CHAPTER 8 - DISCUSSION QUESTIONS AND PROBLEMS
Discussion Questions
1. Can the owner of rental property be treated as conducting a trade or business with respect to the rental property? If so, what must the taxpayer do to be considered a trade or business?
Answer: The taxpayer must differentiate between rental property and a trade or business involving rental property. Generally, if the taxpayer provides significant services to the renter, such as maid service, then the rental activity should be reported on Schedule C as a trade or business.
2. For rental expenses to be deductible, what criteria must be met? For this question, assume no personal use of the rental property.
Answer: Generally, the same rules apply for rental property as for business expenses – ordinary, necessary, and reasonable. Deductible expenses include advertising, depreciation, repair and maintenance, Interest, taxes, management fees, and travel expenses. General repairs and maintenance are deductible from gross rental income. However, no deduction is allowed for amounts that are “capital expenditures.”
3. What is the difference between a deductible repair expense and a capital expenditure that must be depreciated?
Answer: Allowable repairs are expenditures that neither materially add to the value of the property nor appreciably prolong the property’s life. Any repairs in the nature of a replacement are capitalized and depreciated over the appropriate depreciable life. Repairs are allowed as an immediate expense deduction, but capital expenditures are depreciated over 27 ½ years (residential) or 39 years (non-residential).
4. When depreciation is deducted on a rental property, why is it beneficial for the taxpayer to allocate the cost of property to other assets (furniture, appliances, etc.) connected with the property, not just the building itself?
Answer: To accelerate the tax deduction, the taxpayer should allocate the purchase price to the structure and to furniture, appliances, carpet, and even shrubbery or fences. When a furnished rental property is purchased for a
8-1 lump sum, many first-time rental property buyers calculate depreciation over 27 ½ (or 39 years) on the purchase price of the rental property.
5. Can travel expenses to and from rental property be deducted? If so, what are the rules concerning the deductibility of travel and how is the deduction calculated (Hint: You may need to review Chapter 6 to help with this answer)?
Answer: Travel costs from the taxpayer’s home to a rental property are deductible if the travel is for business purposes, for example, to conduct repairs or attend a condo association meeting. The standard mileage rate is used in calculating any travel concerning rental property.
6. Les’s personal residence is in uptown New Orleans. Every year during Mardi Gras, Les rents his house for 10 days to a large corporation that uses it to entertain clients. How does les treat the rental income? Explain.
Answer: If a residence is rented for less than 15 days, the property is considered “primarily personal” property. When property is rented for less than 15 days, none of the rental income derived is included in gross income, and no deduction is allowed for rental expenses.
7. Two methods are used to allocate expenses between personal and rental use of property. Explain the Tax Court method and the IRS method. Which method is more beneficial to the taxpayer?
Answer: The two methods are called the IRS method and the Tax Court method. Using the IRS method, expenses are allocated based on the number of rental days to total days used. The rest of the expenses are allocated to personal use. Using the Tax Court method, interest and taxes are allocated by the proportion of rental days to the entire year. This method yields a smaller percentage of the interest and taxes allocated to rental income. This allowed a larger portion of other rental expenses to be used to offset rental income. The interest and taxes are deducted on Schedule A anyway. The Tax Court method is more beneficial to the taxpayer.
8. Discuss the three classifications of vacation home rentals. Include in your discussion how personal use of the property affects the reporting of income and losses of vacation homes.
Answer: Rental property can be classified as primarily rental use, primarily personal use, and personal/rental use. The classification depends on the number of
8-2 rental days to personal days the rental property was used. When property is rented for less than 15 days, none of the rental income derived from the short rental period is included in gross income, and no deduction is allowed for rental expenses. If the property is used personally for more than 15 days, expenses are allowed only to the extent of income.
9. What is considered personal use of a vacation rental property?
Answer: If a taxpayer lets anyone, family or non-family, use the rental property free of a rental charge, those days are considered personal use days by the taxpayer. If any family member uses the rental property the days are considered personal use days.
10. Jake has a vacation rental house at the beach. During the tax year he and his immediate family use the house for 12 days for a personal vacation. Jake and his son spent two more weekends (4 days) repairing steps from the property to the beach. How is the beach house classified this year? Explain your answer.
Answer: If rental property is used for less than 15 days for personal purposes, it is considered “rental use only” property. Days spend working on the house are not considered personal days.
11. Would your answer to Question 10 change if Jake rented his house (at fair value) to his brother and his family for 7 days?
