INDIVIDUAL TAX RETURN PROBLEM 5

Required: Use the following information to complete Paul and Judy Vance's 2015 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps. You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 2106-EZ, Form 4562 (for the dental practice), Form 4562 (for the rental property), Form 4797, Form 8863, and Form 8949. The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

Facts: Page C-8 Page C-9

Judys mother, Sarah, died on July 2, 2005, leaving Judy her entire estate. Included in the estate was Sarahs residence (325 Oak Street, Cincinnati, OH 45211). Sarahs basis in the residence was $30,000. The fair market value of the residence on July 2, 2005, was $155,000. The property was distributed to Judy on January 1, 2006. The Vances have held the property as rental property and have managed it themselves. From January 1, 2006, until June 30, 2010, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Paul and Judy sold the house on June 30, 2010. They received $140,000 for the house and land ($15,000 for the land and $125,000 for the house), less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house, the Vances had allocated $15,000 of the propertys basis to the land on which the house is located. The Vances collected rent of $1,000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period:

Property insurance $500

Property taxes 800

Maintenance 465

Depreciation (to be computed) ?