PART 1. Fred and Ginger are married and file a joint return for 2021. They have one dependent child, Carmen (age 18), who lives with them. Fred and Ginger have the following items of income and expense for 2021:


Income:


Fred’s salary

$110,000

Ginger’s salary

125,000

Interest income on State of Arizona bonds

3,000

Interest income on US Treasury bonds

8,000

Qualified cash dividends

6,000

Regular (nonqualified) cash dividends

9,500

FMV of shares received from stock dividend

8,500

Share of RKO Partnership loss*

(10,000)

Share of Hollywood Corporation (an electing S corporation) income**

30,000

Life insurance proceeds received on the death of Fred’s mother

150,000

Short-term capital gains

5,000

Short-term capital losses

(10,000)

15% Long-term capital gains

30,000

15% Long-term capital losses

(7,000)



Expenses:


Traditional IRA Contributions

12,000

Home mortgage interest ($300,000 principal)

18,000

Home equity loan interest ($75,000 principal)

6,000

Vacation home loan interest ($120,000 principal)

8,400

Car loan interest

3,000

Home property taxes

6,000

Vacation home property taxes

1,800

Car tags (ad valorem part)

950

Arizona income tax withheld

8,000

Federal income taxes withheld

45,000

Arizona sales taxes paid

6,500

Medical insurance premiums (not part of an employer plan)

12,000

Unreimbursed medical bills

10,000

Charitable contributions

12,000


* Fred and Ginger invested $15,000 as limited partners in the RKO Partnership at the beginning of 2021. The loss is not the result of real estate rentals. Neither Fred nor Ginger materially participate.

** Ginger is a 50% owner and President of Hollywood. She materially participates in the corporation.


REQUIRED: Determine Fred and Ginger’s tax liability, using the tax formula. You must label your work, provide supporting schedules for summary computations, and indicate any carryovers. Present your work in a neat, orderly fashion