Answer: Yes, because then the property would be used for more than 15 days for personal use. Rental by family members still counts as personal use even if it is for the fair rental value.
12. What is royalty income and where is it reported? What determines where the royalties are reported?
Answer: A royalty is a payment for the right to use intangible property. Royalties may be received from books, stories, plays, copyrights, trademarks, formulas, patents, and from the exploitation of natural resources such as coal, gas, or timber. When royalties are received, the payer is required to send the recipient a 1099-MISC. If the royalty is a result of a trade or business, the taxpayer should report the royalty on Schedule C. If the royalty is produced by a non-trade or business activity (such as an investment), then the royalty income should be placed on Schedule E.
8-3 13. What types of income are reported on Schedule E?
Answer: Income and expenses associated with rental, royalty, and flow-through entities are the types of items known as “for the production of income” property are reported on Schedule E of Form 1040. Income and expenses from rentals and royalties are reported in Part I of Schedule E, and certain items from flow-through entities such as partnerships and S corporations are reported on Part II and Part III of Schedule E.
14. What is meant by the term “flow-through” entity? Give some examples.
Answer: Flow-through entities are given this name because they do not pay income taxes. Instead, the net share of income or loss from the entities flows-through to the tax returns of its partners/shareholders/beneficiaries. These parties then pay the tax on his or her share of the flow-through entities income. Common flow-through entities are partnerships, S corporations, LLCs, estates, and trusts.
15. How are the income and losses from a flow-through entity reported to the taxpayer (partner or shareholder)? Are all of the items from the flow-through entity reported on the same form? Explain.
Answer: The flow-through entity must supply each owner a Schedule K-1 indicating the owners’ share of income, expenses, or losses. The owner’s share is then reported on various places on Form 1040. The K-1 reports the partner’s share of ordinary income from the partnership and other separately stated items. Separately stated items are not included in the income or expenses of the partnership but are, instead, allocated separately to each of the partners.
16. Why are the income and losses (or expenses) separately stated to the partner or shareholder and where are they reported?
Answer: Separately stated items are reported on the K-1. All items that can have different tax treatment for different types of partners are separately stated. For example, a corporate partner cannot deduct net capital losses where an individual partner can deduct up to $3,000 of capital losses against ordinary income. Therefore, the capital gains
17. Why is the §179 expense separately stated and not deducted on a partnership return?
8-4 Answer: Different partners can treat §179 expense items differently. §179 expense deductions are limited at the individual level. If the §179 expense were not separately stated, an individual could benefit from §179 through the partnership and on Schedule C.
Multiple Choice
18. On June 1st of the current year, Sue and Dean purchased a beach house for $1,200,000. Of that amount, $800,000 was for the land value. How much depreciation deduction can Sue and Dean take in the current year (You may need to refer to the depreciation tables)? a. $7,880 b. $14,545 c. $15,760 d. $23,640
Answer: a
19. Jackson owns a rental condo in Las Vegas, Nevada, and travels there for the condo association meetings four times a year. The round trip to Las Vegas from his home in Williams, Arizona is approximately 434 miles. How much travel costs can Jackson deduct per year related to his rental condominium? a. $0 b. $434 c. $651 d. $773
Answer: d
20. Dennis receives $11,100 for rent from Blanca and Carlos, who are renting his home in Anaheim, California. Dennis does not use this property for personal use. The rent covers eight months from August 1st of the current year to March 31st of the following year. The amount also includes a security deposit of $1,500. How much should Dennis report as rental income in the current tax year? a. $1,200 b. $6,000 c. $9,600 d. $11,100
Answer: c
8-5 21. Ginny owns a beach house in Northern Wisconsin that she rents for $1,600 per month that she does not personally use. While she was in Europe for Christmas, the water heater in her beach house failed and her tenants repaired it for $1,200. For the following month’s rent (January), her tenants paid her $400 for rent ($1,600 minus $1,200). What amount should Ginny include for rental income and repair expense, respectively, for January? a. $400; $0 b. $1,200; $400 c. $1,600; $400 d. $1,600; $1,200
Answer: d
