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 2017 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, 2009. The house was used as a vacation home until Pete got divorced and moved into the house full time on January 1, 2015. Pete sold the house on January 1, 2017 and paid $20,000 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 2017, Pete was hurt on the job. He worked in a factory and his shoe laces got caught in a machine resulting in a disfigured foot. He received $5,000 of workers 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 that teased him and he finally contacted a lawyer to sue the individual. Pete's layer 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 received $60,000 in wages in 2017 (after paying for his health insurance and contributing to his 401(k)). 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 and it was excluded from his wages). Pete also participated in the employers defined contribution plan and contributed $6,000 to a 401(k). The employer matched Pete's contribution and also 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 the $5,000 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.

j)Pete really wants to retire early so he sets up an IRA in the current year and makes a $5,000 contribution to the IRA.

k)Pete is still paying off his student loans from when he was an undergraduate and pays $3,500 of interest in the current year.

l)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 2016 return when he filed in April of 2017. He also paid federal payroll taxes of $4,590 on his wage income.

m)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.

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

o)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 Mock Form 1040 and calculate Pete's 2017 taxable income. The Mock Form 1040 includes specific lines from the actual Form 1040 that you will need to calculate taxable income. In addition to completing the Mock Form 1040, you must also complete schedules 1-6, which is where all the work for your calculations is to be performed.

MOCK 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

IRA deduction (Schedule 4)

Student loan interest (Schedule 5)

TOTAL DEDUCTIONS for AGI

ADJUSTED GROSS INCOME (AGI)

Deductions from AGI

Larger of standard deduction or itemized deduction (Schedule 6)

Exemptions

Taxable Income

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

Schedule 2: Calculate the net capital gain or loss and include the amount above

Schedule 3: Calculate other income and include the amount above

Schedule 4: Calculate the IRA deduction and include the amount above

Schedule 5: Calculate the student loan interest deduction and include the amount above

Schedule 6: Calculate the standard deduction, the amount of itemized deductions, and include the larger of the two above