Depreciation 4565 x 7000 4846 limited to remainder

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Depreciation (45/65 X $7,000 = $4,846), limited to remainder) (3,228)Net rental income $ -0-She can itemize $10,082 of property taxes and mortgage interest ($11,500 totalless $1,418 allocated to rental). Thus, under the court’s approach, Anna has nonet rental income and has an itemized deduction of $10,082. Example 29The roof replacement of $12,000 is a capital expenditure. p. 6-26b. Gross income $7,000Deduct: Taxes and interest (45/65 X $11,500 = $7,962), but limitedto income (7,000)$ -0-Anna can deduct the remaining taxes and interest of $4,500 ($11,500 less rentalallocation of $7,000) as itemized deductions. Under the IRS’s approach,she has
no net rental income and has an itemized deduction of $4,500. Example 2852. Since Anna used it for less than 15 days, it is classified as rental property.Rental PersonalPercentage of use 88% 12%Gross income $ 7,000 $ -0-Expenses:Interest and taxes ($9,000 + $2,500) $10,120 $1,380Utilities and repairs ($2,400 + $1,000) 2,992 408Depreciation ($7,000) 6,160 840Total expenses $19,272 $2,628Net income (loss) ($12,272) $ -0-Anna could deduct $300 ($2,500 X 12%) of property taxes as itemized deductions andtake a rental loss deduction for AGI of $12,272. The mortgage interest of $1,080 ($9,000X 12%) is not deductible as an itemized deduction because it is not qualified residenceinterest. Example 25The roof replacement of $12,000 is a capital expenditure. p. 6-2653. Income:Salary $43,000Dividend 400Rental of vacation home (Note 2) -0-Adjusted gross income $43,400Itemized deductions:State income taxes $3,300Property tax on home 2,200Interest on home mortgage 8,400Interest and property taxes on vacation home (Note 2) 4,893Charitable contributions 1,100Tax return preparation fee (Note 3) -0- (19,893)Taxable income before personal exemption $23,507Notes(1) The municipal bond interest of $2,000 is excludible from gross income and theinterest expense of $3,100 on the loan to buy municipal bonds is not deductible.pp. 6-28 and 6-29(2) Rental income $4,000Less: Taxes and interest (60/365 X $5,856) (963)Remainder $3,037Less: Utilities and maintenance (1/2 X $2,600) (1,300)
Remainder $1,737Less: Depreciation ($3,500, limited to $1,737) (1,737)Net income from vacation home $ -0-Note that $4,893 ($5,856 total – $963 vacation home portion) of property taxesand mortgage interest on the vacation home are itemized deductions. Example 29(3) Tax preparation fees are reduced by 2% of AGI (in this case 2% of AGI exceeds$300). Concept Summary 6-354. a. Sales revenue $50,000Deduct: Cost of goods sold $19,000Advertising 1,000Utilities 2,000Rent 4,000Insurance 1,500Wages to Boyd 7,000 (34,500)AGI $15,500Velma and Clyde can deduct only the $7,000 in wages they paid to Boyd.b. Chelsie is not entitled to a deduction on her tax return. The obligation is that ofVelma and Clyde since it related to their business.c. If Chelsie had made a gift of the $1,000 to Velma and Clyde or had she loaned the$1,000 to them, then they could deduct it assuming they pay the $1,000 to Boyd.p. 6-2555. From a tax perspective, the same tax consequences are produced regardless of whetherthe $400,000 is allocated to goodwill or to a covenant not to compete.

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