Chap6 Solutions Essay

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Chapter 6 Individual Deductions SOLUTIONS MANUAL Problems 37. [LO 1] Hardaway earned $100,000 of compensation this year. He also paid (or had paid for him) $3,000 of health insurance. What is Hardaway’s AGI in each of the following situations (ignore the effects of Social Security and self-employment taxes)? a. Hardaway is an employee, and his employer paid Hardaway’s $3,000 of health insurance for him as a nontaxable fringe benefit. Consequently, Hardaway received $97,000 of taxable compensation and $3,000 of nontaxable compensation. b. Hardaway is a self-employed taxpayer, and he paid $3,000 of health insurance himself. He is not eligible to participate in an employer-sponsored plan. a. Hardaway’s AGI is $97,000, consisting of the $97,000 of taxable compensation he received from his employer. b. Hardaway’s AGI is $97,000 (the same as in part a), consisting of $100,000 of taxable earnings minus $3,000 for AGI deduction for the health insurance. 39. [LO 1] Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from Counti Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for interest on higher education loans under the following circumstances: a. Lionel’s AGI before deducting interest on higher education loans is $50,000. b. Lionel’s AGI before deducting interest on higher education loans is $69,000. c. Lionel’s AGI before deducting interest on higher education loans is $90,000. d. Lionel’s AGI is $50,000 before deducting interest on higher education loans. Lionel used $16,000 of the loan to pay law school tuition and $8,000 of the loan to purchase a car. a. The maximum interest deduction is the amount

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