Question

calculate chee's net income from the vacation home itemized deductions and taxable income for the year depreciation on rental portion of vacation home net income from vacation home itemized deductions taxable income

Answer 1

Calculating Chee's net income from a vacation home involves determining rental income, deducting expenses, calculating depreciation, computing adjusted gross income and itemized deductions, and then applying the relevant tax rates to determine taxable income and after-tax income.

Step-by-step explanation:

To calculate Chee's net income from the vacation home, we must consider potential revenue from rental activities, expenses, and depreciation factored into taxable income calculations. First, identify all sources of income Chee receives from the vacation home. Calculate the total income, and then deduct any relevant expenses associated with maintaining and renting out the property, which may include utilities, repairs, property management fees, etc.

Next, determine the depreciation on the rental portion of the vacation home. Depreciation is the process of allocating the cost of a tangible asset over its useful life, and it serves as a non-cash expense that reduces taxable income.

Once these deductions have been identified, compute Chee’s adjusted gross income. The formula for taxable income is: taxable income = adjusted gross income - (deductions and exemptions). Chee's net income would be their adjusted gross income minus these deductions, exemptions, and any applicable itemized deductions.

To calculate after-tax income: subtract the calculated tax amount from the national income using the formula: National income minus taxes. If the vacation home is part of Chee's personal use property, the process of itemizing deductions could be leveraged for mortgage interest, property taxes, etc., depending on Chee's personal tax situation and IRS rules.

Lastly, apply the pertinent tax rate to the taxable income to determine the tax amount Chee must pay. Subtracting this amount from the adjusted gross income will yield the net income.

Answer 2

Question Completion:

Chee single, age 40, had the following income and expenses during 2019:

Income Salary $43,000

Rental of vacation home (rented 60 days, used personally 60 days, vacant 245 days) 4,000

Municipal bond interest 2,000

Dividend from General Electric 400

Expenses

Interest on home mortgage 8,400

Interest on vacation home 4,758

Interest on loan used to buy municipal bonds 3,100

Property tax on home $ 2,200

Property tax on vacation home 1,098

State income tax 3,300

State sales tax 900

Charitable contributions 1,100

Tax return preparation fee 300

Utilities and maintenance on vacation home 2,600

Depreciation on rental portion of vacation home 3,500

Answer:

Chee

a) Rental income $4,000

Less: Taxes and interest

(60/365 × $5,856);

court's approach (963)

Remainder $3,037

Less: Utilities and maintenance

(60/120 × $2,600) (1,300)

Remainder $1,737

d) Less: Depreciation

($3,500, limited to $1,737) (1,737)

Net income from

vacation home $0

b) Itemized deductions:

State income tax $3,300

Property tax on home 2,200

Interest on home mortgage 8,400

Interest and property tax on

vacation home 4,893

Charitable contributions 1,100

Tax return preparation fee 0

Total itemized deductions (19,893)

Income:

Salary $43,000

Dividend 400

Net income from vacation home 0

Adjusted gross income $43,400

b) Itemized deductions:

State income tax $3,300

Property tax on home 2,200

Interest on home mortgage 8,400

Interest and property tax on

vacation home 4,893

Charitable contributions 1,100

Tax return preparation fee 0

Total itemized deductions (19,893)

c) Taxable income $23,507

d) Depreciation ($3,500, limited to $1,737) = $1,737

Step-by-step explanation:

a) Data and Calculations:

Income Salary $43,000

Rental of vacation home 4,000

Municipal bond interest 2,000

Dividend from General Electric 400

Expenses

Interest on home mortgage 8,400

Interest on vacation home 4,758

Interest on loan used

to buy municipal bonds 3,100

Property tax on home $ 2,200

Property tax on vacation home 1,098

State income tax 3,300

State sales tax 900

Charitable contributions 1,100

Tax return preparation fee 300

Utilities and maintenance

on vacation home 2,600

Depreciation on rental

portion of vacation home 3,500

Income:

Salary $43,000

Dividend 400

Net income from vacation home 0

Adjusted gross income $43,400

b) Itemized deductions:

State income tax $3,300

Property tax on home 2,200

Interest on home mortgage 8,400

Interest and property tax on

vacation home 4,893

Charitable contributions 1,100

Tax return preparation fee 0

Total itemized deductions (19,893)

Taxable income $23,507

c) The municipal bond interest of $2,000 is not taxable and is excluded from the gross income. The interest expense of $3,100 on the loan to buy municipal bonds is likewise not deductible.

d) Note that $4,893 ($5,856 total − $963 vacation home portion) of property tax and mortgage interest on the vacation home are itemized deductions.

e) The state income taxes paid ($3,300) exceed state sales taxes paid ($900).

f) Tax preparation fees are miscellaneous itemized deductions and are not deductible.