Martin S. Albert (Social Security number 111 11 1111) is 39 years old and is married to Michele R. Albert (Social Security number 123 45 6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent children (Charlene, age 17, and Jordan, age 18). Charlene’s Social Security number is 123 45 6788, and Jordan’s Social Security number is 123 45 6787. In 2011, Martin and
Michele had the following transactions:
a. Martin received $115,000 in salary from Red Steel Corporation, where he is a construction engineer. Withholding for Federal income tax was $10,750. The amounts withheld for FICA tax were as follows: $4,486 ($106,800 x 4.2%) for Social Security and $1,668 ($115,000 x 1.45%) for Medicare. Martin worked in Mexico from January 1, 2010, until February 15, 2011. His $115,000 salary for 2011 includes $16,000 he
earned for January and one half of February 2011 while working in Mexico.
b. Martin and Michele received $800 in qualified dividends on Green, Inc. stock and $400 interest on Montgomery County (Virginia) school bonds.
c. Martin received $2,300 interest from a Bahamian bank account.
d. Michele received 50 shares of Applegate Corporation common stock as a stock dividend. The shares had a fair market value of $2,000 at the time Michele received them, and she did not have the option of receiving cash.
e. Martin and Michele received a $900 refund on their 2010 Virginia income taxes. Their itemized deductions in 2010 totaled $12,500.
f. Martin paid $6,000 alimony to his former wife, Rose T. Morgan (Social Security number 123 45 6786).
g. Martin and Michele kept the receipts for their sales taxes paid of$1,100.
h. Martin and Michele’s itemized deductions were as follows:
ill State income tax paid and withheld totaled $5,100.
Real estate taxes on their principal residence were $3,400.
ill Mortgage interest on their principal residence was $2,500.
Cash contributions to the church totaled $2,800.
Part 1 Tax Computation
Compute the Alberts’ net tax payable (or refund due) for 2011.
Part 2 Tax Planning
The Alberts are considering buying another house. Their house mortgage payments
would increase by $500 (to $1,500) per. month, which includes a $250 increase in interest
and a $100 increase in property tax. The Alberts would like to know how much the mortgage
payments would increase net of any change in their income tax.