house property of income tax

okay. this session, what we're going to dois just take a moment out and we are going to do a couple problems. we're going to takea break from covering the materials. we've covered quite a bit of materials at this point.we only have a chapter left along with some additional materials, and so i wanted to takesome time out just to do some problems where you can get familiar with the tax returnsand filling out the forms. you may have software to do this, but it always helps to know howthe forms should work and flow, and then that way you're confident that the tax return thatcame from your software is correct. we want to start with a problem at the endof chapter 3. it's on page 3-4. and it's problem 2a. dr. george e. beeper is a single taxpayer.he lives in spokane, washington, and then

he works for pine medical group and his earningsand income tax withholding for 2008 are such. i pulled up a w-2 on irs.gov, just so youcan see, generally earnings is going to be reported on w-2. of course in these problemsthey just give you the amount of the earnings, the amount of federal income tax withheld,and state withheld. we're just going to focus on federal return.so if you look here, i've pulled up the w-2 and generally the total wages and tips whichwould be the 116,000 would be reported in box 1, and the federal income tax withheld,his 25,000 would be reported in box 2. then, if you go all the way down to 15, box 15,you would have state, whatever, washington, state wages, and state income tax would bewhatever, but he happens to have zero. so

i just wanted you to know and be aware thattypically the earnings is going to be reported on a w-2 for an employee. okay.so let's go and begin to prepare the income tax return. okay, you always want to, of course,we'll put his name, george. i've already put beeper in. so also in your book, they havethese blank pages and so you are welcome to fill along, complete this along with us. weput in his social security number. you are supposed to have his social security number.and then we will put in his address, which i won't do at this time. it's just him, sohe's filing single, as far as i know. and he has no other dependents, so we're goingto claim one for himself and one total, okay. so then we want to -- i'll zoom in a littlebit so you can see those. we want to start

with his wages or his earnings from pine medical,and it was $116,000. so those wages and items are going to go on line 7. they're going togo on line 7. the federal tax withheld, the amount that'sbeen withheld from his paycheck, it goes back under payments. that represents payments,which we're still going to cover a chapter in payments, but notice that line 62 saysfederal income tax withheld from w-2s and 1099s. so that's where the $25,000 goes.okay. so next if we go ahead and review the problem, it tells us that dr. beeper ownsa rental house located at 672 lake street drive. so he has rental property. the houserents for $1,000 per month and was rented for the entire year. so rental, if you lookhere on the front of his return, goes on schedule

e. line 17 says rental real estate, royalty,partnership, attach a schedule e and then that amount will go on line 17. so you shouldhave a schedule e. and so we're going to fill out a schedule e for his income.okay. he had $1,000 a month, so we want to fill that out here at the top. rents received,and on line 3 for property a, we're going to put the 12,000. he said it was rented theentire year, okay. then we want to go ahead and put a description of rental property a,and it was just residential rental, so i'm just going to put rental and i'm going toput the address. it was 67 -- 672 lake street. 672 lake street. and so that applies to thatparticular one. it has a question for each -- if you remember when we did our rental,we had questions like was it rented for more

than 14 days or greater than 10% of the rentaldays? and so to determine if this is primary rental, is it rental/personal split, or isit primary personal, those particular questions appear there. it says for each rental realestate property listed on line 1, did you or your family use it during the tax yearfor personal purposes for more than or greater than 14 days or 10%? and in this case, nofor a. because if you remember, they said that it was rented the entire year, so wedidn't use it for any personal. so this here area takes care of that wherethere's going to be total rental or a rental/personal split, because remember, if it's total personaland i had some rental, then i don't have to report the income or the expenses, i wouldn'tbe filling out one of these forms.

