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Fundamentals of Taxation 2014 7th Edition Cruz Solutions Manual instant download all chapter
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
CHAPTER 8 – SOLUTIONS
END OF CHAPTER MATERIAL
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 for it 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 materially participates in the
rental activity and provides significant services to the renter such as maid services,
and is considered a real estate professional, then the rental activity should be
reported on Schedule C as a trade or business. A taxpayer materially participates
in the rental activity if he or she works on a regular, continuous, and substantial
basis in the operation of the rental.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 1 Easy
RTRP: No
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 improvements.”
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 1 Easy
RTRP: Yes
3. What is the difference between a deductible repair expense and a capital improvement
of a rental property?
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
8-1
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
replacement are capitalized and depreciated over the appropriate depreciable life.
Repairs are allowed as an immediate expense deduction, but capital improvements
are added to the value of the property and are depreciated over 27 ½ years
(residential) or 39 years (non residential).
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 1 Easy
RTRP: Yes
Answer:
To accelerate the tax deduction, the taxpayer should allocate the purchase
price to the structure and to furniture, appliances, carpet, as well as to
shrubbery or fences. These assets are depreciated over 5 to 15 years.
Without the allocation, the lump sum of the rental property is depreciated
over 27 ½ (or 39 years), thus delaying depreciation.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 2 Medium
RTRP: Yes
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 for business travel is
used in calculating any travel expenses concerning rental property.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 1 Easy
RTRP: Yes
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:
8-2
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
7. Two methods are used to allocate expenses between personal and rental uses of
property. Explain the Tax Court method and the IRS method. Which method is more
beneficial to the taxpayer?
Answer:
The two methods used are the IRS method and the Tax Court method. Using
the IRS method, expenses are allocated based on the ratio of total 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 ratio of
total rental days to the days in the entire year (365 days if held for the full
year). This method yields a smaller percentage of the interest and taxes
allocated to rental income. This allows 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 generally more
beneficial to the taxpayer because less interest expense and real property
taxes are allocated to the rental use which allows more of the remaining
expenses to be deducted when the gross income limitation applies.
8. Discuss the three categories 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:
Vacation rental property can be classified as primarily rental use, primarily
personal use, and personal/rental use. The category depends on the number
of total rental days to total personal use days the rental property is 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 the greater of 14 days or 10 percent of the number of rental
8-3
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
days during the year and rented for 15 days or more, expenses are allowed
only to the extent that there is income, disallowing losses. A property that is
rented for 15 days or more and used personally for no more than the greater
of 14 days or 10 percent of the total days the property is rented is considered
primarily rental, and losses may be allowed subject to passive loss rules.
Passive loss rules, without income limitations, allow losses from rental
properties up to $25,000.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 2 Medium
RTRP: No
Answer:
Personal use includes use of the property by the taxpayer (unless he is
working on the property) or his family or non-family’s use of the rental
property free of a rental charge. If any family member uses the rental
property, the days are considered personal use days, even if they paid fair
market value for the rental.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 1 Easy
RTRP: No
10. Jake has a vacation rental house at the beach. During the tax year, he and his
immediate family used 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. The
beach house was rented for 100 days. How is the beach house categorized this year?
Explain your answer.
Answer:
The house is categorized as primarily rental since the personal use of the
property was 12 days. If rental property is used for no more than 14 days for
personal purposes, it is considered “primarily rental” property. Days spent
working on the house are not considered personal days.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 2 Medium
RTRP: No
11. Would your answer to Question 10 change if Jake also rented his house (at fair
market value) to his brother and his family for 7 days?
8-4
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Answer:
Yes, because then the property would be used for more than 15 days for
personal use – to a total of 19 days. Rental by family members still counts as
personal use even if it is rented for the fair market value.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 2 Medium
RTRP: No
12. What is royalty income, and which forms are used to report it? What factors
determine which forms should be used?
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 income is produced by a non-trade or business activity (such as an
investment), then the income should be reported on Schedule E.
Learning Objective: 08-03
Topic: Royalty Income
Difficulty: 2 Medium
RTRP: Yes
8-5
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
13. Briefly describe the types of income that are reported on a 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 and 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, LLCs, S
corporations, and estates and trusts, are reported in Part II and Part III of
Schedule E.
Learning Objective: 08-03
Topic: Royalty Income
Difficulty: 2 Medium
RTRP: Yes
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/owners. These parties then
pay the tax on their share of the flow-through entity’s income. Common
flow-through entities are partnerships, S corporations, LLCs, estates, and
trusts.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 1 Easy
RTRP: No
15. How are the income and losses from a flow-through entity reported to the taxpayer
(partner, shareholder or owner)? Are all of the items from the flow-through entity
reported on the same form? Explain.
