Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 52

Karen and Carl Sanders obtained a divorce effective May 1, 2010. In accordance with the divorce decree, Carl was required to pay Karen $3,500 per month until their only child turns 18; then the payments would be reduced to $2,000 per month. Karen has full custody of the child and appropriately takes the dependent deduction and child credit. Furthermore, he was to transfer title of their house, which had a cost of $150,000 and a fair value of $200,000 on the date of transfer, to Karen and was to continue making the monthly mortgage payments on behalf of Karen of $2,000. Carl works for a large oil distributor in Santa Fe, New Mexico, and after the divorce lives at 1132 Northgate Avenue in Santa Fe. Karen's social security number is 412-34-5671, and Carl's number is 412-34-5670.
His W-2 contained the following information:
Wages of $113,100.25.
Federal Income Tax Withheld of $28,275.12.
Social Security Wages of $106,800.
Social Security Tax Withheld of $6,621.60
Medicare Wages of $113,100.25.
Medicare Tax Withheld of $1,639.95.
He also received a Form 1099-INT from First New Mexico Bank with $336 of interest income in box 1 and a 1099-MISC from Oil Research Quarterly Magazine with other income of $490 for an article that he wrote.
Prepare a Form 1040 and a Schedule M for Carl.