Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine Jr., Michael, and Candice). The couple received salary income of $125,000 and qualified business income of $12,500 from an investment in a partnership, and they sold their home this year. They initially purchased the home three years ago for $212,500 and they sold it for $262,500. The gain on the sale qualified for the exclusion from the sale of a principal residence. The Jacksons incurred $17,000 of itemized deductions, and they had $3,300 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children.

However, because Candice is 18 years of age, the Jacksons may claim a child tax credit for other qualifying dependents for Candice. (Use the tax rate schedules 2020).

a. Assume the original facts but now suppose the Jacksons also incurred a loss of $5,250 on the sale of some of their investment assets. What effect does the $5,250 loss have on their taxable income?

Increase in taxable income? if yes how much

Decrease in taxable income? if yes how much

No change in taxable income?

b. Assume the original facts but now suppose the Jacksons own investments that appreciated by $10,000 during the year. The Jacksons believe the investments will continue to appreciate, so they did not sell the investments during this year. What is the Jacksons taxable income?