George (49) and Jean (36), a Married Couple with No

question 44

Essay

George (49) and Jean (36), a married couple with no dependents, have AGI of $2,400,000. They have $120,000 of medical expenses related to a kidney transplant, $80,000 of property taxes on their principal residence, $65,000 of interest expense on the $680,000 acquisition mortgage, and $25,000 in charitable contributions before applying any limitations. If they have a $400,000 preference item, what is their regular taxable income, their alternative minimum taxable income, and their alternative minimum tax in 2018? (Exclude any medicare surtaxes on regular taxable income in your solution.)

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Definitions:

Security Market Line

The Security Market Line graphically represents the expected return of assets as a function of their systematic, non-diversifiable risk.

Risk-Adjusted Rate

A rate of return that has been adjusted to take into account the risk or volatility of the investment, providing a more accurate measure of its potential reward.

Risk Aversion

A preference to avoid uncertainty, characterized by investors' tendencies to prefer safer investments over more risky ones.

Portfolio Theory

A financial model that describes how to assemble a diversified portfolio to maximize returns and minimize risk based on expected returns and the variance of each asset.