Answer:
The flow-through entity must supply each taxpayer a Schedule K-1,
indicating the taxpayer’s share of income, expenses, or losses. The
taxpayer’s share is then reported on various places on Form 1040. In the
case of a partnership, 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.
8-6
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
16. Why are the income and losses (or expenses) separately stated to the partner,
shareholder or owner, and on what form(s) 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, whereas
an individual partner can deduct up to $3,000 of capital losses against
ordinary income.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 2 Medium
RTRP: No
17. Why is charitable contribution separately stated on the K-1 and not deducted on a
partnership return?
Answer:
For most individual taxpayers, charitable deductions are limited to 50% of
AGI. The limit occurs at the individual level and could result in a different
outcome depending on the individual taxpayer’s tax situation.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 2 Medium
RTRP: No
Multiple Choice
18. On August 1 of the current year, Jennifer and Tyler purchased a cabin for $950,000.
Of that amount, $500,000 was for the land. How much depreciation deduction can
Jennifer and Tyler take in the current year assuming that the cabin was rented starting on
the purchase date? (You may need to refer to the depreciation tables in Chapter 6.)
a. $0.
b. $6,138.
c. $8,865.
d. $16,364.
Answer: b
Feedback: ($950,000 - $500,000)=$450,000 x 1.364%=$6,138.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 2 Medium
RTRP: Yes
8-7
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McGraw-Hill Education.
Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
19. Jermaine owns a rental home in Lake Tahoe and traveled there from his home in San
Francisco for maintenance and repairs three times this year. The round trip from San
Francisco to Lake Tahoe is approximately 167 miles (in March, May and June). How
much travel costs can Jermaine deduct for the current year related to the rental home in
Lake Tahoe?
a. $0.
b. $92.
c$283
d. $305.
Answer: c
Feedback: 167 miles x 3 x 56.5 cents = $283.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 2 Medium
RTRP: Yes
20. Dennis receives $11,100 during the current tax year from Blanca for some office
space in Anaheim, California. The rent covers eight months, from August 1 of the
current year to March 31 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
Feedback: $11,100 - $1,500 = $9,600.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 2 Medium
RTRP: Yes
21. Ginny owns a house in northern Wisconsin that she rents for $1,600 per month.
Ginny does not use the property personally. While she was in Europe for Christmas, the
water heater on the property 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 - $1,200).
What amounts 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
8-8
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
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. $0.
b. $567.
c. $1,600.
d. $9,100.
Answer: a
Feedback: $0 income is reported since the property is categorized as primarily
personal.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 3 Hard
RTRP: Yes
23. Assume the same facts as Question 22, except that James rented the Lake Tahoe
home for 40 days for $4,600. What is his net 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. $1,925 net income.
c. $4,600 net income.
d. $6,100 net loss.
Answer: b
Feedback: $4,600 – [40/160($6,000+$900+$1,300+$2,500)] = $1,925 net income.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 3 Hard
RTRP: Yes
8-9
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Answer: c
Feedback: New bathroom addition would be considered a capital improvement and
therefore capitalized and depreciated and not deductible as rental expense.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 2 Medium
RTRP: Yes
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 net income or loss from their cabin rental (without
considering the passive loss limitation)? Use the IRS method for allocation of expenses.
a. $0.
b. $3,592 net loss.
c. $6,950 net loss.
d. $9,000 net income.
Answer: b
Feedback: $9,000 – [45/57($8,000+$2,000+$1,200+$750+$4,000)] =$3,592 net loss.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 3 Hard
RTRP: Yes
26. Sean and Jenny own a home in Boulder City, Nevada, near Lake Mead. 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 net 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. $8,090.
d. $27,800.
Answer: a
Feedback: No net loss deduction is allowed for personal/rental properties.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 2 Medium
RTRP: Yes
8-10
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
27. Nicolette and Brady own a cabin in Lake Arrowhead, California that they rent out
during the winter and use the rest of the year. The rental property is categorized as
personal/rental property, and their personal use is determined to be 68% (based on the
IRS method). They had the following income and expenses for the year (after
allocation):
How much can Nicolette and Brady deduct for depreciation expense related to this
property for this year on their tax return?
a. $0.
b. $1,000.
c. $4,300.
d. Answer cannot be determined.
