Prepare his Form 1040, Schedule E, and Form 8582 (Hint: this last form is important). Do not prepare Form 4562. Make reasonable assumptions about missing information.

Prepare his Form 1040, Schedule E, and Form 8582 (Hint: this last form is important). Do not prepare Form 4562. Make reasonable assumptions about missing information.

Bob Minion, age 43, is a single taxpayer who lives at 2440 Dusty Trails Drive, Apt 10, Las Vegas, NV, 98765. His social security number is 365-87-2012. Bob is the manager of a distribution warehouse and his earnings and withholdings for 2014 is:

W-2 Wages $105,000

Federal Taxes withheld $20,000.

State taxes withheld $0 (Nevada has no income taxes).

Bob owns a single family home as a rental property at 2012 Boulder Drive, Henderson, NV, 98766. The house was rented for the entire year at $1,100 per month and he has the following information:

Property taxes: $4,000

Mortgage interest: $12,500

Property insurance: $1,000

Depreciation: $0 (for simplicity, we assume it’s fully depreciated. This topic is covered in chapter 7).

Gardening Services: $800

Repairs: $900

Other Maintenance: $3,000

Bob handles all of the rental management activities himself. He is completely “at risk” in his ownership of the property.

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

Other Information:

Bob likes to gamble and he made a net $6,000 during the year playing in poker tournaments. (Ignore the deductibility of gambling losses for this problem; we cover it in Ch 5).

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

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

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

Hint 1: Expect do to Form 8582 and Schedule E at the same time —- you will jump back and forth between the two forms. This is normal. You will also need to do the first page of Form 1040 (well, everything except the rental property) before you do these forms.

Hint 2: IMPORTANT. Form 8582 is an insane form and challenging to prepare manually. That said, I’m going to give you some big hints to get through it:

#2a – Do Part 1 on page 1, then Worksheet 1 on Page 2, then Part II. When you get to Line 16 on Page 1, use that result to go back to Schedule E.

#2b: Don’t let Form 8582 make you panic. Focus on Parts I and II — apply the knowledge you have learned about passive losses, real estate, and active participants in real estate. READ the form instructions (but not forever–see below). It’s a similar story with Schedule E — read the directions, apply your knowledge of how rental real estate works.

#2c: It is REALLY easy to get caught up in how confusing the instructions are for Form 8582 and all of the worksheets supporting it. Don’t do that. Follow my hints and try to follow how to carry the amounts through to the other forms — but if you find yourself getting lost, you should not spend hours and hours untying the mental knots. Instead, use your best common sense. Frankly, some of these forms are designed with computer tax software in mind and I don’t want you to get tied-up. I admit that it is when using forms like this that the “do it by hand” mock return concept has its limits.

Check figure: Form 1040, Line 75 should be a $1,099 overpayment.


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