income tax concept unit 5

Using your text, complete the following. In these problems, apply your knowledge of the rules and laws associated with the production of income that retain a profit motive for the taxpayer, but are not related to trade or business activities.

· Problem 34, on page 8-29.

· Problem 37, on page 8-30.

· Problem 38, on page 8-30.

· Problem 40, on page 8-31.

· Problem 42, on page 8-32.

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: Mortgage interest $7,500 Property taxes 2,000 Utilities 1,500 Fixed light fixture in rental unit 100 Fixed dishwasher in personal unit 250 Painted entire exterior 1,300 Insurance 1,800 Depreciation (entire structure) 7,000 How are these income and expenses reported on Kelvin’s tax return? On what tax form(s) are these amounts reported?

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 $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 using the Tax Court method?

b.Are there options available for how to allocate the expenses 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?

38.Janet owns a home at the lake. She incurs the following expenses:

Mortgage interest $1,300

Property taxes 800

Insurance 1,500

Utilities 1,800

Repairs 300

Depreciation 4,000

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?

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?