Question

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.

Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and Heather spent two days driving the 1,426 miles to Georgia.

Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January and throughout the rest of the year at a nearby university. She was awarded a $3,000 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses.

Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in state income taxes and $12,500 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather:

Insurance premiums	$	7,952
Medical care expenses	$	1,100
Prescription medicine	$	350
Nonprescription medicine	$	100
New contact lenses for Heather	$	200

Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $900 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,000 from her disability insurance. Her employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40 percent portion.

A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,500 interest income from City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,000 but she did not sell any of her stocks.

Heather reported $6,200 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year.

Reba had $10,000 of federal income taxes withheld by her employer. Heather made $1,000 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA).

a. Determine Reba’s federal income taxes due or taxes payable for the current year. Use Tax Rate Schedule for reference.

Description	Amount
Gross iNCOME
Salary
Alimony Received
Rental receipts
Disability insurance payments
interest income from corporate bonds
Interst income from municipal bonds
Gross income
Deductions for AGI
eXPENSES FOR RENTAL PROPERTY
Total for AGI DEDUCTIONS
AGI
from AGI deductions
Medical expenses
State income taxes
Charitable contribution
Total itemized deductions
Standard deduction
Greater of itemized deduction or standard deduction
Taxable income
Tax on taxable income
Credits
Tax prepayments
Tax refund or tax payable

Answer 1

Dear Student,

If you have any doubts, then feel free to ask.

Description	Amount	Explanation
Gross Income:
Salary	$38000
Alimony received	14400	$1,200 per month × 12 months
Rental receipts	50000
Gift from mother	0	$3,000 gift excluded from income
Disability insurance payments	1200	$800 of $2000 (40%) of payment excluded because taxpayer paid 40% of premium on insurance policy
Interest income from corporate bonds	2200
Interest income from municipal bonds	0
(1) Gross income	$105800
Deductions for AGI:
Expenses for rental property	19500
(2) Total for AGI deductions	19500
(3) AGI	$86300	(1) – (2)
From AGI deductions:
Medical expenses	3129	$9602 – 6473 [7.5% × (3)] = $1133
State income taxes	5800
Charitable contributions	12500
(4) Total itemized deductions	21429
(5) Standard deduction	18,350	Head of household filing status.
(6) Greater of itemized deductions or standard deduction	21429	Greater of (4) or (5)
(7) Taxable income	$64871	(3) – (6)
(8) Tax on taxable income	$8710	$6065 + 3478 [22% × (64871 – 52850)] (using head of household tax rate)
(9) Credits	1,000	American opportunity credit of $500 for tuition paid on Heather’s behalf (full amount qualifies for credit) and $500 credit for other dependent
(10) Tax prepayments	10,000	Withholding
Tax refund with return	$(2290)	(8) – (9) - (10).