A.) David and Susan Holman are married and file a joint return. David is 38 years old and Susan is 36. David is a self-employed certified real estate appraiser (C.R.E.) and Susan is employed by Wells Fargo Bank as a trust officer. They have two children: Richard Lawrence, age 7 and Karen Ann, age 4. The Holmans currently live at 5901 W. 75th Street, Los Angeles, California 90034, in a home they purchased and occupied on September 6, 2008.
Until August 12, 2008 the Holman family lived at 3085 Windmill Lane in Dallas, Texas, where David was employed by Vestpar Company, a real estate appraisal company and Susan was a bank officer for First National Bank. They sold their home in Dallas and moved to Los Angeles so that Susan could assume her new role as a trust officer and Davidcould become self-employed.
B.) David and Susan sold there home in Dallas for $315,000 and incurred the following expenses:
Sales commission........ $18,900
Attorney’s fees........ $1,800
Title Insurance....... $2,650
Document preparation fee....... $90
Recording fee....... $30
Pest Inspection fee...... $190
Prepayment penalty for early
retirement of home mortgage...... $1,500
The Holmans had purchased the Dallas home on August 4, 2000 and never
held it for rent or used it for business purposes. The home originally
cost $177,500 and they had paid $6,200 for a cedar fence and $7,900
for landscaping. Within seven weeks of receiving a contract of sale on
their house, the Holmans paid $8,500 for interior and exterior
painting and $600 for steam-cleaning of the carpets. The sale was
closed on August 1, 2008 and the Holmans were required to move out of
the home by August 15, 2008.
C.) In moving from Dallas to Los Angeles, the Holmans incurred the
following expenses, none of which were reimbursed:
Cost of moving household goods.........$9,250
($150 for meals included).......$1,000
Temporary living expenses (20 days;
including meals costing $400)........$1,700
Not included in any of the above expenses are the costs for driving
two auto mobiles from Dallas to Los Angeles. David and Susan each
drove a car, taking turns driving with the children. Although neither
one of them kept receipts, Susan noted that her auto milage was 1,500
miles. In addition, David noted that the number of miles from their
old home to their old workplace was 24 miles and the number of miles
from their old home to their new workplace is 1,514 miles.
D.) The Holmans purchased their new home for $525,000 by making a
$125,000 down payment and financing the remaining balance with a
30-year, 6% conventional mortgage loan from California Federal Savings
and Loan. They were required to prepay 2 points ($8,000) in return for
the favorable mortgage terms. New furniture and drapes cost an
E.) The Holmans received the following Forms W-2, reporting their
salaries for 2008:
1.) David Holman, Social Security No. 452-64-5837
Federal income taxes withheld......$9,050
F.I.C.A. Taxes withheld:
2.) Susan Holman, Social security No. 467-32-5452
First National BankWells Fargo BankTotalGross
salary$17,500$34,000$51,000Federal Income Taxes
Withheld$1,100$4,150$5,250FICA taxes withheld:Social
Security$1,085$2,108$3,193Medicare$254$493$747California income taxes
F.) On October 1, 2008 David rented office space at 5510 Wacker Drive,
Los Angeles, California 90025. The terms of the one-year lease
agreement called for a monthly rent of $800, with the first and last
month’s rent paid in advance.
David decided to operate his business in the name of “David R. Holman,
Certified Real Estate Appraiser,” and he elected to use the cash
method of accounting for his revenues and expenses. The following
items relate to his business for 2008:
Bank service charges.......$50
Dues and publications......$450
Office rent......$3,200 **
Meal and entertainment......$500
*Three months coverage
**Includes prepayment of rent for September, 2009
David drove his personal automobile, a 2007 Buick LeSabre, 5,000 miles
for business purposes form October 1 through December 31. Rather than
keeping receipts, he elected to use automatic mileage method for
determining his auto expenses. David’s total auto mileage for the year
was 20,000 miles.
On October 3, 2008 David purchased the following furniture and
equipment for use in his business:
David elects to expense the maximum amount allowed under the optional
expensing rules of Section 179. He also elects to compute the maximum
depreciation allowance using the appropriate MACRS percentages.
G.) The Holmans received interest income during 2008 from the following:
US Treasury bills.......$1,475
First National Bank, Dallas.....$625
Wells Fargo Bank.......$400
Tarrant County municipal bonds....$800
Federal taxation homework help
H.) David and Susan received the following dividends during 2008:
Ford Motor Company......$300
Eastman Kodak Company.......$575
General motors stock dividend
(20 new shares of stock valued at $60 per share,
Received March 9,
I.) The Holmans have never maintained foreign bank accounts or created
J.) The Holmans report the following stock transactions for 2008:
Sold 100 shares of IBM stock for $120 per share on August 1, 2008.