Answer: b
Feedback: $9,500-$6,000-$2,500=$1,000; only $1,000 is left to offset depreciation
expense since no loss is allowed for personal/rental properties.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 3 Hard
RTRP: Yes
28. Colin is a high school chemistry teacher who owns some land in Oklahoma that
produces oil from its small oil reserve. On what schedule should Colin report the royalty
income he receives?
a. Schedule A.
b. Schedule C.
c. Schedule E.
d. Schedule SE.
Answer: c
Feedback: Schedule E is used to report royalty income from investments.
Learning Objective: 08-03
Topic: Royalty Income
Difficulty: 1 Easy
RTRP: Yes
29. 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?
8-11
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
a. Schedule E.
b. Schedule D.
c. Schedule A.
d. Schedule C.
Answer: d
Feedback: Schedule C is used to report income earned from a trade or a business.
Learning Objective: 08-03
Topic: Royalty Income
Difficulty: 1 Easy
RTRP: Yes
30. What is the maximum amount of passive losses from a rental activity that a taxpayer
can deduct against active and portfolio income per year (assuming no passive loss
limitation due to AGI or personal use of the property)?
a. $0.
b. $15,000.
c. $25,000.
d. $50,000.
Answer: c
Feedback: Passive losses from rental activity are limited to $25,000 per year before
AGI limitations apply.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 2 Medium
RTRP: No
Answer: d
Feedback: Partnership, limited liability company (LLC), S Corporations, and
certain types of trusts and estates are considered flow-through entities.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 2 Medium
RTRP: No
32. From which of the following flow-through entities is ordinary income (K-1)
considered self-employment income?
8-12
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
a. Partnership.
b. S Corporation.
c. Trusts.
d. Estates.
Answer: a
Feedback: Ordinary income from partnerships is considered self-employment
income.
Learning Objective: 08-04
Topic: Flow-through Entity
Difficulty: 2 Medium
RTRP: No
8-13
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Problems
33. Ramone is a tax attorney and he also 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 Ramone must materially participate in the
rental activity and provide substantial services to the rental property.
Additionally, Ramone must be considered a real estate professional if the
activity is to be treated as a trade or business.
Learning Objective: 08-01
Topic: Rental Property Income and Expenses
Difficulty: 2 Medium
RTRP: No
34. Kelvin owns and lives in a duplex. He rents the other unit for $750 per month. He
incurs the following expenses during the current year for the entire property:
How are the above income and expenses reported on Kelvin’s tax return? On
what tax form(s) are these amounts reported?
Answer:
35. In the current year, Sandra rented her vacation home for 75 days, used it for personal
use for 22 days, and left it vacant for the remainder of the year. Her income and expenses
before allocation are as follows:
What is Sandra’s net income or loss from the rental of her vacation home? Use the Tax
Court method.
Answer:
Schedule E Schedule A
Rental Income $15,000
Real Estate Taxes $2,000 * (75/365) (411) $1, 589
Utilities $1,500 * (75/97) (1,160)
Mortgage Interest $3,800 * (75/365) (781) 3,019
Repairs and $1,300 * (75/97) (1,005)
Maintenance
Depreciation $7,200 * (75/97) (5,567)
Net Rental Income $6,076
8-15
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
36. Alice rented her personal residence for 13 days to summer vacationers for $4,500.
She has AGI of $105,000, before the rental income. Related expenses for the year
include the following:
Calculate the effect of the rental 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)(g)). Alice’s income remains unchanged
at $105,000. The mortgage interest and property taxes are deductible on
Schedule A as itemized deductions.
Learning Objective: 08-02
Topic: Personal Use of Rental Property
Difficulty: 3 Hard
RTRP: Yes
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:
a. What is the proper tax treatment of this information on their tax return using the Tax
Court method?
b. Are there options available for how to allocate the expense between personal and
rental use? Explain.
c. What is the proper tax treatment of the rental income and expenses if Matt and Marie
rented the house for only 14 days?
8-16
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Answer:
Schedule E Schedule A
Income 6 weeks * $890 $5,340
Mortgage Interest (42/365) * $4,200 483 $3,717
Property Taxes (42/365) * $700 81 619
Insurance (42/100) * $1,200 504
Utilities (42/100) * $3,200 1,344
Repairs (42/100) * $1,900 798
Depreciation (limited to Net 2,130
Rental Income)
Net Income $0
b. The taxpayer can use the Tax Court method or the IRS method to
allocate expenses. The Tax Court method allows for an overall larger
deduction. However, the IRS has maintained it will continue to fight the
Tax Court method.
c. In this case, the property would be primarily personal; and none of the
income would be included 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:
What is the proper treatment of these rental income and expenses in each of the following
cases? Use the Tax Court allocation method, if applicable.