okay, so we have on there, we have our rentalincome of $12,000, which is the $1,000 per month. also, they said we had real estatetaxes of 3500. and so we're going to go down to line 16 for our taxes of 3500. it saysalso that we had mortgage interest of 12,500, and that's on line 12. mortgage interest paid,12,500. and then it had 900 of insurance. see, sincethis is all rental, we don't have any personal to subtract out. then it says depreciation,assume that it was fully depreciated. it said that it was purchased in 1965, so there'sopportunity that it was fully depreciated, so we're going to go ahead and put 0 on ourline 20, which is where the depreciation would go.next, $1,000 for gardening. we're going to

list that as "other." amount we had to payfor gardening on line 18. and then we had repairs of 600. repairs go on line 14.and then we had maintenance of $3,636. maintenance is on line 7. okay. so i believe those takecare of all the amounts that we have. when we total up our expenses, we get $22,136.$26,136. now, before we continue to add up those, wehave this total column over here. we had total rents of 12,000 that we want to carry over.that's if we had more than one rental, we would show those totals all the way across.they asked us for the total of line 12, which is the mortgage and interest, and then theyasked us for the total total, which is 22,136. okay. and then we had no depreciation, sothe total on that column would be the same.

okay. so then we take our 22,136, we had nodepreciation, so our total expenses, our 22,136, and then we come up with our net income. ifwe had $12,000 of rental income minus the 22,136 of expenses, we would end up with a$10,136 loss. and so that would be the loss that we had.so it tells us that if we have a loss, we need to fill out a 8582, which is the passiveloss form, which is the passive loss form. and if you remember, there's some limitationson passive losses, but then remember, there was a $25,000 -- up to a $25,000 loss thatwe can take for real estate rental, okay. so let's look at our 8582, which is our passiveloss form that we must fill out. it's not a difficult form to fill out, but it is necessaryso that we can make sure we can deduct that

full rental loss. of course at the top youalways fill out the name. here we have george beeper. and then we would fill out his socialsecurity number there. okay. so as we go through, we read our lines,line 1b asks us for activities with net loss from our rentals, and so we had 10,136 asa net loss. we had no other items in that area, so we carry that loss down, 10,136.and we had no commercial revitalization, no other passive activities. the rental is ouronly passive activity, so those other items are zero, so line 4 ends up being the lossof 10,136, ends up being our loss. so now at the bottom in part 2, it says thatthis is for a special allowance for rental real estate activities with active participation.so we're going to assume that he actively

participated. enter the smaller of the losson line 1d or the loss from line 4. it's the same loss, so 10,136, is our loss. and thenit says if you are -- enter 150, and then if married filing separately we would entera different number, but we are not, so we're going to enter the 150,000. it says enteryour modified adjusted gross income. we're going to enter that, which is the 116,000.that's before we enter the real estate loss. and then they say to get the difference, takethe 150 minus 116. so we will end up with 34,000. and then it'son line 9 it says multiply line 8 by 50%, which is 17,000. and then on line 10, it tellsus to enter the smaller of of line 5 or line 9, okay. and so that would be the $10,136.and so, therefore, we would be able to take

the 10,136 loss, okay.so that amount would carry forward to, by a tax return, to the front -- sorry aboutthat -- to the front page of my tax return. so let's go put that in. remember, i alreadyspoke about line 17 being your line in which you put your real estate loss on, okay. soline 17, we would show 10,136, and we want to show it in brackets to indicate that itis a loss. so that's how we do the rental real estate and when we have a loss, okay.also, they tell us that during may of 2008, dr. beeper transferred 67,000 out of his section401(k) plan from a former employer, the ann medical group, to an individual retirementaccount with the spokane state bank. the transfer was direct, made directly from section 401(k)plan. so that means it was the direct rollover,

he didn't receive a portion of it. so thatis a total non-taxable rollover for him. he probably received a 1099 or indicated thatit was a rollover, so it would go on line 16a. we would put the 67,000 and then theamount that would be taxable would be 0 in that case.so then when we have completed basically all our supplementary information, so we justbegin to fill out the information. 116 minus the $10,000 loss gives us a taxable income-- a total income, i'm sorry, of 105,864. and then we had no adjustments to our income,so we end up with agi of 105,864. okay. we carried that adjusted gross income to oursecond page and we would carry that and then it would be the 105,864, okay.he is filing single, and so if you even notice

