Jacob, age 42, and Jane Brewster, age 44, are married and file a joint return in 2020. The Brewsters have two dependent children, Lukas and Alexa, 14-year-old twins. Unless otherwise noted, all of the income and expense amounts in the problem relate to the 2020 tax year. Jacob works as a data analyst; he earned $155,000. Jane is a computer systems analyst; she earned $160,000. In addition to their salaries, they recorded the following items of income. Interest income (Carmel Sanitation District Bonds) $22,000 (a) Interest income (Carmel National Bank) 8,500 Qualified dividend income (Able Computer Corporation) 12,000 Gambling winnings 6,500 Inheritance (cash) received by Jane 35,000 (b) “Citizen of the Year” award (Jane) 10,000 (c) Gain on land sale 34,000 (d) a. The Carmel Sanitation District Bonds are private activity bonds and were originally issued in April 2016. b. Jane’s elderly uncle passed away early in the year. The executor divided his estate among his eight nieces and nephews. The $35,000 is Jane’s share of the estate. c. Jane was selected “Citizen of the Year” by the Carmel City Council. She used the award proceeds to pay down the family’s credit card debt. d. The Brewsters sold five acres of land to a real estate developer on October 12 for $120,000. They had acquired the land on May 15, 2010, for $86,000. On April 1, Jane exercised an incentive stock option granted by her employer. At the date of exercise, the fair market value of the stock was $18 per share and the exercise price was $10 per share. Jane purchased 500 shares with the ISO exercise. As of December 31, the stock’s fair market value was $25 per share. The Brewsters incurred the following expenses during the year. Charitable contributions (cash) $ 9,500 (e) Gambling losses 6,800 Investment interest expense 3,500 Mortgage interest—personal residence (reported on Form 1098) 8,600 Mortgage interest—home equity loan 1,800 (f) Real property tax on personal residence 8,100 Supplies, professional organization memberships, continuing education for Jacob and Jane’s work 15,800 e. In addition to their cash charitable contributions, the Brewsters contributed stock in Ace Corporation, which they acquired on February 9, 2006, at a cost of $6,500, to the Carmel Salvation Army, a qualifying charity. The fair market value of the stock was $11,000 on November 1, the date of the contribution. f. The home equity loan was used to purchase the family’s new minivan. Taking into consideration the above amounts, the Brewsters’ AGI is $386,000 and their taxable income is $338,800. The following is a first draft of the Brewsters’ 2020 AMTI calculation. Review the AMTI calculation, and prepare a list, including explanations, of any errors in the calculation. An error could include a missing amount or an amount that should not have been included, an amount that enters the calculation in the wrong direction, or a figure that enters the calculation in the wrong amount. You can presume that the Brewsters’ AGI and taxable income amounts for the year are calculated correctly.
Jacob, age 42, and Jane Brewster, age 44, are married and file a joint return in 2020. The Brewsters have two dependent children, Lukas and Alexa, 14-year-old twins. Unless otherwise noted, all of the income and expense amounts in the problem relate to the 2020 tax year.
Jacob works as a data analyst; he earned $155,000. Jane is a computer systems analyst; she earned $160,000. In addition to their salaries, they recorded the following items of income.
| Interest income (Carmel Sanitation District Bonds) | $22,000 | (a) |
| Interest income (Carmel National Bank) | 8,500 | |
| Qualified dividend income (Able Computer Corporation) | 12,000 | |
| Gambling winnings | 6,500 | |
| Inheritance (cash) received by Jane | 35,000 | (b) |
| “Citizen of the Year” award (Jane) | 10,000 | (c) |
| Gain on land sale | 34,000 | (d) |
- a.
The Carmel Sanitation District Bonds are private activity bonds and were originally issued in April 2016.
- b.
Jane’s elderly uncle passed away early in the year. The executor divided his estate among his eight nieces and nephews. The $35,000 is Jane’s share of the estate.
- c.
Jane was selected “Citizen of the Year” by the Carmel City Council. She used the award proceeds to pay down the family’s credit card debt.
- d.
The Brewsters sold five acres of land to a real estate developer on October 12 for $120,000. They had acquired the land on May 15, 2010, for $86,000.
On April 1, Jane exercised an incentive stock option granted by her employer. At the date of exercise, the fair market value of the stock was $18 per share and the exercise price was $10 per share. Jane purchased 500 shares with the ISO exercise. As of December 31, the stock’s fair market value was $25 per share.
The Brewsters incurred the following expenses during the year.
| Charitable contributions (cash) | $ 9,500 | (e) |
| Gambling losses | 6,800 | |
| Investment interest expense | 3,500 | |
| Mortgage interest—personal residence (reported on Form 1098) | 8,600 | |
| Mortgage interest—home equity loan | 1,800 | (f) |
| Real property tax on personal residence | 8,100 | |
| Supplies, professional organization memberships, continuing education for Jacob and Jane’s work | 15,800 |
- e.
In addition to their cash charitable contributions, the Brewsters contributed stock in Ace Corporation, which they acquired on February 9, 2006, at a cost of $6,500, to the Carmel Salvation Army, a qualifying charity. The fair market value of the stock was $11,000 on November 1, the date of the contribution.
- f.
The home equity loan was used to purchase the family’s new minivan.
Taking into consideration the above amounts, the Brewsters’ AGI is $386,000 and their taxable income is $338,800.
The following is a first draft of the Brewsters’ 2020 AMTI calculation.
Review the AMTI calculation, and prepare a list, including explanations, of any errors in the calculation. An error could include a missing amount or an amount that should not have been included, an amount that enters the calculation in the wrong direction, or a figure that enters the calculation in the wrong amount. You can presume that the Brewsters’ AGI and taxable income amounts for the year are calculated correctly.
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