22. James owns a home in Lake Tahoe, Nevada that he rented for $1,600 for two weeks during the summer. He lived there for a total of 120 days and the rest of the year, the house was vacant. The expenses for the home included $6,000 in mortgage interest, $900 in property taxes, $1,300 in maintenance and utilities and $2,500 in depreciation. How much rental income from the Lake Tahoe home would James report for the current year? a. $1,200 b. $6,000 c. $9,600 d. $11,100
Answer: a
23. Assume the same facts as Question #22 but James rented the Lake Tahoe home for 40 days for $4,600. What is his income or loss from the rental of his home (without considering the passive loss limitation)? Use the IRS method for allocation of expenses? a. $0 b. $50 income c. $4,600 income d. $6,100 loss
Answer: b
24. Which of the following expense items is (are) deductible as rental expense? a. Property taxes b. Depreciation c. Insurance d. All are deductible rental expenses
Answer: d
8-6 25. Darren and Nikki own a cabin in Mammoth, California. During the year they rented it for 45 days for $9,000 and used it for 12 days for personal use. The house remained vacant for the remainder of the year. The expenses for the house included $8,000 in mortgage interest, $2,000 in property taxes, $1,200 in utilities, $750 in maintenance and $4,000 in depreciation. What is their income or loss from their cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses. a. $0 b. $4,434 loss c. $6,950 loss d. $9,000 income
Answer: b
26. Sean and Jenny own a home in Boulder City, Nevada near Lake Meade. During the year, they rented the house for 40 days for $3,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $14,000 in mortgage interest, $3,500 in property taxes, $1,100 in utilities, $1,300 in maintenance and $10,900 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses. a. $0 b. $388 c. $11,472 d. $27,800
Answer: a
27. Lori and Donald own a condominium in Colorado that they rent out part of the time and use during the summer. The rental property s classified as personal/rental property and their personal use is determined to be 75% (based on the IRS method). They had the following income and expenses for the year (before any allocation):
Gross rental income $2,000 Interest and taxes 3,200 Utilities and maintenance 2,200 Depreciation 4,000
How much net loss should Lori and Donald report for their condominium on their tax return this year? a. $0 b. $3,350 loss c. $7,400 loss
8-7 d. $9,000 loss
Answer: a
28. What is the maximum amount of passive losses from a rental activity that a taxpayer can take against ordinary income per year (assuming no passive loss limitation or personal use of the property)? a. $0 b. $15,000 c. $25,000 d. $50,000
Answer: c
29. Paul is a 45 year old stockbroker. When he was in his 20s, he was a member of a band called the Zombies and wrote several hit songs. Paul should report the royalty income he receives in the current year from his songs on what schedule? a. Schedule E b. Schedule D c. Schedule A d. Schedule C
Answer: a
30. Sally is a full time author and recently published her third mystery novel. The royalty income she receives from the publisher this year should be reported on what schedule? a. Schedule E b. Schedule D c. Schedule A d. Schedule C
Answer: d
31. Which of the following entity (ies) is (are) considered flow-through? a. Partnership b. S Corporation c. Estates d. All are considered flow-through entities
Answer: d
8-8 32. From which of the following flow-through entities is the ordinary income (K-1) considered self-employment income? a. Partnership b. S Corporation c. Trusts d. Estates
Answer: a
Problems
33. Ramone owns an office building that he rents for $8,500/month. He is responsible for paying all taxes and expenses relating to the building’s operation and maintenance. Is Ramone engaged in the trade or business of renting real estate?
Answer: No, the office building would be treated as rental property and not a trade or business. The general rule is that substantial service must be provided if the activity is to be treated as a trade or business.
34. Kelvin owns and lives in a duplex. He rents the other unit for $750/month. He incurs the following expenses during the current year:
Mortgage interest $7,500 Property taxes $2,000 Utilities $1,500 Fixed light fixture in rental unit $100 Fixed dishwasher in personal unit $250 Paint entire exterior $1,300 Insurance $1,800 Depreciation (entire structure) $7,000
How are the expenditures treated for tax purposes? On what tax form(s) are these amounts reported?
Answer:
Personal Schedule A Schedule E Income $9,000 Mortgage 3,750 $3,750 (3,750) Interest Property Taxes 1,000 1,000 (1,000) Utilities 750 N/D (750)
8-9 Fix Light (100) (Rental) Fix Dishwasher 250 Paint Exterior 650 N/D (650) Insurance 900 N/D (900) Depreciation 3,500 N/D (3,500) $4,750 ($1,650)
The $4,750 of personal expenses for taxes and interest are deductible as itemized deductions (see Chapter 5). The other personal expenses are non- deductible. The rental loss is deductible subject to the passive loss rules (Chapter 13).
