Answer:
1. Amount of loss $ 70,000
Home
Auto $10,000
Total loss $80,000
Less - statutary floor amount $100
Loss before statutory % of AGI $79,900
Amount of loss on last year’s return:
Loss $79,900
Less: 10% of AGI 180000*10% $18,000
Total loss $61,900
Amount of loss on current year's return:
Loss $79,900
Less: 10% of AGI $300,000*10% $30,000
Total loss $49,900
2. Olaf and his wife Anna should include the loss on the PRIOR YEAR'S because the tax savings is $1,642 greater.
Explanation:
Calculation to Determine the amount of Olaf and Anna's loss and the year in which they should take the loss
Amount of loss $ 70,000
Home
($350,000-$280,000)
Auto $10,000
($40,000-$10,000=$30,000)
($30,000-$20,000)
Total loss $80,000
($70,000+$10,000)
Less - statutory floor amount $100
Loss before statutory % of AGI $79,900
($80,000-$100)
Amount of loss on last year’s return:
Loss $79,900
($80,000-$100)
Less: 10% of AGI $180,000*10% $18,000
(10%*$180,000)
Total loss $61,900
($79,900-$18,000)
Amount of loss on current year's return:
Loss $79,900
($80,000-$100)
Less: 10% of AGI $300,000*10% $30,000
(10%*$300,000)
Total loss $49,900
($79,900-$30,000)
2. Calculation to determine what Olaf and Anna should include the loss on the return, because the tax savings is greater.
Based on the information given in a situation where Olaf and his wife apply the loss to the prior year which means that rate of 22% will be use for the benefit of the loss
Taxable income = ($145,000 − $61,900)
Taxable income = $ 83,100
Calculation for when Loss is taken on the PRIOR year's return:
Tax savings=(22% × $61,900)
Tax savings= $ 13,618
In a situation where the loss is been applied to the current year which means that the rate of 24 % will be use for the benefit of the loss
Taxable income = ($225,000-$49,900)
Taxable income= $ 175,100
Calculation for the loss is taken on the CURRENT year's return:
Tax savings= (24% × $49,900)
Tax savings =$ 11,976
Therefore based on the above calculation Olaf and his wife Anna should include the loss on the PRIOR YEAR'S return reason been that the tax savings is $1,642 ($13618 − $11976) greater.