on the side of your form, the standard deduction,they didn't mention any itemized deductions. so we're going to allow him to take the standardof 5,450. that gives us 100,414. then it's just him, so he's going to get an exemptionjust for one person. so that gets us down to 96,914.and so that represents his taxable income. because he's under 100,000, he can go to thechart and get his tax. the tax would be $21,117. we have no other adjustments or credits oradditional taxes, so he would basically just flow that number on down because we have noadditional items or anything else to consider. and so once we get there, we know that heowed $21,117 in taxes. he had withheld 25,000. so he is due a refund of $3,883. if he filledout this section, he can have it directly

deposited in his bank account, or he couldhave it -- a portion of it applied to 2009 or he can just simply have them send him acheck. he can have it -- if he owes back taxes, they typically will hold that and take careof that. so that is the problem 2a on page 3-4. justwanted to get a little practice in completing a tax return that had real estate to it, beingable to fill out that passive activity loss form, okay.now we want to move to chapter 5. we didn't cover anything in chapter 4, so we want tomove to chapter 5 and complete a tax return. okay. i want to -- let me get to the rightform. we have two that we're going to do at the end of this chapter. i want to start withpage 5-48, and we want to do bea jones. we

want to do bea jones. okay. so we want to start there.and so you should have another form in the back of this chapter or you can go to irs.govand get the information as well. we're on page 5-48, problem 2a. bea jones, who is 32,she moved from texas to florida in january. she lives in gulf port, florida, and thenthey give us her social security numbers. her earnings and income tax for her job wasas follows. she worked for gulf shrimp and she earned $42,000. so we want to -- you wouldfill out the -- we're going to forego filling that out. we know she's single. we didn'tindicate any other exemptions or anything, and so she would just claim one, okay.so we want to start off by inputting her $42,000

there. she had income tax withholdings of7800. so remember, that goes on our second page on line 62. so i want to go ahead andput that there, that represents the amount of income tax she had withheld. it says bea'sother income includes interest on savings account at beach national bank of 2200, and600 per month alimony from her ex-husband. so she received alimony from her ex-husband.and so let's put in her interest of 2200. okay. we put it there, but you should alsofill out -- we put it here on line 8a, but we should also fill out a schedule b, a scheduleb for her interest income, and so let's go ahead and do that, and then that flows tothe front of your tax return. this interest was from beach national, so we want to fillin the name there,

and beach national bank for 2200. and thenthat will carry down to line 2, and then on to line 4, because we don't have any others,and then that would go ahead and go to the front of the tax return there on line 8a.on line 8a. okay. so any questions up to that point? makesure that as you go through there, you deal with each item. the best way to do these problems,because you will have to do a problem for your final, your final is a tax return problem.and because you have so much information, what i try to do is i deal with each informationas i read it and not say i'll come back to that as i come -- as i come across the earnings,i put it where it need to be. as i come across the federal income tax withheld, i put itwhere it needs to be. as i come across the

interest income, i'm going to put it whereit needs to be. and next, the alimony. remember, alimony is taxable to the person receivingit, and it is deductible to the person who's paying it. she received $600 a month alimony,so she received $7,200, and that is going to go on the front of the tax return on line11. it says alimony received. alimony received. so it will go on line 11. that's going tobe income to her, and the spouse that's paying it is going to be able to take a deductionfor it. during the year, bea paid the following amounts,all of which can be substantiated, so she has the necessary documentation. and it lookslike the majority of these are schedule a, are miscellaneous -- itemized deductions,i'm sorry. so let's go to schedule a and begin

to fill out the schedule a. you would alwaysfill out the heading. to save time, i'm not going to do that. and so the first thing onour list is mortgage, home mortgage interest of 9700, and that goes on line 10.and the next we have auto loan interest. you cannot deduct auto loan interest, so we wouldnot deduct that. next we have property tax on personal residence,that's deductible under real estate on line 6. okay. next i have state and local taxesactually paid during 2008. and so she had some state and local taxes she paid, so thatwould go on line 5. okay. next we have unreimbursed hospital bills,so she has 3200 of hospital bills, she had 2,550 of doctor bills, and then she has someother medical expenses of $720. she would

