Taxation of Individuals Comprehensive Tax Return Problem
Kara and Brandon Arnold are married and file a joint return. Their Social Security numbers are 587-64-5235 and 588-54-8623, respectively. Kara and Brandon have one son, Henry, age 3. His Social Security number is 587-45-3197. They live at 356 Welcome Lane, Woodbury, WA 84653. They report their income on the cash method. During 2011, they report the following items:
Salary - $103,000
Interest Income from money market accounts - 600
Dividend Income from Davis Corp. Stock - 700
Cash Contributions to church - 6,000
Rental of a Condo in Lutsen
Rental Income (30 Days) - 12,000
Interest Expense - 7,000
Property Taxes - 3,200
Maintenance - 1,700
Depreciation (entire year) - 7,500
Insurance - 2,000
Days of Personal Use - 16
During the year the following events also occur:
a) In 2006, Brandon had loaned a friend $3,000 to help pay medical bills. During 2011, he discovers that his "friend" has skipped town.
b) On June 20, 2011, Brandon sells Kim Corporation stock for $16,000. He purchased the stock on December 12, 2005 for $22,000.
c) On September 19, 2011, Kara discovers that the penny stock of Roberts, Inc. she purchased on January 2 of the prior year is completely worthless. She paid $5,000 for the stock.
d) Instead of accepting the $60 the utility store offers for their old dishwasher, they donate it to Goodwill on November 21, 2011. They purchased the dishwasher for $750 on March 30, 2004. The new dishwasher cost $900.
e) Kara and Brandon purchased a new residence for $250,000. As part of the closing costs, they pay two points, or $3,800, on the mortgage, which is interest rather than loan processing fees. This payment enables them to obtain a favorable interest rate for the term of the loan. They also paid $8,400 in interest on their mortgage on their personal residence.
f) They pay $4,100 in property taxes on their residence and $7,500 in state income taxes.
g) On July 20, 2011, Kara and Brandon donate 1,000 shares of Anton, Inc. stock to the local community college. The value of the stock on that date is $10,200. Anton, Inc. is a listed stock. They had purchased the stock on November 10, 2005 for $1,000.
h) $16,450 in federal income tax was withheld during the year.
Complete Kara and Brandon's Form 1040, Schedules A, B, D, and E, and Form 8283. For purposes of this problem, disregard the alternative minimum tax.