During the current year, Donna, a single taxpayer (divorced in 2018), reports the following items of income and expenses:Income:Salary$86,000Municipal bond interest1,300Bank account interest2,300Alimony received24,000Capital gain on an asset held less than one year3,000Rental income from residential rental house12,500Expenses/losses:Interest on principal residence8,000Real estate taxes on principal residence1,000Capital loss on an asset held less than one year7,000 Expenses related to rental propertyMortgage interest6,000Repairs2,400Taxes700Depreciation1,200Compute Donna's taxable income. (Show all calculations in good form.)
What will be an ideal response?
| Salary | $86,000 |
| Bank account interest | 2,300 |
| Net short-term capital loss (3,000 - 7,000 = 4,000 but limited) | (3,000) |
| Rental income | $12,500 |
| Mortgage interest | (6,000) |
| Repairs | (2,400) |
| Taxes | ( 700) |
| Depreciation | (1,200) |
| Net rental income | 2,200 |
| AGI | 87,500 |
| Standard deduction | (12,000) |
| Taxable income | $75,500 |
Both the municipal bond interest and the alimony received are excluded income. The mortgage interest and real estate taxes on the principal residence are allowed as itemized deductions, but the standard deduction provides a larger deduction from AGI.
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