be able to take the unreimbursed hospital,which is 3200. she would be able to take the doctor's, 2,550, and then plus the other.they don't say they're non-deductible, so we're going to assume they are, and they wouldgo here on line 1, okay. and then, remember, they're going to be limitedto 7.5% of her agi and we're going to hold off on that and make sure we have all itemsalready filled in that will help compute her agi. so we're just going to hold off on computingthat and can finish filling out the form and then we will get back to that piece.okay. next she had income tax preparation fees, so remember, you can deduct those asmiscellaneous deductions subject to 2%. so the 600 for tax preparation fees will go online 22. and then she has job hunting expenses

of 925 and union dues. so we would put thoseboth here on line 21. so i would indicate these are union dues and job hunting. andi'm just going to add those together. and i will get 1725.okay. no other items there for miscellaneous, so i would subtotal those for line 24, i wouldget 2,325. and once again, this is going to be limited to 2% of the agi, so i'm just goingto hold off and just double-check that i have everything already for my agi.okay, in july of this year, it says somebody broke in bea's house and stole a diamond ring.the diamond ring had a fair market value of $10,000 and a tax basis to be of 8,000. thering was uninsured, okay. so given that it's a casualty or theft loss,in this case it's a theft loss, so we can

take it as a theft loss, and because it'snot something she lost and she can't find so she assumes stolen, she actually knowsthat it's stolen, so therefore, casualty and theft losses we fill out a form 4684. so let'sgo ahead and fill that out. we fill out the heading with her name and social security.then property a, they have enough for four items here, but property a, we're going tosay it was her ring and it was stolen, and you can go on and say from the residence orwhatever the case may be. and we want to put the date that they gave us, a date of -- injuly. so we'll say july is when it was. and what else did they tell us? stolen diamondring. fair market value 10,000. okay. so then it tells us that the cost or her basis, ittold us that it cost her $8,000; that was

the cost of the ring. okay. she had no insurance,so that line would be blank. no gains or anything from any other casualties. fair market valueof the item before the casualty, line 5 would be 10,000. fair market value after the casualtywould be 0 because it's a total loss. and so when we do that subtraction, we have a$10,000 loss. and then in 8, it says enter the smaller of line 2, meaning the basis orthe decrease in fair market value, and the smaller would be the $8,000. and then subtractline 3, which would be the insurance. since i had no insurance, it would be the $8,000.and so, therefore, my actual casualty or theft loss would be the $8,000. and remember, wehave to reduce each loss by 100, and each loss by 100, and so then that would get medown to a $7,900 loss.

and then i have no other casualties or anythinglike that. okay. and then we want to get all the way down to line 16, and then it's going to be limited to 10% ofthe agi. so once again we want to wait and see what that agi, make sure i've coveredeverything on the list before i move on. okay. next, bea incurred the following expensesduring the move, because remember, she initially said that she made a move from texas to florida,and remember, moving expenses are deductible. so she had the cost of moving her furniture,transportation. i believe she's going to meet the mileage test if she's moving from texasto florida. and it says transportation, lodging, mealsand house hunting trip before the move. and so in order to deduct the moving expenses,we want to fill out a form 3903, which gives

us a place to record the expenses, and then,remember, those moving expenses are a deduction for agi. i like the moving form that it tellsyou right before you begin, it says to see the distance test and the time test. so makesure you meet that 50 miles or more distance test and the working time test, the workingtime test that you have. okay. so first thing they ask us for the transportation.she had the cost of moving the furniture, transportation, and storage of household goods,so that would be $3,300. and then her transportation at 19 cents a mile was 1,511 miles. and thenshe had lodging included in that. so we have travel from your old home to your new home,do not include meals. so that's going to be the mileage and the lodging that she can take.she cannot take the meals.

