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Objective: Determination of Taxable Income and computation of income tax when part of the taxable income is eligible for the capital gains rate.Deliverable: using 2020 tax rates and brackets, compute Taxable Income and the related income tax liability. This should be provided via an excel or google worksheet that clearly indicates these two requested numbers.Facts: Maria Clay is single and is 26 years old. She has income from the following sources: W-2 wages of $75,000. Long-term capital gain income of $37,000, Qualified Dividends of $13,000 and Taxable Interest Income of $7,000. She also owns a rental property. The tenant pays all of the expenses except for the real estate taxes. She collected $18,500 in 2020. She has the following expenses: she funded a Roth IRA for $6000, she funded a Health Savings Account for $3,550. She also made charitable contributions in cash of $300. She owns her own home (actually a Condominium) and paid $9,500 of interest expense on the mortgage. She paid $3,600 of real estate taxes on the condo and $840 of Homeowner fees. She owns her own car and paid $1150 of personal property taxes. She had state income taxes withheld on her salary of $4100. She also paid in 2020 the balance due on her 2019 state income tax return of $1400. The rental real estate that she owns she also paid during 2020 the required real estate taxes of $5500. Further she paid an accountant $1750 to prepare her 2019 returns that were filed in 2020. She also had job related expenses of $800 that the company did not reimburse to her.Maria also has a student loan that she is still paying. She pays $250 per month.After reviewing her information, you had several questions and the answers to those questions:1. The rental real estate annually has $6000 of tax depreciation2. The student loan was taken out by her to fund her VT education. In 2019 $2000 was the interest element of the total payments. She continued to make the monthly payment in 2020 even though she was told by the lender that Congress suspended the requirement to pay interest after she had made the 3 required payments before the law changed. She does not have the amortization table for the loan but agreed that 2/3rd of the total payments is usually interest.3. She also shared that she thought it was a good idea to make a charitable contribution of $300 since Congress provided a new tax break.

Hints on attacking the problem:1. Should Maria itemize or take the standard deduction?2. The computation of the capital gain tax requires a separation of Taxable Income into what is eligible for the capital gain rate and the residual which is subject to her ordinary rate. The IRS has a worksheet (Capital Gains and Qualified Dividends) on page 39 of their 1040 instruction publication. Note that this is a different worksheet than the Capital Gains worksheet.3. Is the rental real estate income eligible for the QBI deduction?4. As a function of the facts is any of the income subject to SE tax, subject to the NIIT, or the High wage surtax? 5. What is the treatment of payments regarding the student loan? Can you have an interest expense if the loan is not accruing interest per the Federal suspension as a result of the CARES Act? You should google the CARES Act and student loans.

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