Pete Homes is $45$ years old and was divorced three years ago. His daughter lives with his ex$-$wife, and he does not ever see her. Your task is to calculate Pete$$s $2023$ taxable income using the following information:

a$)$ Pete sold his personal residence for $$300,000.$ He originally purchased the house for $$200,000$ on January $1,2010.$ Pete sold the house on January $1,2023$ and paid $$10,000$ in realtor commissions.

b$)$ Even though Pete never sees his daughter, he still hopes to one day reconnect with her. So$,$ in this spirit, he contributes $$1,000$ to a Sec. $529$ plan for her each year. There have been no distributions from the plan.

c$)$ In February of $2023,$ Pete was hurt on the job. He worked in a factory, and his shoelaces got caught in a machine, resulting in a disfigured foot. He received $$5,000$ of worker's compensation related to the injury.

d$)$ After the injury, Pete walked funny, and his coworkers mocked and teased him. One coworker in particular teased Pete so much that Pete did not want to show up for work anymore. After missing a week of work, Pete was fired, and he started collecting unemployment income. He received $$2,000$ of unemployment income.

e$)$ After Pete was fired, he could not stop thinking about the coworker who teased him, and he finally contacted a lawyer to sue the individual. Pete$$s lawyer was able to convince a judge that Pete suffered severe emotional distress from the teasing, and Pete was awarded $$8,000$ for lost wages, $$2,000$ for emotional distress, and $$4,000$ in punitive damages.

f$)$ After winning the lawsuit, Pete started feeling better about himself and got out there and found a new job, a better job! He had a $$110,000$ salary in $2023.$ In addition, his employer offered health insurance through a high$-$deductible plan and paid $$6,000$ of the $$10,000$ of premiums $($Pete paid the other $$4,000).$ Pete also participated in the employer$$s $401($k$)$ plan. He contributed $$6,000$ and his employer contributed $$6,000.$

g$)$ The employer thinks Pete has management potential and encouraged Pete to take management courses at night at a local university. The employer pays $$5,000$ in tuition for Pete to take the classes.

h$)$ As a participant in a high$-$deductible health insurance plan, Pete also qualifies for a health savings account. Pete sets up the account and contributes $$3,000$ to the account in the current year. He also takes a distribution from the account of $$2,000$ to pay for dental expenses.

i$)$ Pete pays his ex$-$wife $$3,000$ this year in alimony and $$5,000$ in child support. The divorce was finalized in $2018.$

j$)$ In the current year, Pete had $$4,000$ of state income tax withheld from his checks. He also made a state tax payment of $$500$ related to his $2022$ return that he filed in April of $2023.$ He also paid federal payroll taxes of $$4,590$ on his wage income.

k$)$ After selling his other home, Pete bought a new house. He purchased the new home for $$500,000.$ He made a down payment of $$200,000$ and took out a loan for $$300,000.$ He paid interest on this loan in the current year of $$3,500.$ A month after purchasing the home, he decided he wanted to buy a new car and decided to use a home equity loan to pay for the car. He took out a home equity loan of $$30,000$ and paid $$700$ of interest on the loan in the current year. He also paid $$2,000$ of interest on credit cards in the current year. The credit cards were used to pay for random personal expenses.

l$)$ He paid real estate taxes on his new home in the current year of $$6,000.$

m$)$ Pete considers himself a very charitable person and made the following contributions to qualified public charitable organizations:

a$.$ Apple stock purchased $5$ years ago for $$3,000$ with a FMV of $$4,500$

b$.$ Cash $$5,000$

Required:

Complete the following Pretend Form $1040$ and calculate Pete$$s $2023$ taxable income. The Pretend Form $1040$ includes specific lines from the actual Form $1040$ that you will need to calculate taxable income. In addition to completing the Pretend Form $1040,$ you must also complete schedules $1-4($these are not real schedules and are designed only for this project$),$ which is where all the work for your calculations is to be performed.

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Pretend Form $1040$:

Gross Income

Wages $($Schedule $1)$

Capital Gain Income $($Schedule $2)$

Unemployment Compensation

Other Income $($Schedule $3)$

TOTAL GROSS INCOME

Deductions for AGI

Health savings account deduction

Alimony paid

TOTAL DEDUCTIONS for AGI

ADJUSTED GROSS INCOME $($AGI$)$

Deductions from AGI

Larger of standard deduction or itemized deduction $($Schedule $4)$

Qualified Business Income

Taxable Income

Schedule $1$: Calculate the amount of taxable wages and include the amount above

Schedule $2$: Calculate the net capital gain or loss $($including sale of home$)$ and include the amount above

Schedule $3$: Calculate any other income and include the amount above

Schedule $4$: Calculate the standard deduction, the amount of itemized deductions, and include the larger of the two above