Kathy Kennedy (age 44) is a single taxpayer and she lives at 212 North Pine Way, Payson, AZ 85541. Her Social Security number is 467-98-9784. Kathy’s earnings and income tax withholding as the principal of the local high school for 2014 are:

Earnings…………………………………………………       $55,000

Federal income tax withheld……………………………       8,800

State income tax withheld………………………………       700

Kathy’s other income includes qualifying dividends on New Mexico Public Service stock of $4,000 and interest on a certificate of deposit at Payson National Bank of $275. In April 2014, Kathy paid $450 due on her 2013 Arizona state income tax.

During the year, Kathy paid the following amounts (all of which can be substantiated): 

Home mortgage interest…………………………………      $9,300

MasterCard interest………………………………………     550

Life insurance (whole life policy) ………………………..     750

Property taxes on personal residence……………………...    1,350

Blue Cross medical insurance premiums………………......    250

Other medical expenses……………………………………   560

Income tax preparation fee………………………………..    300

Charitable contributions (in cash)…………………………    750

Kathy had one stock transaction in 2014. Kathy received the following Form 1099-B from her sale of Gold Company stock. All stock sales must be reported both to taxpayers and to the IRS on Form 1099-B so the proceeds can be matched by the IRS to each tax return. Kathy purchased the stock on August 31, 2013, for $42,800 before the stock plummeted in the last months of 2013.

On January 28, 2014, Kathy sold raw land for $150,000 (basis to Kathy of $90,000). The land was purchased 6 years ago. She received $30,000 as a down payment and the buyer’s 10-year note for $120,000. The note is payable at the rate of $12,000 per year plus 8 percent interest. On January 28, 2015, the first of the ten principal and interest payments is due. 

Required:

Complete Kathy’s federal tax return for 2014. Use Form 1040, Schedule A, Schedule B, Schedule D, Form 8949, the Qualified Dividends and Capital Gain Tax Worksheet, and Form 6252 on Pages 8-67 to 8-77 to complete this tax return. Make realistic assumptions about any missing data.

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