David had inherited 500 shares of IBM stock from his uncle on July 18,
2004 and the stock was valued at $170 per share on the date of his
uncle’s death (the value used for estate tax purposes).
Sold 400 shares of General Motors stock for $78 per share on September
20, 2008. Susan had received 1,000 shares of General Motors stock as a
wedding present from her grandfather on June 3, 1996. Her grandfather
had purchased the stock for $35 per share on May 7, 1993 and the
stock was valued at $50 per share on the date of the gift. Susan’s
grandfather paid gift taxes of $10,000 as a result of the gift.
Sold 300 shares of Eastman Kodak stock for $40 per share on December
28, 2008, but did not receive the sales proceeds until January 3,
2009. The Holmans had paid $25 per share for the stock on October 21,
K.) Susan has summarized the following cash expenditures for 2008 from
cancelled check, mortgage company statements and other documents:
Medical insurance premiums (paid by
Doctors’ and hospital bills (net of
Contact lenses for
Real Estate taxes paid on:
Sales taxes paid on Susan’s new
Ad valorem taxes paid on both
Interest paid for:
Los Angeles home
Cash contributions to:
George W. Bush Campaign
Susan’s unreimbursed employee
David’s unreimbursed employee expenses......$360
Tax return preparation
* Does not include the mortgage prepayment penalty identified in item (B) above.
** Does not include the interest points charged for the new mortgage
identified in item (D) above.
***Does not include any costs for meals or entertainment.
Susan also noted that she and David had driven their personal
automobiles 500 miles to receive medical treatment for themselves and
their children. She also has a receipt for 100 shares of General
Motors stock that she gave to her alma mater, Southern Methodist
University, on November 12, 2008. The stock was valued at $70 per
share on the date of the gift and was from the block of General Motors
stock Susan had received as a wedding present from her grandfather
[see item (J) (2) above for details].
L.) The Holmans paid the following child care expenses during 2008:
Kindergarten Day Care School.......$2,800
1177 Valley View
Dallas, TX 75210
Happy Trails Day Center.......$2,200
3692 Airport Blvd
Los Angeles, California 90034
Of the $5,000 total child care expenses, $3,000 was for Karen and the
remaining $2,000 was for Richard.
M.) Social security numbers for the Holman children are provided:
Richard L. Holman, SSN 582-60-4732
Karen A. Holman, SSN 582-60-5840
N.) David and Susan made estimated Federal income tax payments of
$1,750 each quarter, on 4/15/08, 6/15/08, 9/15/08 and 1/15/09
O.) The Holmans have always directed that $6 go to the Presidential
Election Campaign by checking the “yes” boxes on their Form 1040
Complete the Holmans’ Federal income tax return for 2008. If they have
a refund due, they would refer having it credited against their 2009
Comments by part:
Sale of a principal residence. If we assume that they meet the §121
rules then they can exclude $500,000 of gain. Calculate the gain on
the sale. If less than $500,000 they don’t have to report anything or
show this gain on Sch. D. But attach a schedule for me to see. The
prepayment penalty for early payoff of the mortgage is qualified
residence interest deductible on Sch. A.
This part concerns their moving expenses for form 3903. In computing
the travel costs they should use the automatic mileage method (the
moving exp rate). Determine what other expenses are allowed. See
chapter 8 for distance and time tests to see if they can take the
deduction and for what is deductible.
Purchase of new home. Can they deduct the points or do they have to
amortize them over 30 years?
Schedule C information. Can he deduct the prepaid rent? He uses the
standard mileage rate for auto expenses. Use the 2008 standard rates
(50.5 cents per mile from 1/1-6/30/2008 and 58.5 cents per mile from
7/1-12/31/2008. Use form 4562 to compute the depreciation for his
Assume all dividends are qualified dividends (i.e. they qualify for
the lower tax rate.
This information is reported on Sch. D. Calculate basis carefully
with the rules in Ch. 14. Is the Kodak sale reported in 08 or 09?
See ch. 11 for information on which of these expenses are deductible.
The gift of the stock goes on form 8283. Their unreimbursed employee
business expenses go on form 2106 (one for each). I can’t believe the
fee for this return is only $375!
Use form 2441 to calculate the credit.
You don’t have to prepare form 1040ES – estimated taxes for 2009, but
show your calculation. Calculate the estimates based on 2008 results
and assume the same withholding on wages. To avoid penalties they
should pay in, through withholding and estimates, at least 100% of the
2008 total tax.
Because of the capital gains and dividends you have to calculate the
tax on the worksheet on p. 38 of the 1040 (not Sch. D) instructions.
This is because some of the income is ordinary and some capital (or
qualified dividends). Sometimes you have to use the worksheets in the
Sch. D instructions to calculate the tax, but not in this case because
there are no 25% or 28% gains. You don’t have to prepare a California
individual tax return (or a part-year Texas return because Texas does
not have an income tax).
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