status. By changing his filing status, Doug sought a refund for an
overpayment for the tax year 2011 (he paid more tax in the original joint return than he owed on a separate
return). Is Doug allowed to change his filing status for the 2011 tax year and receive a tax refund with his
amended return?
No, he is not allowed to change his filing status by amending his return. Reg. §1.6013-1(a) states that “for any
taxable year with respect to which a joint return has been filed, separate returns shall not be made by the
spouses after the time for filing the return of either has expired.” In this case, Doug amended the return and
changed his filing status two years later. Because the due date of the original return has passed, Doug is not
allowed to change his filing status.
4-18
$120 taxes payable. See analysis below.

(1) Gross income 76,500 $64,000 salary + $12,000 salary + $500 corporate bond interest
(2) For AGI deductions 4,000 2,500 qualified moving expenses + 1,500 alimony paid
(3) Adjusted gross income 72,500 (1) – (2)
(4) Standard deduction 11,600 Married filing jointly
(6) Greater of standard
deductions or itemized 11,600 (4) > (5)
deductions
(7) Personal and 11,100 3,700 × 3 (two personal exemptions and one dependency
dependency exemptions exemption)
(8) Total deductions from 22,700 (6) + (7)

AGI
(9) Taxable income $49,800 (3) - (8)
(10) Income tax liability $6,620 (49,800 – 17,000) × 15% + 1,700 (see tax rate schedule for
married filing jointly).
(11) Other taxes 0
(12) Total tax $6,620 (10) + (11)
(13) Credits (1,000) Child credit for 10-year old son Matthew
(14) Prepayments (5,500)
Taxes payable with return $120 (12) + (13)+ (14)
52. Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their
dependents. Their income from all sources this year (2011) totaled $200,000 and included a gain from the sale
of their home, which they purchased a few years ago for $200,000 and sold this year for $250,000. The gain on
the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $16,500 of
itemized deductions.
a. What is the Jacksons’ taxable income?
$111,300. See analysis below.

(1) Gross income 150,000 $200,000 gross income from all sources minus
$50,000 excluded gain on home sale.

(4) Standard deduction 11,600 Married filing jointly;
(6) Greater of standard deductions or 16,500 Greater of (4) or (5)

itemized deductions
(9) Personal and dependency exemptions 22,200 6 exemptions × 3,700 exemption amount
(10) Total deductions from AGI 38,700 (8) + (9)
Taxable income $111,300 (5) – (10)
4-19
b. What would their taxable income be if their itemized deductions totaled $6,000 instead of $16,500?

(1) Gross income 150,000 $200,000 - $50,000 excluded gain on home
itemized deductions
Taxable income $116,200 (3) – (8)
c. What would their taxable income be if they had $0 itemized deductions and $6,000 of for AGI
deductions?

(1) Gross income 150,000 $200,000 realized income minus $50,000
excluded income
(2) For AGI deductions 6,000
(5) Itemized deductions 0
itemized deductions
Taxable income $110,200 (5) – (10)
Note that if the $6,000 expense is a for AGI deduction, the Jacksons are able to deduct all of the expense,
but if it’s a from AGI deduction and they are not able to itemize deductions, they don’t get to deduct any of
it.
d. Assume the original facts except that they also incurred a loss of $5,000 on the sale of some of their
investment assets. What effect does the $5,000 loss have on their taxable income?
Because individual taxpayer’s deductible losses on the disposition of investment (or capital) assets is limited
to $3,000. The Jacksons would be allowed to deduct $3,000 of the $5,000 loss against their taxable income.
The remaining $2,000 loss would carryover to next year. Consequently, with the loss their taxable income
would be $108,300 ($111,300 from part a minus $3,000).
e. Assume the original facts except that the Jacksons owned investments that appreciated by $10,000
during the year? The Jacksons believe the investments will continue to appreciate, so they did not sell
the investments during this year. What is the Jackson’s taxable income?
Same as it is in part a. $111,300. Though the assets have appreciated, they will not realize or recognize
this gain for income tax purposes until they sell their investment assets, at which time they will increase
their gross income (and corresponding taxable income) by the gain.
4-20

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Chapter 04 - Individual Income Tax Overview

Jeremy will owe $14,243 calculated as follows:

Description Amount Computation

Jeremy will owe $14,843 calculated as follows:

Description Amount Computation

Jeremy will owe $16,368 calculated as follows:

Description Amount Computation

Description Amount Computation

(1) Total tax $1,700

Description Amount Computation

Description Amount Computation

Description Engagement 1 Engagement 2 Computation

Description Engagement 1 Engagement 2 Computation

Description Engagement 1 Engagement 2 Computation

Description Ahmed Baker Chin Computation

b. Is Francine a qualifying child to Darren?

Test Jade Lindsay Abbi

Camille, Rachel, and Sharon are eligible because of the following:

Qualifying widow. See the analysis below.

Qualifying widow test:

Kano qualifies as an abandoned spouse, as analyzed below.

Test Two Children

Head of household, determined as follows:

Kano qualifies as an abandoned spouse, as analyzed below.

Kano’s two children are qualifying children, as shown below.

Test Two Children

Relationship Yes, Reggie is Hamish’s father.

Test Qualifying Child Test for Newt

Test Slim—Qualifying child

$120 taxes payable. See analysis below.

Description Amount Computation

(8) Total deductions from 22,700 (6) + (7)

$111,300. See analysis below.

Description Amount Computation

(2) For AGI deductions 0

(6) Greater of standard deductions or 16,500 Greater of (4) or (5)

Description Amount Computation

Description Amount Computation

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