Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2020, they received Social Security benefits of $10,000. Both Alton and Clair are covered by Medicare. Alton's Social Security number is 111-11-1119, and Clair's is 123-45-6786. They reside at 210 College Drive, Columbia, SC 29201. The Newmans received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored.

Alton, who retired on January 1, 2020, receives benefits from a qualified pension plan of $2,750 a month for life. His total contributions to the plan (none of which were deductible) were $168,250. In January 2020, he received a bonus of $2,000 from his former employer for service performed in 2019. No Federal or state income taxes were withheld on this bonus by his former employer (Amalgamated Industries, Inc.; EIN 12-3456789; 114 Main Street, Columbia, SC 29201). Although Amalgamated Industries, Inc., accrued the bonus in 2019, it was not paid until 2020.

Clair, who retired on December 31, 2019, started receiving benefits of $1,400 a month on January 1, 2020. Her contributions to the qualified pension plan (none of which were deductible when made) were $74,100.

On September 27, 2020, Alton and Clair received a pro rata 10% stock dividend on 600 shares of stock they owned. They had bought the stock on March 5, 2013, for $20 a share. On December 16, 2020, they sold the 60 dividend shares for $55 a share.

On October 10, 2020, Clair sold the car she had used in commuting to and from work for $17,000. She had paid $31,000 for the car in 2014.

On July 14, 2012, Alton and Clair received a gift of 1,000 shares of stock from their son, Thomas. Thomas's basis in the stock was $35 a share (fair market value at the date of gift was $25). No gift tax was paid on the transfer. Alton and Clair sold the stock on October 8, 2020, for $24 a share.

On May 1, 2020, Clair's mother died, and Clair inherited her personal residence. In February 2020, her mother had paid the property taxes for 2020 of $2,100. The residence had a fair market value of $235,000 and an adjusted basis to the mother of $160,000 on the date of her death. Clair listed the house with a real estate agent, who estimated it was worth $240,000 as of December 31, 2020.

Clair received rent income of $6,000 on a beach house she inherited three years ago from her uncle Charles. She had rented the property for one week during the July 4 holiday and one week during the Thanksgiving holiday. Charles's adjusted basis in the beach house was $150,000, and its fair market value on the date of his death was $240,000. Clair and Alton used the beach house for personal purposes for 56 days during the year.

Expenses associated with the house were $3,700 for utilities, maintenance, and repairs; $2,200 for property taxes; and $800 for insurance. There are no mortgages on the property.

Clair and Alton paid estimated Federal income tax of $2,000 and had itemized deductions of $6,800 (excluding any itemized deductions associated with the beach house). They did not engage in any virtual currency transactions during the year. If they have overpaid their Federal income tax, they want the amount refunded. Both Clair and Alton want $3 to go to the Presidential Election Campaign Fund.

Compute their 2020 Federal income tax payable or refund due and complete their 2020 tax return using appropriate forms and schedules.

PLEASE USE TAX RETURN

• Form 1040 2020
• Schedule D 2020
• Form 8949 Sale of Capital Assets 2020
• Form 1040 SR 2020

PLEASE FILL OUT TAX RETURN. BELOW ARE THE COMPUTATIONS:

57. Alton's retirement income (Note 1) Clair's retirement income (Note 2) Alton's bonus (Note 3) Social Security benets (Note 4) Net long-term capital gain (Notes 5, 6, 7, and 8) ($2,209 - $1,000) Adjusted gross income Less: Standard deduction (Note 10) Taxable income Tax on $18,404 (Note 11) Less: Prepayments and credits: Estimated tax paid Income tax payable (or refund due) $ 23,386 13,380 2,000 5,829 1,209 $ 45,804 (27,400) M $ 1,718 12,000! g; 282! (1) Because Alton's annuity distribution is from a qualified retirement plan, the simplified method is used; see text Section 4-4c. Alton's investment in the plan $168,250 Number of anticipated payments 210 $801.19 exclusion per month Annual payments ($2,750 x 12) $33,000 Exclusion ($801.19 x 12) (9,614) Inclusion in gross income $23,386 (2) Because Clair's distribution is from a qualified pension plan, the simplified method is used. Clair's investment in the plan $74,100 Number of anticipated payments 260 = $285 exclusion per month Annual payments ($1,400 x 12) $16,800 Exclusion ($285 x 12) (3,420) Inclusion in gross income $13,380 (3) Alton is a cash basis taxpayer. Therefore, he includes the $2,000 bonus in his gross income in 2020. (4) Since MAGI plus one-half of the Social Security benefits exceeds $44,000, the amount of Social Security benefits that is includible in gross income is computed as follows; see text Section 4-4f. Lesser of: 0.85($10,000) = $8,500 or 0.85 [$39,975* + 0.50($10,000) - $44,000] + 0.50($10,000)* * = $5,829 * AGI excluding Social Security. **This amount is less than 0.50($39,975 + $5,000 - $32,000) or the $6,000 base amount provided by the 85% formula. (5) The sale of the stock that Alton and Clair had received as a stock dividend results in a $2,209 long-term capital gain. Amount realized from the sale (60 shares x $55) $3,300 Less: Basis of stock sold [$12,000 (original cost) : 660 (number of shares held) x 60 (number of shares sold)] (1,091) Long-term capital gain (holding period "tacks") $2,209 (6) The loss of $14,000 ($17,000 - $31,000) on the sale of Clair's personal use car is not deductible.14-26 (10) (11) (7) (8) (9) The sale of stock that Alton and Clair had received as a gift results in a $1,000 long-term capital loss. Amount realized from the sale (1,000 X $24) $24,000 Less: Basis for loss (the fair market value of the stock on the date of the gi, 1,000 X $25 per share) (25,0001 Long-term capital loss LL10) Clair's inheritance of her mother's personal residence is excludible from gross income. Gain or loss is not recognized until Clair sells the house. Clair's basis is $235,000. Because Clair rented the beach house for only 14 days, the $6,000 of rental income received can be excluded from gross income; see text Section 6-3f. None of the $3,700 paid for utilities, repairs, and maintenance or the $800 paid for insurance can be deducted. The standard deduction of $27,400 ($24,800 + $1,300 + $1,300) exceeds itemized deductions of $9,000. Other itemized deductions $ 6,800 Associated with the beach house: Property taxes 2,200 Itemized deductions % The net long-term capital gain of $1,209 is taxed separately. The regular tax liability is based on $17,195 ($18,404 - $1,209). The tax liability on $17,195 from the 2020 Tax Tables is $1,718. The net long-term capital gain of $1,209 is taxed at a 0% rate