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BUS 4065 Unit 2 Assignment 2 Adjusted Gross Income

4.45

What are some limitations concerning the deductibility of student loan interest?

Regarding the deductibility of student loan interest, several specific limitations exist. First, the taxpayer’s marital status plays a role. To qualify for the deduction, the taxpayer must file as single or married, filing jointly; filing as married but living separately disqualifies them from claiming the deduction.

Another important limitation is that the individual claiming the deduction must be legally obligated to repay the student loan. If someone else, such as a parent, is making the loan payments on behalf of the taxpayer, the taxpayer cannot claim the deduction.

BUS 4065 Unit 2 Assignment 2 Adjusted Gross Income

There is also a cap on the deductible amount of student loan interest. Currently, the maximum deduction allowed is $2,500. However, this limit can be further reduced based on the taxpayer’s modified adjusted gross income (MAGI). As the MAGI increases, the deductible amount gradually decreases until it reaches a certain income threshold, beyond which the deduction is no longer available.

4.47

How much student loan interest can Tam and her spouse deduct in 2021?

In the case of Tam and her spouse, they can deduct $800 of student loan interest on their 2021 tax return. To calculate this deduction, we start with the total education expenses incurred during Tam’s college years, which amount to $10,000. Out of this total, $2,000 was covered by scholarships, leaving $8,000 as the remaining eligible expenses.

The deductible percentage is determined by dividing the eligible expenses ($8,000) by the total costs ($10,000), resulting in 80%. Tam incurred $600 of interest on her federal loans and $400 on a loan from a local lending institution, totaling $1,000. Multiplying this amount by the deductible percentage (80%) gives us the deductible interest of $800.

4.50

How much moving expense deduction, can Reginald take on his 2021 tax return?

Reginald can take a moving expense deduction of $890 on his 2021 tax return. When Reginald relocated to Pensacola, Florida, for his new duty station, he incurred various costs associated with the move.

BUS 4065 Unit 2 Assignment 2 Adjusted Gross Income

The deductible moving expenses include $450 for gasoline, $250 for renting a truck, $100 for a tow trailer, $85 for food, $25 for double espressos from Starbucks, $300 for motel lodging on the way to Pensacola, $405 for a previous plane trip to search for an apartment, and $175 for temporary storage of his sports memorabilia. These expenses amount to a total of $1,790.

However, Reginald received a reimbursement of $900 from the government for his moving expenses. To calculate the deductible amount, we subtract the rebate ($900) from the total costs ($1,790), resulting in a moving expense deduction of $890.

4.53

How should Sebastian handle the $167 reported on the 1099-INT form on his 2021 tax return?

Sebastian should include the $167 reported on the 1099-INT form as interest income on his 2021 tax return. Sebastian’s financial institution provides the 1099-INT record and reports the interest he earned throughout the year.

The $167 represents taxable interest income that must be reported to the IRS. Even though it may seem like a relatively small amount, it is essential to accurately say all sources of income to ensure compliance with tax regulations.

4.55

Regarding Ahmed and Farah’s divorce decree, what are the tax implications?

  1. a) According to the divorce decree executed on May 1, 2018, Ahmed is

 She must make alimony payments of $3,000 per month to Farah. Since the decree was signed before December 31, 2018, any alimony payments made to Farah are considered taxable income for her. Therefore, on her tax return, Farah can claim the full $3,000 monthly as taxable alimony income.

BUS 4065 Unit 2 Assignment 2 Adjusted Gross Income

  1. b) Ahmed transferred a house worth $650,000 to Farah as part of the divorce settlement. The tax basis of the place, which represents its original cost for tax purposes, is $300,000 for Ahmed.

In this situation, there is no taxable gain or loss that Farah must recognize upon receiving the house. The property transfer is part of the property settlement outlined in the divorce decree executed in 2018. As a result, it falls under the tax rules governing property settlements in divorces, which generally do not trigger immediate taxable consequences for the receiving spouse (Farah) or the transferring spouse (Ahmed).

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