Question

Use the following information to fill out schedule E (tax form).

SCHEDULE E (Form 1040 Supplemental Income and Loss From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc) OMBNo. 1545-0074 201 Attach to Form 1040, 1040NA, cr Form 1041. Note: If you are in the business of renting personal property, use Schedule C or C-EZ(see instructions). It you are an individual, report farm rental income or loss trom Form 4835 on page 2, ine 40 A Did you make any payments in 2018 that would require you to file Forms) 10997 (see instructions) Forms 10997 Yes No Yes No B If Yes, did you or will you file address of each ZIP c 1b Type of Property (from list below) Personal Us aJv 2 For each rental real estate property listed above, report the personal use days. Check the QJV box of fair rental and joint venture. See instructions. B Type of Property 1 Single Family Residence 3 Vacation/Short-Term Rental 5 Land 2 MutiF 7 Self-Rental 3 Rents received 4 Royalties received 5 Advertising 6 Auto and travel (see instructions. 7 Cleaning and maintenance Insurance 10 Legal and other professional fees 11 Management fees 12 Mortgage interest paid to banks, etc. (see instructions) 12 13 Other interest 14 Repairs 15 Supplies 16 Taxes 17 Utilities 18 Depreciation expense or depletion 19 Other (list 20 Total expenses. Add lines 5 through 19 21 Subtract ine 20 from line 3 (rents) andlor 4 (royaties). If result is a (loss), see instructions to find out if you must file Form 6198 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) Total of all amounts reported on line 3 for all rental properties 23a b Total of all amounts reported on line 4 for all royalty properties Total of all amounts reported on line 12 for all properties d Total of all amounts reported on line 18 for all properties e Total of all amounts reported on line 20 for all properties 24 Income. Add positive amounts shown on line 21. Do not include any losses 25 Losses. Add royalty losses from Iine 21 and rental real estate losses from Ine 22 Enter total losses here 25 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the resut here. If Parts , III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040 ine 17, or Form 1040NR, ine 18. Otherwise, include this amount in the total on line 41 on For Paperwork Reduction Act Notice, see the separate instructions No. 11344L Sche ade E Fom 100 208 Taxpayers (Bob and Mary) live in a 4 flat apartment building which they recently purchased for $800,000 with a land value of 10% and a life of 30 years. They have received $15500 in rent this year and a security deposit of $10,000 on the building. Taxes paid in interest on the mortgage is $36,000, repairs are $12000 and commissions to a rental agent are $2,000. They live in one unit 2017 are $28,000,

Answer 1

In given Question, we have to understand various facts and reply accordingly:

1. Here, 4 flats are purchased which have land value of 10%, it results that value of flats is 90% of total consideration, resulting value of 4 flats is 800, 000 - 10% of 800,000 i.e 720,000. Hence, each flat will cost 180,000

2. Building is a depreciable asset whereas land is not depreciable.

3. Depeciation to be charged over the life of building i. E 30 years. So depreciation for 4 flats will be 720,000 /30 i. E 24,000

4. Depreciation to be charged against rental income is only for 3 units as 1 unit is self occupied.

5. Depreciation for 3 units will ne 18,000

6. Security Deposit is not income, intetrst on mortgage & repairs to be proportionally allocated to 3 units.

Calculation:

Rent Income 15,500

Less: Expenses

Mortgage interest (36000/4*3) = 27000

Repairs = 9000

Commission 2,000

Depreciation= 18000

Total loss: 41,500

No tax to be paid