What is the answer to A? The answer is not 32882 nor 35250. Problem 10-43 (LO. 2

ID: 2561935 • Letter: W

Question

What is the answer to A?

The answer is not 32882 nor 35250.

Problem 10-43 (LO. 2, 3, 4, 5, 6, 7, 8)

Linda, who files as a single taxpayer, had AGI of $280,000 for 2017. She incurred the following expenses and losses during the year:

Linda's total itemized deductions before any phaseout are $ 33500.

Linda's total itemized deduction is $_________ ? <- A

Medical expenses (before the 10%-of-AGI limitation) $33,000 State and local income taxes 4,500 State sales tax 1,300 Real estate taxes 4,000 Home mortgage interest 5,000 Automobile loan interest 750 Credit card interest 1,000 Charitable contributions 7,000 Casualty loss (before 10% limitation but after $100 floor) 34,000 Unreimbursed employee expenses subject to the 2%-of-AGI limitation 7,600

Explanation / Answer

The following assumptions are taken for calculating Linda itemized deduction are as under

· The automobile loan interest and credit card interest are allowed as deductions

· The pease thresholds limit for 2017 for individuals is $261,500 as linda AGI is 280,000 . The total of itemized deductions is reduced by lesser of the following

1. 3% of AGI above the applicable threshold; or

2. 80% of the amount of itemized deductions otherwise allowable for the tax year.

Linda itemized deduction in 2017 after application of the overall limitation is computed below

Itemized deduction subject to overall limitation

State and local income taxes

4,500

Real estate taxes

4,000

Home mortgage interest

5,000

Charitable contributions

7,000

Unreimbursed employee expenses ($7600 –(2% x $280,000)

2000

Total

$ 22,500

Reduction equal to lesser of the following

· 3% x ($280,000 – $261,500) is $555

· 80% of deductions subject to itemized deduction limitation

( 80% x $22,500) is $18,000

Total Itemized deduction subject to overall limitation

$22,500

Less – reduction as calculated above taking the lesser one

$555

Deductible itemized deductions subject to overall limitations

$21,945

itemized deductions not subject to overall limitations

Medical expenses ($33,000 – (10% x $280,000)

$5,000

Casualty loss ( $34,000 – (10% x $280,000)

$6,000

Total itemized deductions

$32,945

The Linda's total itemized deduction is $$32,945