and so the deduction for that is $537. okay.and like i said, the meals are not deductible and her house hunting trip before the moveis not deductible. so she would get the 3,300 plus the five thousand -- plus the 537. soher total moving expenses would be 3,837. her employer didn't pay any of those expenses,so she would get to deduct the full 3,837 on the front of her return. so let's put thaton the front of our return. remember, moving expenses is a deduction for agi, meaning toget to my agi. so moving expenses would be on line 26 here where we have moving expenses,and it's coming from our form 3903, so we put the 3,837. okay.and then that's it. that's all we have, and so now we can go ahead and figure our adjustedgross income. we had wages of 42,000, 2200

of interest, 7200 of alimony. so we get totalincome of 51,400. and then the only adjustment to income we have is the moving of 3,837.so if we take our 51,400 minus our moving, we get adjusted gross income of 47,563. 47,563is our adjusted gross income. and so we carry that to the top of the page. 47,563 is ouradjusted gross income. the next thing they want is our itemized deductions,so we need to go to our itemized deductions sheet and we need to complete filling thatout because, remember, we stopped. right here it says to enter the amount from line 1040,line 38, and that is the agi that they want there, which is our 47,563. and then theytell you to multiply that times 7.5%, and we get 3,567. and so, therefore, the amountof medical that is deductible would be 2,903,

which would be the difference between theactual minus 7.5% of the adjusted gross income. okay.next we would have 4700 for our taxes. we would have 9700 for our mortgage. and thenwe actually have a casualty loss. so we need to go back to our casualty loss form. remember,the casualty loss is limited to $100 and 10% of the agi. so let's continue to fill outthis form and let's put in all the way down here on line 22, they're asking for 10% ofthe agi. remember, our agi was 47,563, i believe. so 10% is 4,756.and then so we would limit that, we would take 7,900 minus 4,756, and so the deductionfor her casualty would be 3,144, would be 3,144.that's the amount that would go on the front

of the return. so she would get a deductionfor that amount, okay. and then, next we have our miscellaneous, which is limited to 2%of the agi. so we would put our 47,563 here. 2% of that would be 951. and so we would get2,325 minus the 951. so we would get 1,374 of miscellaneous deductions, okay.so we would get medical 2903. we'd get taxes of 4700. interest paid of 9700. casualty of3,144. miscellaneous of 1,374. and the total of our itemized deductions is 21,821. we'renot limited due to high income, so we would be able to take the full 21,821, and thatwould go on the second page here at the top of your 1040. so this is where you put eitheryour standard deduction amount or the itemized. she is single, a single person can only take5,450. so needless to say, we want to take

her 21,821. and that gets us down to 25,742.and then it's just her, so she's going to take $3,500 of -- of her exemption amount,and then that gets us down to taxable income of 22,242.and so we had no other credits or anything, so our taxable income is 22,242. if you goto your table, the tax for a single person there would be 2,933. we have no other adjustments,so 2,933. and line 2,933. she had $7,800 withheld and so, therefore, is going to receive a refundof 4,867. and once again, she can have that check mailed to her. if she fills out thebanking information, she can have it directly deposited. she can have it applied to theprevious -- i mean to the next year, or if she owes an amount for previous year, generallyirs will take that refund amount, okay.

so that is a problem that dealt with moving,dealt with what to do with alimony, dealt with the casualty loss, schedule a, and thatwas really pretty much it. we want to do one more. we may not get it completed, but wewill at least get it started. we are going to do problem 1 on page 5-47. this is alsoa problem from chapter 5. and i will post these problems or give you the answers tothem just so that you can take some time to practice to do them. this is john williams.john williams is a single taxpayer, lives in reno, nevada, and they tell us his earnings.this is a high income taxpayer, so this is one of the reasons i want to make sure i postthis one, because he is going to hit some limitations. and as i said, we probably won'tget to finish it, but i will post the answer

