Eve purchased a personal residence from Adam to sell the residence Adam agreed to pay $5000 in points related to eves mortgage what could be the tax consequences from the perspective of both even Adam
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John and Jane Doe are married. They have no children. John and Jane are both employed at ACME Corporation. To supplement their regular salaries, the Does converted the basement of their home into a one-bedroom apartment that they rent to a struggling student at Law School. For 2018, the Does had the following items of income and expense (expense items are marked in parentheses): (a) Determine the Does' "taxable income" for 2018, assuming they file a joint return. Assume that the rental activity is not a "trade or business" but instead an investment activity (one entered into for profit but which does not rise to the level of a "trade or business"). (b) Same as (a), but assume that all of these events occurred in 2017. Determine the couple's taxable income for 2017. Combined salaries: $95,000 Rental income (home apartment): $5,000 Interest paid on education loan [amount deductible under § 221]: ($8,000) Medical expenses paid [amount deductible after application of the limits in § 213]: ($2,000) Accountant fee to prepare federal income tax return [amount deductible under § 212]: ($1,000) Mortgage interest paid [amount deductible under § 163]: ($16,000) Expenses related to home apartment [deductible under § 212]: ($2,000) Charitable contribution paid to National Public Radio [amount deductible under § 170]: ($500) Jane's unreimbursed expenses in connection with her work as an ACME employee [deductible under § 162]: ($1,000)
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In year 1, Adam borrowed $500,000 on an unsecured revolving line of credit. The stated rate of interest on this line is 4%, fixed. Adam used the funds from this loan as follows: Purchase of motorcycle, Jet Ski, and other personal items: $50,000 Investment in Condo for rental: $200,000 Investment in stocks, bonds, and mutual funds: $100,000 Purchase of equipment and inventory for his business: $150,000 (a) In year 2, Adam paid $20,000 in interest on this line of credit. Determine the tax treatment of this amount (how much, if any, is deductible, and subject to what limitations). (b) In year 3, Adam paid off $300,000 of the amount he borrowed on this line of credit. In year 4, he paid $8,000 of interest on the remaining $200,000 balance of this loan. Determine the tax treatment of this amount (how much, if any, is deductible, and subject to what limitations).
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