Federal Taxes Week 2

4-25.

Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2012:

How much rental income must Billy Dent include on his 2012 income tax return?

Payments to be included in 2012 income tax returns:

$5,000+4,000=$ 9,000

Income should be accounted when is received; even if is not due in the accounted period.

Security deposits are not to be included as income, since they are to be returned when the tenant moves out.

4-32.

Arnold and Barbara Cane were divorced in June 2012. Pursuant to the divorce decree, Arnold is obliged to perform as follows:

a. Transfer title of their personal home to Barbara. They

Purchased the house in 1998 and their basis today is $400,000.

The fair market value of the house is $500,000. The house is subject to a 25-year, $250,000 mortgage.

b. Arnold is to continue making payments on the house until it is fully paid off. In 2012, Arnold made payments totaling $18,000.

c. Arnold is to make $3,000 per month payments to Barbara. Of this amount one-half is for child support. The divorce decree further states that alimony is to cease upon the death of the wife. In 2012, he made six payments.

How do the transactions in the divorce agreement affect Arnold's and Barbara's taxable income?

-The home will transfer as the same basis, 400,000, so no gain will be declared nor taxable.

-Barbara will not have to declare the mortgage payments as income, since is to cover mortgage payment. However, Arnold will be able to deduct the interest since he is making the payment.

- Barbara received approximately 9,000 in 2012 in alimony, which falls under the 15,000 limit for recapture. Child support is not to be declared as income or deduction, respectively.

5-26.

A. Fluent, an investor in stocks and bonds wanted to increase his portfolio but wanted to minimize his tax liability on the income from the bonds. He is presented with the following alternative investments:...