8-17
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Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Answer:
Case A B C D
Schedule Sch. A/No Schedule Sch. A/No *(see Schedule
E Deduction E Deduction below) E
Income $9,000 $12,000 $22,000
Mortgage (45/365): 1,140 – (55/365): $1,104- (1,300)
Interest (160) Sch. A (196) Sch. A
Property (45/365): 701 – (55/365): 679 – (800)
Tax (99) Sch.A (121) Sch. A
Insurance (45/55): 273 N/D (55/80): 469 N/D (1,500)
(1,227) (1,031)
Utilities (45/55): 327 N/D (55/80): 562 N/D (1,800)
(1,473) (1,238)
Repair (45/55): 55 N/D (55/80): 94 N/D (300)
(245) (206)
Depreciation (45/55): 727 N/D (55/80): 1,250 N/D (4,000)
(3,273) (2,750)
Rental $2,523 $6,458 $0 $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 Tammy own a 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
the following:
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:
The IRS method produces the least amount of net rental income for Randolph and
Tammy and would be the preferable allocation of expenses for them. Net rental
income reported using the Tax Court method is $2,397 greater than they are under
the IRS method. Itemized deductions however, are $2,397 greater under the Tax
Court method.
8-19
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McGraw-Hill Education.
Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
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 one-third of the preceding items reported to
her. How must each individual report these results on her Form 1040?
Answer:
Revenues $600,000
Expenses 310,000
Ordinary Income $290,000
x 1/3
Page 2 of Schedule E $ 96,666
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.
8-20
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
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
Expenses 310,000
Ordinary Income, reported on Schedule E, Page 2 $140,000
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:
8-21
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Chapter 08 – Rental Property, Royalties, and Income from Flow-Through Entities
Difficulty: 3 Hard
RTRP: Yes
43. Shirelle and Newman are each 50% partners of a business which operates as a
partnership. 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
The solutions to the chapter tax return problems can be found on the online learning
center: www.mhhe.com/cruz2014.
8-22
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McGraw-Hill Education.
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Niila veti lakin korvilleen ja oikaisi pitkäkseen Mutta uni ei tahtonut
tulla. Hän ajatteli käyntiään nimismiehen luona. Oliko hän tehnyt
oikein vai väärin?
— Salmon Salkollapa on
sellainen ajokas,
voiaa naa
että,
kun hän lähtee ajamaan,
sillä on
voiaa naa
puol'toista säkkiä kahvia ahkiossaan
voiaa naa
ja se vielä juosten menee.
— 'Tuomaan vilkuna',
naa-naa
hän on tosi rikas vilkunoista.[1]
naa-naa
hänellä on
tosi etelän vilkunoita,
nuu-nuu
hänellä on
niin paljon vilkunoita,
naa-naa
että
kun hän niitä ajaa,
on hänen pakko
naa-naa
järveä myöten haukuttaa…
— Kuka se oli?
— Seyrisvaaran Mikkala.
— Seyrisvaaran —?
— Niin.
— Tiesi vain…
— Se on Iakka.
— Iakka —?
Aslak hämmästyi. Hän muisti, että Iakka oli ollut hänellä
apumiehenä edellisenä syksynä, kun he olivat olleet
poronhakumatkalla eräällä pohjoistunturilla. Sillä matkalla he olivat
kohdanneet muutamia poroja, jotka olivat Seyrisvaaran Mikkalan
merkissä. Aslakin vanha himo oli herännyt ja yks' kaks' olivat porot
heitetyt kiinni. Merkkien muuttaminen ei luonnollisesti ollut vienyt
pitkää aikaa ja seuraavana päivänä olivat porot Aslakin elossa. Näitä
oli siis Seyrisvaaran Mikkala tullut hakemaan. Mutta hän oli tehnyt
turhan matkan, sillä nuo kaivatut elukat olivat hänen kylässään
vedätysporoina.
— Tiesi vain…
— Vai niin, vai sillä päällä olet. — Mutta poliisin raudat jäivät
käyttämättä, hah, hah! Olisihan se ollutkin somaa, jos Aslak Rosto
olisi lähtenyt raudat käsissä vanhalta pykällyskaarteeltaan.
— Vai sinne onkin joutunut poro, jota olen koko talven etsinyt.
Oikeassapa olen ollutkin sinusta joikatessani.
— Sano!