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1. Fred and Anna are married and file a joint return for 2018. Fred is over...

1. Fred and Anna are married and file a joint return for 2018. Fred is over age 65 and Anna is legally blind. They have AGI for the year of $50,000. They also have mortgage interest of $13,000, charitable contributions of $1,500 and real property taxes on their home of $11,000. What is their taxable income for 2018?

a. $24,500

b. $23,400

C. $25,500

d. $26,000

e. None of the above

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Answer #1

Fred and Anna are filing return jointly. Their AGI is $50,000. They will take either standard deduction or itemized deduction whichever is higher:

Standard Deduction

Married Filing Joint - $24,000

If a taxpayer is married filing jointly and he or his spouse is more than 65 years old, he can increase his standard deduction by $1,300.

If a taxpayer is married filing jointly and he or his spouse is legally blind, he can increase his standard deduction by $1,300.

Fred and Anna's total standard deduction = $24,000 + $1,300 + $1,300 = $26,600

Itemized Deduction

Mortgage Interest = $13,000

Charitable contribution = $1,500

Property Deduction = $11,000 but only a maximum of $10,000 is allowed for state and local tax deduction.

Fred and Anna's total itemized deduction = $13,000 + $1,500 + $10,000 = $24,500

Since, their standard deduction is higher than itemized deduction, Fred and Anna are allowed to claim standard deduction.

Fred and Anna's taxable income for 2018 = $50,000 - $26,600 = $23,400

Answer is b. $23,400

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