In year 1 JP purchased a large single-story residential property. He paid $300,000 with $100,000 attributable...

Transcribed Image Text:

In year 1 JP purchased a large single-story residential property. He paid $300,000 with $100,000 attributable to the value of the land, other acquisition costs are already factored into the price. Financial activity associated with the house for each year: 1. Property tax of $12,000 yearly 2. Insurance $1,200 yearly 3. Mortgage interest $12,000 yearly 4. Maintenance $1,200 yearly 5. Utilities $2,400 yearly 6. New roof in year 3 $10,000 one-time expense 7. Christmas decorations $100 one-time expense December year 2 8. Purchase of furniture for rental room $1,200 one-time expense January year 2 Explain the tax consequences and tax rules for the following scenarios. Each scenario is mutually exclusive, meaning unless specifically indicated, a previous scenario should not affect a subsequent scenario. Be sure to provide the answer to the problems by showing the calculations as well as explaining the rules affecting the activity. 1. After living in the house from January year 1 to December year 3, he sold the home for $400,000 at the beginning of year 4, and purchased a larger home to live in full time. 2. JP rented one room at the house to a friend for 12 months during year 2. The room encompassed 10% or the total square footage of the house. The monthly rent was $100. 1. What are the implications of the room rental? 2. How would your answer to scenario 1 change under these circumstances? 3. JP rented the entire house to tenants from April year 4 to December year 5. In year 4 before tenants moved in, the house was empty but available on the market for 3 months. The monthly rental income was $1,000. 4. He sold the house in year 6 after events in scenario 3 above. The sale price was $350,000. The cost of repairs to sell the house were $1,000, fees paid to relators were $21,000. 5. Using scenario 4 above, how would the loss be treated if the house sold for $200,000? 6. JP sold the rental room furniture in January year 3 for $1,000, and Christmas decorations for $50 In year 1 JP purchased a large single-story residential property. He paid $300,000 with $100,000 attributable to the value of the land, other acquisition costs are already factored into the price. Financial activity associated with the house for each year: 1. Property tax of $12,000 yearly 2. Insurance $1,200 yearly 3. Mortgage interest $12,000 yearly 4. Maintenance $1,200 yearly 5. Utilities $2,400 yearly 6. New roof in year 3 $10,000 one-time expense 7. Christmas decorations $100 one-time expense December year 2 8. Purchase of furniture for rental room $1,200 one-time expense January year 2 Explain the tax consequences and tax rules for the following scenarios. Each scenario is mutually exclusive, meaning unless specifically indicated, a previous scenario should not affect a subsequent scenario. Be sure to provide the answer to the problems by showing the calculations as well as explaining the rules affecting the activity. 1. After living in the house from January year 1 to December year 3, he sold the home for $400,000 at the beginning of year 4, and purchased a larger home to live in full time. 2. JP rented one room at the house to a friend for 12 months during year 2. The room encompassed 10% or the total square footage of the house. The monthly rent was $100. 1. What are the implications of the room rental? 2. How would your answer to scenario 1 change under these circumstances? 3. JP rented the entire house to tenants from April year 4 to December year 5. In year 4 before tenants moved in, the house was empty but available on the market for 3 months. The monthly rental income was $1,000. 4. He sold the house in year 6 after events in scenario 3 above. The sale price was $350,000. The cost of repairs to sell the house were $1,000, fees paid to relators were $21,000. 5. Using scenario 4 above, how would the loss be treated if the house sold for $200,000? 6. JP sold the rental room furniture in January year 3 for $1,000, and Christmas decorations for $50