35. In the current year, Sandra rented her vacation home for 75 days, used it for personal reasons for 22 days, and left it vacant for the remainder of the year. Her income and expenses are as follows:
Rental income $15,000 Real estate taxes $2,000 Utilities $1,500 Mortgage interest $3,800 Depreciation $7,200 Repairs and Maintenance $1,300
What is Sandra’s net income or loss from the activity? Use the Tax Court method.
Answer:
Schedule E $15,000 Real Estate Taxes 2,000 * (75/365) (410) 1,589 Schedule A Utilities 1,500 * (75/97) (1,160) Mortgage Interest 3,800 * (75/365) (781) 3019 Schedule A Repairs and 1,300 * (75/97) (1,005) Maintenance Depreciation (7,200) Net Rental Income $4,443
36. Alice rents her personal residence for 13 days to summer vacationers for $4,500. She has income from other sources of $105,000. Related expenses for the year include these:
Real property taxes $4,500 Utilities $5,000
8-10 Insurance $900 Mortgage interest $7,000 Repairs $800 Depreciation $15,000
Calculate the effect on Alice’s AGI. Explain your rationale citing tax authority.
Answer: Since the rental days are 14 days or less, none of the income and rental expenses are reported (IRC §280(A)(d)(1)). The mortgage interest and property taxes are deductible on Schedule A as itemized deductions.
37. Matt and Marie own a vacation home at the beach. During the year, they rented the house for 42 days at $890 per week, and used it for personal purposes for 80 days. The costs of maintaining the home are as follows:
Mortgage interest $4,200 Property taxes $700 Insurance $1,200 Utilities $3,200 Repairs $1,900 Depreciation $5,500
a. What is the proper tax treatment of this information on their tax return? b. Do you have an option as to how to allocate the expense between personal and rental use? Explain. c. What is the proper tax treatment if Matt and Marie rented the house for only 14 days?
Answer:
Schedule E Income 6 weeks * 890 $5,340 Mortgage Interest (42/365) * 4,200 483 $3,717 Schedule A Property Taxes (42/365) * 700 81 619 Schedule A Insurance (42/122) * 1,200 413 Utilities (42/122) * 3,200 1,102 Repairs (42/122) * 1,900 654 Depreciation (limited to Net 2,607 Rental Income) $0
The proper tax treatment is to allocate the expense between personal and rental expenses. Schedule E would show this property $0 net income and the taxes and interest would be deducted on Schedule A.
8-11 The taxpayer can use the Tax Court method to allocate expenses. This allows for an overall larger deduction. However, the IRS has maintained it will continue to fight the Tax Court method.
In this case the property would be primarily personal and none of the income would be included in income and only the interest and taxes would be deductible on Schedule A.
38. Janet owns a condominium at the beach. She incurs the following expenses:
Mortgage interest $1,300 Property taxes $800 Insurance $1,500 Utilities $1,800 Repairs $300 Depreciation $4,000
What is the proper treatment of these expenses as applied to the following situations? Use the Tax Court allocation method if applicable.
Case Rental Income Days Rented Personal Use Days A $9,000 45 10 B $12,000 55 25 C $6,000 10 30 D $22,000 365 0
Answer:
A B C D Schedule Sch. A/No Schedule Sch. A/No (see E Deduction E Deduction below) $9,000 $12,000 22,000 Mortgage (45/365): 1140 – (55/365): $1,105 1,300 Interest (160) Sch. A 195 Property (45/365): 702 – (55/365): 679 800 Tax (98) Schedule 121 A Insurance (44/55): 273 N/D (55/80): 469 1,500 (1,227) 1,031 Utilities (44/55): 327 N/D (55/80): 562 1,800 (1,473) 1,238 Repair (45/55): 55 N/D (55/80): 94 300 (245) 206
8-12 Depreciation (4,000) (55/80): 4,000 4,000 Rental $1,797 $5,209 $12,300 Income
For less than 15 days rental, there is no income or rental expense reported. Interest and taxes are deducted on Schedule A.
39. Randolph and Nikki own a qualified second home. They spent 45 days there and rented it for 88 days at $150 per day during the year. The total costs relating to the home include these:
Mortgage interest $4,500 Property taxes $1,200 Insurance $1,800 Utilities $2,300 Repairs $1,500 Depreciation $6,500
What is the proper treatment of these items relating to the second home? Would you use the Tax Court allocation or the IRS allocation? Explain.
