I am using book South Western Individual Income Taxes Hoffman Young Raabe Maloney Nellen 2016, I am having trouble with Chapter 7 problem 51...

information from Problem 50 :During 2015, Rick and his wife, Sara, had the following items of income andexpense to report: Gross receipts from farming business $400,000 Farming expenses 525,000 Interest income from bank savings accounts 8,000 Saras salary 50,000 Long-term capital gain on stock held as an investment 4,000 Itemized deductions (no casualty or theft) 15,000

Problem 51 :

Assume that in addition to the information inProblem 50, Rick and Sara had notaxable income for 2010, 2011, 2012, and 2013 and $3,800 of taxable income for 2014computed as follows:

Salary $ 25,000 Capital loss (1,000) Adjusted gross income $ 24,000 Less: Itemized deductions Charitable contributions of $20,000,

limited to50% of AGI$12,000 Medical expenses of$2,700,limited to

the amountin excess of 10%of AGI

($2,700 $2,400) 300 Total itemized deductions (12,300) Exemptions (2 $3,950) (7,900) Taxable income $ 3,800

a. Determine Rick and Saras recomputed taxable income for 2014.

b. Determine the amount of Rick and Saras 2015 NOL to be carried forward to 2016.

My idea to the solution was:

a. in this case Rick and Sara are filling joint tax return for the year 2014. Since the salary is $25,000, and the capital loss is $2,000 the computation of taxable income of Rick and Sara for the year 2014 looks like this:

Salary $25,000

Less capital loss ($1,000)

Net operating loss for year 2014 ($75,000)

Adjusted Gross Income ($51,000)

Less Charitable Contributions (0.50x24,000) ($12,000)

Medical Expenses ($2,700)

Personal Exemption ($3,950x2) ($7,900)

Recomputed Taxable Income for year 2014 0

b. In this case of the net operating loss is an accounting arrangement partaining to which the net loss from operating of the current year is carried forward to the future years profit so as to reduce the taxable liability. Therefore, the computation of Rick and Sara's net operating loss which is required to be carried forward to 2016 looks like this:

Salary $25,000

Capital Loss for the year 2014 ($0)

Adjusted Gross Income $25,000

Less Charitable Contributions (0.50x $25,000) ($12,500)

Medical Expenses ($2,700 $2,400) ($300)

Personal Exemption $0

Modified Taxable Income for the year 2015 $12,800

Net operating loss for year 2015 $75,000

Less Set off modified modified income for year 2014 ($12,800)

Net operating loss to be carried forward to the year 2016 $62,200

But my professor didn't like it and commented as follows:

b)medical expense is limited to modified AGI. double check you math skills as modified taxable income does not foot...

I am not sure how to fix it, please help...