out on the website, so you'll have it.okay. we want to start off with his wages. he had wages of 186,800 from lucky ace casino.so we want to go ahead and put it on line 7. here our total wages of 186,800.okay. and then he had federal income tax withheld, 24,800. remember, that just goes on the secondpage here, 24,800. and then john's other income includes intereston savings from nevada national bank of $13,075. so, remember, we're going to put it here.$13,075. and then also we're going to put it on schedule b. he meets that income limitationwhere he's required to fill out a schedule b. so we just want to put it there on scheduleb. and this was from nevada bank. nevada nationalbank, actually. and it was 13,025 -- 75, i'm

sorry. then we want to carry those amountson down. that's all he had. 13,075. and 13,075. we just carry those amountsdown, and then you go ahead and put them on the front of your return.okay. next it goes on and says john pays his ex-wife $4,000 per month. so this is a situationwhere the last case was receiving alimony, this individual is paying alimony. and downat the bottom on line 31a, you have to put the social security number of the spouse thatyou're paying, and we are -- social security number they give to us of the ex-spouse, andthat's important because the irs is going to want to cross-track and make sure thatthat taxpayer, that spouse is including this amount in income. he paid $4,000 a month inchild support. now, let's read that. $4,000

-- not in child support. it just says he payshis ex-wife $4,000 per month. when the 12-year-old child in the wife's custody reaches 18, thepayments are reduced to $2,800 per month. so that lets me know that the alimony is really$2,800, not the full $4,000. so that's how we get 33,600, is because if the amount isgoing to drop from 4,000 to 2,800 after the child reaches 18, that means that differencewas actually child support. so that means 1200 of it is child support and 2800 of itis alimony because that continues after he reaches 18.during the year, john paid the following amounts. so that -- that's going to represent his schedulea. that's going to represent his schedule a.okay. the schedule a expenses, home mortgage

interest, he had credit cards and auto loans,he had auto insurance. the only thing that we can deduct from what i just listed is thehome mortgage, we can deduct that, the home mortgage interest of 19,700. so let's fillthat in. okay. can i deduct the credit card interest, the auto loan interest or auto loaninsurance? he can -- or auto insurance. he can deduct the personal property taxes onhis residence of 6200. so those are our real estate taxes actually. he can deduct stateand local taxes that were actually paid of $4,000. the blue cross health insurance premiumsof 1800, that's deductible, along with his other medical of 790. so when i add thosetwo together, i get 2,590. so he can deduct that. well, we'll see the amount in excessof his -- 7.5% of his agi.

and then he had charitable contributions.he had the boy scouts, so we should be able to deduct that, that's 800. he had st. matthew'schurch of 300, he should be able to deduct that. university of nevada-reno medical schoolof $10,000, that appears to be okay. nevada democratic party, cannot deduct. fundraisingdinner for the reno auto museum, the value of the dinner is $50, he made a contributionof 100, so 50 of it is taxable. so his contributions is going to be 11,150 for his charitable contributions.okay. then what else did we have? it looks like in his spare time it tells us that johnwants to become a famous photographer. person to the -- this desire -- he runs a photographicbusiness and incurs the following expenses. he had depreciation of 450. he has film andphotographic supplies of 2,650. he has travel

to locations to take pictures of 1,450. andthen if we turn the page, during the year john sells three photographs for $175. johnhas had a similar result from this activity in the last five years. so obviously he'snot making any money. and so it doesn't sound like it's a business, so since it's not abusiness, he can only deduct expenses up to his income. he only sold three photographsfor $175, so all he's going to get to deduct is $175 of expenses. and those expenses wouldbe miscellaneous, subject to 2%. so we're going to go ahead and take those, photo expensesof 175. actually, that's all we can take. he had more than that, but he can only takeup to his income. and then they also had a $900 tax prep feethat they can deduct, okay. so it looks like