Answer:
Tax Court – Schedule E Personal Income $13,200 Mortgage (88/365 * 4,500 $3,415 To Schedule A Interest = 1,085 Property Tax (88/365 * 1,200 911 To Schedule A = 289 Insurance (88/133 * 1,800 609 Non-deductible = 1,191 Utilities (88/133 * 2,300 779 Non-deductible = 1,521 Repairs (88/133 * 1,500 508 Non-deductible = 992 Depreciation 6,500 (11,578) Net Rental $1,622 Income
IRS Method – Schedule E Personal Income $13,200 Mortgage (88/133 * 4,500 $1,523 To Schedule A Interest = 2,977 Property Tax (88/133 * 1,200 406 To Schedule A
8-13 = 794 Insurance (88/133 * 1,800 609 = 1,191 Utilities (88/133 * 2,300 778 = 1,522 Repairs (88/133 * 1,500 508 = 992 Depreciation (6,500 limit to (13,200) income): $5,724 Net Rental $0 Income
Even though the Tax Court method shows positive rental income, a larger amount of expenses are allowed. A larger percentage of interest and taxes are reported and deducted on Schedule A. This allows the full use of the depreciation. The Tax Court total deducts $11,575 on Schedule E and $3,418 + 911 on Schedule A = $15,904. The IRS method total deduction is $13,200 + 1,523 + 406 = $15,129.
40. Mabel, Loretta, and Margaret are equal partners in a local restaurant. The restaurant reports the following items for the current year:
Revenue $600,000 Business expenses $310,000 Investment expenses $150,000 Short-term capital gains $157,000 Short-term capital losses $(213,000)
Each partner receives a Schedule K-1 with 1/3 of the above items reported to her. How must each individual report these results on their Form 1040?
Answer:
Revenues $600,000 Expenses 310,000 Ordinary income $290,000 x 1/3 Page 2 of Schedule E $ 96,666
Investment Expense $150,000 x 1/3 Itemized deduction on Schedule A (limited to investment income)$ 50,000
8-14 Net short-term capital loss ($56,000) x 1/3 Schedule D ($18,666) The loss is netted against other short-term and long-term capital gains.
41. Nicole and Mohammad (married taxpayers filing jointly) are equal owners in an S corporation. The company reports sales revenue of $450,000 and expenses of $310,000. The Corporation also earns $20,000 in taxable interest and dividend income and has $15,000 investment interest expense. How are these amounts treated for tax purposes?
Answer: Revenue $450,000 Expense 310,000 Ordinary Income, reported on Schedule E, Page 2 $140,000
Interest and dividends of $20,000 are reported as interest and dividends separately on Schedule B, Form 1040. The investment interest expense is an itemized deduction on Schedule A.
42. Dominique and Terrell are joint owners of a bookstore. The business operates as an S corporation. Dominique owns 65%, and Terrell owns 35%. The business has the following results in the current year:
Revenue $1,500,000 Business expenses $750,000 Charitable contributions $ 50,000 Short-term capital losses $ 4,500 Long-term capital gains $ 6,000
How do Dominique and Terrell report these items for tax purposes?
Answer:
Total Dominique Terrell (65%) (35%) Revenues $1,500,000 750,000 Ordinary 750,000 $487,500 $262,500 To Sch. E, pg. Income 2 Charitable 50,000 32,500 17,500 To Sch. A Contributions S/T Capital (4,500) (2,925) (1,575) To Sch. D
8-15 Losses L/T Capital 6,000 3,900 2,100 To Sch. D Gains
43. Shirelle and Newman own and operate an S corporation. Each is a 50% owner. The business reports the following results:
Revenue $95,000 Business expenses $48,000 Investment expenses $8,000 Short-term capital gains $15,000 Short-term capital losses $(22,000)
How do Shirelle and Newman report these items for tax purposes?
Answer:
Revenue $95,000 Expenses (48,000) Ordinary Income $47,000 x 50% Page 2 of Schedule E $23,500
Investment Expense $8,000 x 50% Itemized deduction on Schedule A (limited to investment income) $4,000
Net Short-term capital loss $7,000 x 50% Schedule D ($3,500) The loss is netted against other short-term and long-term capital gains.
Tax Return Problems
Use your tax software to complete the following problems. If you are manually preparing the tax returns, see each problem for the forms you many need.
