Tax hw6 - homework PDF

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Andy Zheng S. Melnik Tax 3300 Hw #6 Ch6: 44, 45, 46, 47, 48, & 49 44. Jamari Peters (Social Security number 123-45-6789) conducts a business with the following results in 2018: Revenue $20,000 Depreciation on car $3,960 Operating expenses of car $3,100 Rent $6,000 Wages $8,200 Amortization of intangibles $680 Jamari estimates that due to a depressed real estate market, the value of land owned by the business declined by $5,200. a. Calculate the effect of Jamari's business on his AGI. Revenue

$20,000

Less: Expenses Depreciation on car

$3,960

Operating expenses of car

$3,100

Rent

$6,000

Wages

$8,200

Amortization of intangibles

$680

Total expenses

$21,940

AGI

($1,940)

b. How would your answer in part (a) change if the activity was a hobby? If this business were a hobby of Jamari’s, he would not be able to deduct any expenses. 45. Alex, who is single, conducts an activity in 2018 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Revenue $18,000 Property taxes $3,000

Materials and supplies $4,500 Utilities $2,000 Advertising $5,000 Insurance $750 Depreciation $4,000 Without regard to this activity, Alex's AG! is $42,000. Determine the amount of income Alex must report and the amount of the expenses he is permitted to deduct. Alex must report $18,000 as his gross income for this hobby. None of these expenses are deductible, but he may itemize the property tax paid. 46. Piper owns a vacation cabin in the Tennessee mountains. Without considering the cabin, she has gross income of $65,000. During the year, she rents the cabin for two weeks for $2,500 and uses it herself for four weeks. The total expenses for the year are $10,000 mortgage interest; $1,500 property tax; $2,000 utilities, insurance, and maintenance; and $3,200 depreciation. a. What effect does the rental of the vacation cabin have on Piper's AGI? AGI is unaffected from renting the vacation home because it is only 14 days of the whole week. $2,500 income is excluded and Piper may itemize the mortgage interest and property tax from AGI. b. What expenses can Piper deduct, and how are they classified (i.e., for or from AGI)? Property tax of $1,500 and mortgage interest of $10,000 may be deducted from AGI. 47. Adelene, who lives in a winter resort area, rented her personal residence for 14 days while she was visiting Brussels. Rent income was $5,000. Related expenses for the year were as follows: Real property taxes $3,800 Mortgage interest $7,500 Utilities $3,700 Insurance $2,500 Repairs $2,100 Depreciation $15,000 Determine the effect on Adelene's AGI. Rent income

$5,000

Less: Expenses Real property taxes

$3,800

Mortgage interest

$7,500

Utilities

$3,700

Insurance

$2,500

Repairs

$2,100

Depreciation

$15,000

Total expenses

$34,600

AGI

$0

The rental income for 14 days is tax-free as the rent income for personal residences up to 15 days is tax free. 48. During the year (nor a leap year), Anna rented her vacation home for 30 days, used it personally for 20 days, and left it vacant for 315 days. She had the following income and expenses: Rent income $7,000 Expenses Real estate taxes $2,500 Interest on mortgage $9,000 Utilities $2,400 Repairs $1,000 Roof replacement (a capital expenditure) $12,000 Depreciation $7,500 a. Compute Anna's net rent income or loss and the amounts she can itemize on her tax return, using the court's approach to allocating property taxes and interest. Rent income

$7,000

Less: Expenses Real estate taxes: $2,500 * (30/365)

$205.48

Interest on mortgage $9,000 * (30/365)

$739.73

Utilities and repairs [30/50*($2,400+$1,000)]

$2,040

Depreciation (30/50*$7,500)

$4,014.79* limited

Total expenses

$7,000

Net income

$0

b. How would your answer in part (a) differ using the IRS's method of allocating property taxes and interest? Rent income

$7,000

Less: Expenses Real estate taxes $2,500*30/50

$1,500

Interest on mortgage $9,000*30/50

$5,400

Utilities and repairs

$100* limited

Total expenses

$7,000

Net rental income

$0

49. How would your answer to Problem 48 differ if Anna had rented the house for 87 days and had used it personally for 13 days? Treated as a rental property Rental income

$7,000

Less: Expenses Real estate taxes

$2,500

Interest on mortgage

$9,000

Utilities

$2,400

Repairs

$1,000

Roof replacement (a capital expenditure)

$12,000

Depreciation

$7,500

Total expenses

$22,400 * (87/100) = $19,488

Net rental loss

($12,488)...