Facts

Lisa (birthdate 3/15/1981) and Matt (birthdate 7/2/1982) Davis married on August 1, 2021. Lisas SSN is 111-22-3333. Matts SSN is 444-55-6666. They live at 1280 your last name Drive, Dallas, TX 75205.

Matt divorced from Dorothy Davis on October 20, 2011. Under the divorce agreement, Matt is required to pay Dorothy alimony of $1,200 per month. Dorothys SSN is 777-88-9999. Matt has full custody of Chris Davis, his son, who is 9 years old (SSN 100-11-2222) and lives with Lisa and Matt all year. For purposes of this project, ignore QBI, AMT and other taxes, and passive activity losses. However, you should consider whether the taxpayers can claim any credits. For purposes of calculating any potential credit, assume that their relevant AGI is $152,000 and that the credit is fully nonrefundable.

Matt is a software engineer and his salary is $65,000. His employer withheld $6,000 for federal income taxes. There is no state income tax in Texas. Lisa is a lawyer and her salary is $80,000. Her employer withheld $10,000 for federal income taxes.

Lisa and Matt had the following stock transactions for the year:

Sold 1,000 shares of Home Depot stock on September 2, 2021 for $32,000. Their basis was $21 per share, purchased April 12, 2021.

Sold 100 shares of UPS stock on October 4, 2021 for $10,000. Their basis was $220 per share, purchased February 3, 2015.

Sold 500 shares of TJ Maxx stock on October 12, 2021 for $18,000. Their basis was $46 per share, purchased February 5, 2014.

On September 16, 2021, Matts grandmother passed away and they inherited $145,000 in cash.

For one week during the year, Lisa and Matt go skiing in Colorado and rent their personal home for $400 a night. They pay for cleaning services before and after the renters leave, totaling $240.

In the summer, Lisa and Matt go to their beach house. This year they spent 64 days enjoying the beach. They rent out the house when they are not there. In 2021, they rented the home for 96 days and earned $24,000. The address is 100 Seashell Way, Port Aransas, TX 78373. They note the following annual expenses related to the home:

Mortgage interest $11,000

Cleaning services $2,000

Insurance $2,500

Utilities $5,400

Property taxes $3,000

Management fees (to handle tenants) $1,700

Lisa and Matt also own a house in Austin that they rent all year to four University of Texas graduate students. The address is 809 Theresa Ave, Austin, TX 78703. They provide documentation of the following:

Rental revenue $36,000

Cleaning services $200

Insurance $3,200

Mortgage interest $14,000

Repairs and maintenance $500

Property taxes $4,200

The Davis also had the following items for 2021:

Lisa and Matt both had laser eye surgery during 2021 to correct their vision. Each surgery cost $7,500 and their insurance reimbursed $1,000 for each procedure.

Their other medical expenses included visits to the doctor and dentist ($500 total), allergy shots ($2,080), nutritional supplements ($300), and prescription medicines ($200).

Lisa paid interest of $2,200 for student loans she took out for law school. Assume for this fact only that their relevant modified AGI is $152,000 for purposes of determining any potential deduction.

Earned interest of $2,900 from a high-interest savings account at Frost Bank

Paid an early withdrawal penalty of $35 to Frost Bank

Earned interest of $3,000 from Parry Corporation bonds

Paid $17,000 for a modest wedding and $6,900 to travel to Europe for a short honeymoon. Matts parents gifted Lisa and Matt $5,000 cash as a wedding gift.

Paid mortgage interest of $13,500 on their home in Dallas. The acquisition debt on their homes in Dallas and at the beach do not exceed $750,000.

Paid property taxes of $4,700 on their home in Dallas

Estimated sales taxes paid is $3,510

Paid interest expense of $1,400 on their auto loan and $520 in vehicle registration fees, $350 of which was an ad valorem assessment.

Matt made a contribution of $3,800 to a traditional IRA and Lisa contributed $4,000 to a Roth IRA. Assume that Lisa and Matt are not subject to phase out for purposes of determining any potential deduction.

Matt won $350 playing the lottery. He also had gambling losses of $700.

Paid $500 in interest on a loan they took out to invest in stocks and paid $150 in interest on a second loan that they took out to invest in City of Dallas bonds. Their investment income for the year is greater than $650.

Donated cash to the following charities: $2,000 to Habitat for Humanity, $1,000 to the Red Cross, and $1,000 to Special Olympics.

Donated $400 to the election campaign of a senator.

Donated a painting worth $2,600 to the Dallas Museum of Art for their expanded gallery. Matt originally purchased the painting for $1,800 in 2013. Lisa also donated used furniture to Goodwill. She paid $1,000 for the furniture five years ago and estimates that she could have sold the furniture for $400.

Calculate Matt and Lisa's taxable income for 2021 and taxes due (refund) for 2021.