Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent children, Charlene, age 17, and Jordan, age 18. Charlene's Social Security number is 123-45-6788, and Jordan's Social Security number is 123-45-6787. In 2016, Martin and Michele had the following transactions:
a. Martin received $120,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA taxes were as follows: $7,049 ($113,700 × 6:2%) for Social Security and $1,740 ($120,000 × 1:45%) for Medicare. Martin worked in
Mexico from January 1, 2015, until February 15, 2016. His $120,000 salary for
2016 includes $18,000 he earned for January and one-half of February 2016 while working in Mexico.
b. Martin and Michele received $800 in qualified dividends on Green, Inc. stock and $400 interest on Montgomery County (Virginia) school bonds.
c. Martin received $2,300 interest from a Bahamian bank account.
d. Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2,500 at the time Michele received them, and she did not have the option of receiving cash.
e. Martin and Michele received a $1,200 refund on their 2015 Virginia income taxes.
Their itemized deductions in 2015 totaled $14,000.
f. Martin paid $6,600 alimony to his former wife, Rose T. Morgan (Social Security number 123-45-6786).
g. Martin and Michele kept the receipts for their sales taxes paid of $1,100.
h. Martin and Michele's itemized deductions were as follows:
• State income tax paid and withheld totaled $5,100.
• Real estate taxes on their principal residence were $3,700.
• Mortgage interest on their principal residence was $2,500.
• Cash contributions to the church totaled $2,800.
Part 1-Tax Computation
Compute the Alberts's net tax payable (or refund due) for 2016.
Part 2-Tax Planning
The Alberts are considering buying another house. Their house mortgage payments would increase by $500 (to $1,500) per month, which includes a $250 increase in interest and a $100 increase in property tax. The Alberts would like to know how much the mortgage payments would increase net of any change in their income tax.
Write a letter to the Alberts that contains your advice.