Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine, Michael, and Candice). The couple received salary income of $100,000 and they sold their home this year. They initially purchased the home three years ago for $200,000 and they sold it 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 and they had $6,250 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children.
a. What is the Jacksons' taxable income and what is their tax liability or (refund)?
b. Complete the first two pages of the Jacksons' Form 1040 (use 2013 forms if 2014 forms are unavailable).
c. What would their taxable income be if their itemized deductions totaled $6,000 instead of $16,500?
d. What would their taxable income be if they had $0 itemized deductions and $6,000 of for AGI deductions?
e. 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?
f. 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?