Tax Return Problem #1
Derrick and Ani Jones are married taxpayers, filing jointly. They live at 474 Rustic Drive, Spokane, Washington 99201. Derrick works as the director of information
8-16 systems at the Washington Community College District (WCCD). Ani stays at home to take care of her father, Randy Jackson, who lives with them (he should be included as a dependent). Their SSN’s are Derrick 000-11-2222; Ani 000-44-4444; Randy Jackson 222-33-5555.
The Jones own their home and paid $15,000 in mortgage interest during the year to Washington Mutual and property taxes of $3,200. They have no other deductible expenses.
The Form W-2 Derrick received from the WCCD contained information in the following boxes: Box 1 = $79,002.50 Box 2 = $ 5,000.14 Box 3 = $79,002.50 Box 4 = $ 2,008.05 Box 5 = $79,002.50 Box 6 = $ 501.12
In addition, the Jones’ own a small four-unit rental near their home located at 12345 Rainbow Way, Sultan, California 98294. The rental was purchased and placed in service on July 1, 2002 and was rented for the entire year of 2006. The following income and expense information relate to the rental activity. For the purpose of this return problem, do not consider passive activity rules or limitations.
Rental income $24,000 Real estate taxes $2,000 Utilities $1,500 Mortgage interest $3,800 Depreciation $7,200 Repairs and maintenance $1,300
Prepare the Jones’ federal tax return for 2006. Use Form 1040, Schedule A, Schedule E and other appropriate schedules. Do not complete Form 4562 or 8829 and assume they do not qualify for any credits. For any missing information, make reasonable assumptions.
------insert Form 1040, Sched A, Sched E ------
Tax Return Problem #2
Warren and Young Kim are married taxpayers, filing jointly. They live at 777 Kingston Place, Anaheim, California 92830. They were both born in 1935 and are now retired. Their SSN’s are: Warren 121-33-4321; Young 151-66-6092.
8-17 They own their home, which they paid off in 1998, and another home that they paid for in cash as an investment (Warren considers it his pension). Their investment home was rented for the entire year and is located just one block over at 9021 Jasmine Way. The following income and expense information relate to the rental activity. For the purpose of this return problem, do not consider passive activity rules or limitations.
Rental income $27,600 Real estate taxes $7,952 Utilities $1,603 Mortgage interest $0 Repairs and maintenance $3,616 Depreciation See following information
They placed the rental home into service on March 1st, 2004, and of the $515,000 purchase price, $426,000 was allocated to the land.
In addition to the rental, they received interest of $1,086 from American Credit Union and interest of $2,200 from Bank of California. Social security benefits were $13,190 for Warren and $8,822 for Young.
Prepare the Kims’ federal tax return for 2006. Use Form 1040, Schedule B, Schedule E, and Form 4562. Do not complete Form 8829. Assume they do not qualify for any credits. For any missing information, make reasonable assumptions.
------Insert Form 1040, Sch B, Sch E, Form 4652 ------
Tax Return Problem #3
Lou and Joann Girardi live in Scottsdale, Arizona, are married, and file joint returns. They recently bought a new home at 21680 Skyline Drive in Scottsdale. Their 20-year- old son, Stuart attends the University of Pennsylvania full time and lives at home during the summer. Their SSN’s are: Lou 083-90-1111; Joann 092-77-0987; Stuart 572-77- 9732.
Lou is an attorney and owns his law firm, which is operating as an S corporation. His W- 2 information and Schedule K-1 from his law firm are as follows.
Box 1 = $114,800.50 Box 2 = $ 15,000.14 Box 3 = $114,800.50 Box 4 = $ 5,008.05 Box 5 = $114,800.50
8-18 Box 6 = $ 1,001.12
**********Insert K-1 here
Joann is a full time lecturer at Arizona State University. Her W-2 information from ASU is as follows:
Box 1 = $65,000.00 Box 2 = $ 9,950.25 Box 3 = $65,000.00 Box 4 = $ 2,300.50 Box 5 = $65,000.00 Box 6 = $ 950.75
The following are other income and expenses they received and incurred during the year:
Dividends (qualified) $ 666 Interest $ 765 Real estate taxes $13,836 Mortgage interest $28,562 Charitable contribution $ 598 Tuition to Penn $28,950
Required:
Prepare the Girardi’s federal tax return for 2006. Use Form 1040, Schedule A, B, and E. Assume that the Girardi’s do not qualify for any credits. For any missing information, make reasonable assumptions.
------insert Form 1040, Sch A, Sch B, Sch E here ------
8-19