Harry and Matilda are married and have the following tax return data for 2010:

Do Harry andMatilda owe any income tax for 2010? Explain why they might owe tax in 2010, and discuss the items on their tax return that could cause them to pay income tax in 2010. Be sure to adequately explain each item. Calculations are not required.

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Income: Salaries $100,000 Cash dividends Tax-exempt bond interest Total income Exclusions: Tax-exempt bond interest 4,000 8,000 $112,000 (8,000) Gross income $104,000 Deductions for adjusted gross income: Loss on rental property $14,000 Net operating loss carryforward Adjusted gross income Deductions from adjusted gross income (after 50,000 (64,000) $ 40,000 limitations): Medical expenses $ 3,000 Taxes 14,500 Home mortgage interest 15,200 Home equity loan interest 9,000 Charitable contributions 6,200 Miscellaneous itemized deductions 3,500 Personal and dependency exemptions (51,400) (14,600) Taxable income $ (26,000)