Paul and Donna Decker are married taxpayers, ages 44 and 42, who file a joint return for Year 1. Paul and Donna have two dependent children, Larry and Jane, ages 17 and 18. The couple also claims Pauls mother Hannah, age 66, as a dependent. Hannah received $7,500 in tax exempt social security. The Deckers estimate that they paid $2,500 of their own money to pay for Hannahs support and estimate that, although Hannah does not pay rent, the rental value of her room would be $200 per month.

Paul sold 300 shares of Acme Corporation stock for $50 per share on May 3, Year 1. The Deckers had purchased the stock 10 years ago for $25 per share. They received dividends of $750 on the stock a month before the sale.

In addition, Paul and Donna had the following items of income and deduction:

Pauls salary $250,000

Pauls federal income tax withheld 56,770

Pauls State income tax withheld 8,200

Donnas salary 56,000

Donnas federal income tax withheld 6,630

Donnas state income tax withheld 800

Home mortgage interest paid

(mortgage principal is $600,000) 7,890

Interest on personal auto loan (not deductible) 1,660

Interest on Visa Card (not deductible) 620

Doctor and hospital bills (including $380 for Hannah

and $850 for the children) 9,700

Medical insurance reimbursement 1,430

Prescription drugs 640

Medical insurance premiums 3,810

Real estate taxes paid 8,850

Cash contributions to church 8,500

Value of service to the local library 740

Pauls unreimbursed employee expenses to attend hotel

management convention (airfare $340,

hotel $170, meals $95, registration fee 340) 945

Compute net tax payable or refund due for the Deckers for Year 1. Ignore any credits for which they might be eligible.

1. What is the gain or loss on the sale of Acme Corp. stock?

2. What is Paul and Donnas AGI?

3. Calculate itemized deductions for the following:

a. Medical expenses

b. SALT deduction

c. Home mortgage interest

d. Charitable contributions

4. Should Donna and Paul use standard deduction or itemized deduction?

5. What is Paul and Donnas taxable income?

6. What is the total tax liability?

7. What is the net tax due or refund?

Use the 2018 tax rates and table for this problem.