that represents all his schedule a items.and it actually looks like that's all we have. so let's begin to get his agi, and then wecan go from there. okay. we had the 186,800, plus our interest of 13,075. now, remember,he had photo income of 175. now, when it's a hobby, the income goes on the front of thereturn, and the expenses go on schedule a. so the total income is 200,050.then he had 33,600 of alimony. that's going to reduce his total income to get to his agi.and so now his agi is 166,450. 166,450. we want to carry that to the front of the return.i'm sorry, to the second page. 166,450. and our next line item is our itemized deduction.so let's go here and we're going to put the 166,450 here. 7.5% of it is 12,484. so he'snot going to get any medical. he's going to

get the 10,200 there. and then he's goingto get his 19,700 of interest. he's going to get 11,150 for his gifts to charity. andthen we're going to add up, he had 1,075 of miscellaneous. we're going to put his agithere. 2% of that is 3,329, so he's not going toget any of those. and so then what we would do is we would end up totaling up his itemizeddeductions. he'd get 10,200 plus 19,700 plus 11,150, so ends up with 41,050. the questionis, it says is 1040 line 38 more -- or over 159,950? which it is. so in that case, yes,he's going to be limited to his itemized deductions because of his income. and there's a formthat they have in your book for you to fill out, to fill out that itemized deduction limitation,that itemized deduction limitation.

and so 41,050 is the starting point. i'm goingto blow that up so you can see that. okay. and then we would zero there. then we wouldhave 41,050. and then they have a number of calculations, which because of time i'm notgoing to go through, but remember our calculations in which they are limited to, you take theexcess over it and then certain itemized deductions. so go back and read that, but let me go aheadand give you the amount. the amount he's going to end up getting is 40,985. 40,985 is goingto end up being what his itemized deductions are. so given that, 41,000, he can't get that.he's going to get 40,985. so definitely go through those calculations and see if youcan get that same number.

and so we go back here and then we're goingto put our amount that we actually get, the 40,985. uh-oh. 40,985, there. so then we get125,465. and then 42. it says is line 38 is his agiover 119,975? his is. and so he has 3500 for an exemption, but he is going to be limitedto the amount of exemptions he can take, so there's a form that they give you for yourdeduction for exemptions so that you can go through the calculation. and remember, it'sanother calculation that we have to do, and we would start with the 3500 here, go throughthe calculations, and that's, remember, where you take the excess divided by 2500, whateverthat number is, you round up, multiply it times 2%, and so you go through that calculationand i'm going to give you the answer.

you would end up with 3,430 that he can take.so he loses $70 of his exemption. okay. so that's what we want to put his -- his exemptionends up being 3,430. and so now his taxable income is 122,035. 122,035.now, because he is over $100,000, his income is over $100,000, then he has to use -- hecan't use the tax table. he has to use the tax chart. he has to use the tax chart. thevery back cover of your book gives you a tax chart, and i want to show you and kind oftalk you through this calculation, then i'll help you with the answer. he was single, okay.he was single, and so you would go to the single individuals chart, okay. single individuals,and his taxable income, let me get to what that was, his taxable income was $122,035.so that's between the 78,850 and the 164,550.

so to get his tax, what you would do is youwould add 16,056 plus 28% of the excess of his taxable income over 78,750.so you would take his 122,035 minus 78,850, then multiply that times 28%, and then let'sjust do that. and then add to that $16,056.25. so let's just kind of do that calculationhere. we said we would take his income of 122,035 minus the 78,850.we get 43,185 times 28%. and you get 12,092, if i round it.then they want me to add to that $16,056.25. and so then i end up getting -- his tax endsup being 28,148. 28,148 is his tax. he has no other additional taxes or anything,so we just kind of carry that number on down. okay.now, he owed 28,148. he only paid in 24,800.

so in this case, he would owe an additional-- he would need to pay with his tax return 3,348 would be the amount that he owed. hedoes not have a refund. he can put his tax return -- i mean his bank account number,they would automatically take it out, or he could send in a check, okay. so those arethree really good problems that we took some time to go through. so i would make sure ifi went too quickly you go ahead and do them, check the answer that i'm going to post online,and go ahead and begin to read chapter 6. our next session will be credits. and that'sit.