Question

Maya Chang, age 35, is a single taxpayer who lives at 1225 Primrose Lane, Austin, Texas, 93221. Her social security number is 365-87-2012. Maya is the manager of a spa and her earnings and withholdings for 2017 are:

W-2 Wages   $105,000

Federal Taxes Withheld $20,000

State Taxes Withheld $0 (Texas has no income taxes)

Maya owns a single family home as a rental property at 2012 Boulder Drive, Hutto, Texas, 93110. The house is rented for the entire year at $1,100 per month and she has the following information:

Property taxes $4,000

Mortgage Interest $12,500

Property Insurance $1,000

Depreciation: $0 (for simplicity we assume it is fully depreciated. We will cover depreciation in Chapter 7).

Gardening Services $800

Repairs $900

Other Maintenance $3,000

Maya handles all of the rental management activities herself. She is completely “at risk” in her ownership of the property.

IMPORTANT! Assume that there are NO prior year suspended losses and any prior year losses have been allowed.

OTHER INFORMATION:

Maya likes to gamble and she has made a net of $6,000 during the year in playing the slot machines. (Ignore the deductability of gambling losses for this problem; we cover it in Chapter 5).

She has a checking account that earns no interest income. Except for her rental property, her bank account, and her 401(k) retirement accounts, she has no other investments.

Maya changed jobs last year and is only now moving her 401 (k) plan balance from her old employer’s 401(k) plan to her current employer’s 401(k) plan. The balance in her 401(k) account was $102,000 at the time of the transfer and she had it done directly from her old employer’s 401(k) plan trustee to the new employer’s trustee. She received a Form 1099 confirming the transfer.

Maya is too busy to do her own tax return and hired you to do it. Prepare her Form 1040, Schedule E, and Form 8582. (Hint: this last form is important). Do not prepare Form 4562. Make reasonable assumptions about missing information.

Answer 1

Calculation of Total Income & Allowable Deduction under Schedule E in Form 1040

Particulars Amount($)

Rental Income	13200
Less: Deductions
Mort.Interest	-12500
Property Insurance	-1000
Property Taxes	-4000
Repairs	-900
Other Maintenance	-3000
Net Rental Loss	-8200
Wages	105000
Income from Gamble	6000
Total Income	102800

Entire Passive Loss of 8200 can be setoff against Wages Income Since the Amount is with in the of $22500 Adjusted Special Allowance limit

Note:

Adjusted Gross Income	105000
Min Amount not subject to Phase out	-100000
Amount Subject to phase out*50/100	2500
Max. Special Allowance	25000
Less: Reduction required	-2500
Adjusted Special Allowance	22500