Ch.6
39. David is a college professor who does some consulting work on the side. He uses 25% of his
home exclusively for the consulting practice. He is single and 63 years old. His AGI (without
consideration of consulting income) is $45,000. Other information follows:
income from consulting business
consulting expenses other than home office
total costs relating to home:
interest and taxes
Utilities
Maintenance and repairs
Depreciation (business part only)
4,000
1,500
6,500
1,500
450
1,500
Calculate David’s AGI
25% off
income from consulting business
consulting expenses other than home office
total costs relating to home:
interest and taxes
Utilities
Maintenance and repairs
Depreciation (business part only)
total deduction
4,000
1,500
6,500
1,500
450
1,500
1625
375
113
387
$2500
Depreciation on schedule A took 75% deduction, the highest is 387.
Calculate David’s AGI: $45,000 + (4,000- 1,500-2,500) = $45,000
43. Janet purchased her personal residence in 2001 for $250,000. In January 2010 she converted
it to rental property. The fair market value at time of conversion was $210,000.
A. Determine the amount of cost recovery that can be taken in 2010:
Using straight-line 27.5 year: $210,000 x 3.485% = 7,318.50
B. Determine the amount of cost recovery that could be taken in 2010 if the fair market value of
the property were $350,000.
Using straight-line 27.5 year, since it converted from personal to business use, it should take
lower of cost of FMV at conversion date: $250,000 x 3.485% = 8,712.50
Ch. 7
49. Ricardo acquired a warehouse for business purposes on August 30, 1992. The building cost
$400,000. He took $226,900 of depreciation on the building and then sold it for $500,000 on
July 1, 2010. What are the amount and nature of Ricardo’s gain or loss on the sale of the
warehouse?
Warehouse cost
less depreciation
Adjusted basis
400,000
226,900
173,100
sale price
less adjusted
basis
realized gain
500,000
realized gain
less 1250
provision
gain on 1231
asset
326,900
173,100
326,900
226,900
100,000
51. In 2010 Rosalva sold stock considered short-term for a gain of $875 and stock considered
long-term for a loss of $3,400. She also had a $3,000 short-term loss carryover from 2009 and a
$1,240 long-term loss carryover from 2009.
A. what amount will be shown as a short-term gain (loss) for 2010?
$3,000 short-term loss carryover - $875 gain = $ 2,125 short-tern loss
B. what amount will be shown as a long-term gain (loss) for 2010?
$3,400 long-term loss +$1,240 long-term loss carryover =$ 4,640 long time loss
C. Will there be a carryover for 2011? If so, what are the nature and amount of the carryover?
Since each year can be deducted maximum only $3,000, the short-term loss of $2,215 will be
deducted in 2010. But the long-term loss $4,640 can only deduct $785. The rest of long –term
loss has to carryover to 2011.
D. prepare Schedule D. (detailed stock information has been omitted; use reasonable
assumptions.)
See attachment
Ch.8
37. Matt and Marie own a vacation home at the beach. During the year, they rented the house
for 42 days (6 weeks) at $890 per week and used it for personal use for 58 days. The total costs
of maintaining the home are as follows:
Mortgage interest
Property taxes
insurance
Utilities
Repairs
Depreciation
$4,200
700
1,200
3,200
1,900
5,500
a. What is the proper tax treatment of this information on their tax return using the Tax
court Method?
income( 890 x 6)
Mortgage interest
Property taxes
insurance
Utilities
Repairs
Depreciation
total report
$4,200
700
1,200
3,200
1,900
5,500
42/365
42/365
42/100
42/100
42/100
42/100
Schedule E
$5,340
483
81
504
1344
798
2130*
$0
Schedule A
3717
619
*Depreciation limited to net income
b. Are there options for how to allocate the expenses between personal and rental use?
Explain.
Allocating the expenses between personal and rental use, it can be used Schedule E and
Schedule A. Schedule E is listing all income and expense that related to the rental,
Schedule A is listing all the personal itemized Deduction. As this case it shows $0 net
income on the Schedule E, the Mortgage interest and Property taxes will be deducted in
Schedule A. The taxpayers use the Tax Court method that allows an overall larger
deduction to allocate expenses.
c. What is the proper tax treatment if Matt and Marie rented the house for only 14 days?
If Matt and Marie rented the house for only 14 days, the property would be primarily
personal use. 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 home at the lake. She incurs the following expenses:
Mortgage interest
Property taxes
insurance
Utilities
Repairs
Depreciation
$1,300
800
1,500
1,800
300
4,000
What is the proper treatment of these expenses in each of the following cases? Use the Tax
court allocation method, if applicable.
case
a
b
c
d
rental
Days
Income
Rented
$9,000
12,000
6,000
22,000
Personal Use
Days
45
55
10
365
10
25
30
0
case A
sche. E
income
Mortgage interest
Property taxes
case B
Sche. A
Sche. E
9,000
Sche. A
12,000
*case C
case D
Sche. A
Sche. E
6,000
22,000
$1,300
45/365
$160
1140
55/365
196
1104
$1,300
800
45/365
99
701
55/365
121
679
800
insurance
1,500
45/55
1227
55/80
1031
1,500
Utilities
1,800
45/55
1473
55/80
1238
1,800
300
45/55
246
55/80
206
300
4,000
45/55
4000
55/80
4000
4,000
5,208
$12,300
Repairs
Depreciation
rental income:
1,795
Case C: because of renting days only for 10days is less than 15 days, all the expenses and taxes
only can be deducted in Schedule A.