Question

Reba dixon is a fifth-grade schoolteacher who earned a salary of $38,000 in 2017. she is 45 years old and has been divorced for four years. she receives $1,200 of alimony payments each month from her former husband. reba also rents out a small apartment building. this year reba received $30,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. reba and her daughter heather (20 years old at the end of the year) moved to georgia in january of this year. reba provides more than one-half of heather's support. they had been living in colorado for the past 15 years, but ever since her divorce, reba has been wanting to move back to georgia to be closer to her family. luckily, last december, a teaching position opened up and reba and heather decided to make the move. reba paid a moving company $2,010 to move their personal belongings, and she and heather spent two days driving the 1,426 miles to georgia. during the trip, reba paid $200 for lodging

Answer 1

Explanation

a.

Alimony received: $1,200 per month × 12 months = $14,400

Gift from mother = $3,000 gift excluded from income

Disability insurance payments: $800 of $2,000 (40%) of payment excluded because taxpayer paid 40% of premium on insurance policy = $1,200

Moving expenses: $2,010 (for moving company) + $200 (for lodging) + $242 for mileage (1,426 miles × .17 cents per mile) = $2,452

Medical expenses: $6,445 − $6,385 [10% × (3)] = $60

Casualty loss deduction: $900 − $100 = $800 − $6,385 [10% × (3)] = $0

Personal and dependency exemptions: One personal and one for Heather. See Note A. below (2 × $4,050) = $8,100

Tax on taxable income: See head of household tax rate schedule; $1,335 + $4,955.70 [15% × ($46,388 − $13,350)] = $6,291

Note A. The first question we have to answer to determine Reba’s filing status is whether she can claim Heather as a dependent. If so, she may qualify for head of household filing status. If not, she will file a single taxpayer.

Does Heather qualify as Reba’s dependent? Yes, as analyzed below.

 

TestIs Heather a qualifying child of Reba?RelationshipYes, daughterAgeYes, under age 24 and a full- time student (and younger than Reba).ResidenceYes, Heather had the same principal residence as Reba for the entire year.SupportYes. Heather did not provide more than half of her own support. Her scholarship does not count as support she provided for herself because she is Reba’s child.