Stephanie and Matt Are Married with 2 Dependent Children

question 65

Essay

Stephanie and Matt are married with 2 dependent children.During 2017,they have total gross income of $139,900.Their allowable deductions for adjusted gross income total $6,000 and they have $6,000 of allowable itemized deductions.Compute Stephanie and Matt's 2017 taxable income and 2017 income tax liability.
a.Assume that in addition to the above information,Stephanie sold some land that she had held as an investment at a gain of $5,000.What is the effect of the gain on their taxable income and income tax liability? You do not need to recalculate,just explain the general effect of the sale of the land.
b.Assume the same facts as in part (a)and that Matt also sold some stock he purchased several years ago at a $12,000 loss.What is the effect of the gain on the land and the loss on the stock on their taxable income? Explain.

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Definitions:

Double-Declining-Balance Method

A method of accelerated depreciation that doubles the rate at which an asset's book value depreciates.

Salvage Value

The projected amount an asset is expected to yield when it is sold after its period of usability has ended.

Book Value

The value of an asset according to its balance sheet account balance, which accounts for the cost of the asset minus any depreciation, amortization, or impairment costs.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments.