Jose and Rosa Nay eired petrole am engine, live at $4112$ Foxglove Drive, Mckinney, lo file a joint tax return each year.Tx $75070.$ Jose is a retire petroleum engineer, and Rosa is a portrait arist. They Choes,$1.$ When he retired at age $65,$ Jose was chief of offshore operations at Pelican Explo$-$When he retired at age $65,$ Jose was chief of offshore operations at Pelican Exploration Corporation. While employed, Jose participated in Pelican's contributory qualified pension plan, to which he had contributed $$250,000$ in after$-$tax dollars.Under one of the plan options, he chose a life$-$annuity payout of $$60,000$ per year over his life. As part of his retirement package, Jose also received nontaxable health insurance coverage for him and Rosa. Due to Jose's expertise in Gulf of Mexico offshore operations, Pelican continues to use his services on a consulting basis$\mathrm{.}2.$ During $2023,$ Jose made seven trips on behalf of Pelican as an outside consultant $($business activity code $541330).$ On a typical trip, Jose flies by commercial airline to New Orleans, Houston, or Corpus Christi and then takes a company helicopter to the offshore platform. If necessary, he rents a room at a local motel.Sometimes offsite consultations can solve the problem, and a trip to the rig is not necessary. His expenses for these trips are as follows:AirfareLodging$$5,100$Meals$3,100$Ground transportation $($taxis$,$ limos$,$ rental cars$)2,200750$After each trip, Pelican pays Jose the agreed$-$upon fees for services rendered plus his out$-$of$-$pocket travel expenses. Pelican does not require an accounting for the expenses and reimburses Jose based on his verbal report of how much he spent. Jose received $$35,000$ from Pelican in $2023,$ which included $$11,150$ to cover his travel expenses$\mathrm{.}3.$ Rosa, an accomplished artist, is well known regionally for oil portraits $($business activity code $711510).$ She paints in the Photorealism style, providing her clients with portraits that are often mistaken for photographs. Painting in this style is very time consuming. Consequently, her output averages around $15$ portraits a year. Her fee of $$3,200$ per portrait was set several years ago and never varies.As this is quite reasonable for a Photorealistic oil portrait, she has a long waiting list of clients who have not yet been scheduled for sittings. She performs all her work in the studio the Navas maintain in their personal residence $($see item $4).$Rosa operates her art business on the cash basis.In early January $2023,$ Rosa was paid for three portraits she painted and delivered in late $2022.$ During $2023,$ Rosa completed $14$ portraits. Payment was received for $11$ portraits when they were delivered to the buyers. One portrait was delivered in mid$-2023$ to the CEO of a company who promised payment within $30$ days.Payment was never received, and the company has since entered bankruptcy.Since the CEO has been indicted for securities fraud, Rosa feels certain she will never be paid for the portrait. The final two portraits were delivered in late $2023,$ and payments for both were received in early $2024.$ In December $2023,$ Rosa accepted $$3,200$ as payment for a portrait to be done in $2024.$ Although she did not like the arrangement, the customer said the prepayment was motivated by anticipated cash$-$flow considerations.Rosa keeps receipts for all her expenses. Her total cost for painting supplies in $2023$ was $$3,010($e$.$g$.,$ for canvases, brushes, oil paints, smocks, palettes, and other art supplies$).$ The framing of the finished portrait is left to the customer since the most appropriate frame is a matter of personal taste and consideration for where the painting will be exhibited$4.$ For convenience and security reasons, Rosa prefers to work at home. One$-$fourth of the $4,000-$square$-$foot living area in the Nava home is devoted to Rosa's studio The Navas built the home at a cost of $$350,000$ on a lot previously acquired for $$100,000,$ and they moved in on June $15,2020.$ As to business use, depreciation is based on MACRS $($using the midmonth convention$)$ applicable to $39-$year nonresidential realty. Besides home mortgage interest and property taxes $($see item$18),$ residence expenses for $2023$ are summarized below.UtilitiesMolly Maid cleaning serviceService fee for home security systemRemoval of stains from studio flooringHomeowner's insurance$$4,2002,8001,6001,100970340$Repairs to studio skylightAt a mortgage foreclosure auction held on February $4,2010,$ Jose acquired an abandoned sugarcane farm near Magnolia, known as LaBeaux Place for $$30,000.$In view of the expansion trend in nearby Houston, he regarded the purchase as a good investment. Early in $2023,$ Jose was contacted by a Houston real estate developer who offered $$250,000$ for LaBeaux Place. Considering the prospect of a large taxable gain, Jose arranged for a property swap by written notice on May$10.$ In exchange, Jose transferen te an ate land $3$ one one ena$\mathrm{.}100$k place on June $20,2023.$Appendis F Practte Set Astighment$-$Cornpiehensve Ta Retur FicblemsJose purela $17,1997,$ escale as Bean $3$ or $831820$ at an autionted on April $1707.$ Desely ah ok $46,$ the propes an at la entionmodest pait the property bae by he Tonas Deparent of carecion toNose bought ta Beaumont prison tact hy ich that the i can someday voi$10$ expand ithin $$160,000$ for Blacklity, In late $2022,$ the mat comeday wate and offered hit prolonged roe tat i Jose countered wit setag ed er$5225,000.$ Afree pre eling peerations, lose and the To a sellin one cotAtter repeated za cos sof condemation, Jose transferred te property the $.$ on June $28,2021,$ Carl near exa December $17,2023,$ Joe rene co t$7500.$ in vacant land loo near exas State University in San inves is spen the remaining $85,000$ on a vacation to Hawai for him and Rosa on late pen.The Navas had ola behought that taking extended road trips in a recreational $7.$vehicle $($RV$)$ would sion. $50,$ in June $2023,$ they bought a new recencago Deluxe Coach RV for $5106,25018100,000$ discounted list price $+250$ aate sales tax$)$l$.$ However, it only took Jose and Rosa two weeks on the road to citate$-$mine that this mode of traveling the continental United States was not for them.In August $2023,$ they sold the RV to a neighbor for $890,000.$ The neighbor paid. $$20,000$ down and paid the balance of $$70,000$ in early Decembet $2023.$ Jose dicl On May $9,2005,$ Jose's father gave him $400$ shares of Ragusa Corporation common stock as a birthday gift. The stock cost his father $$16,000($$$40$ a share$)$ and was worth $$20,000$ on the date of the gift. In $2017,$ when the stock was worth $$140$per share, Ragusa declared a $2-$for$-1$ stock split. On July $27,2023,$ Jose sold $400$ shares for $$20,000($$$50$ a share$).$ For sentimental reasons, Jose kept the remaining $400$ shares. Form $1099-$B for this sale did not report the basis of this property.F$-7$sold the stock to generate a loss to offset some of their capital gains. However, they considered Cormorant Power to be a good investment, so they repurchased $500$ shares on February $19,2024,$ for $$45,000($$$90$ a share$)\mathrm{.}10.$On March $2,2022,$ Rosa was contacted by Ava Marcus, a former college room$-$mate. Over lunch, Ava asked Rosa for a loan of $$6,000$ to help finance a new venture. Rosa made the loan because the venture, a summer art camp in Sedona, AZ$,$ sounded interesting. Ava signed a note due in two years at $10\%$ interest. In late $2023,$ Rosa learned that Ava had disappeared after being charged by Arizona authorities with grand theft. She also learned that Ava is wanted in New Mexico for parole violation from a prior felony conviction. Ava made no payments to Rosa on the note$\mathrm{.}1.$ The Navas have a long$-$term capital loss carryover of $$7,000$ from $2022\mathrm{.}2.$ On May $9,2018,$ Diego Nava $($Jose$\text{'}$s favorite uncle$)$ gifted him the family antique gun collection. Based on family records and qualified appraisals, the collection had an adjusted basis to Diego of $$4,200$ and was worth $$13,000$ on the date of the gift. Since Rosa abhors guns, Jose has been under heavy pressure to get rid of the collection. After Diego died in early $2023,$ Jose donated the collection to the Remember the Alamo Foundation. The transfer was made on December $5,2023.$ At that time, several qualified appraisers valued the collection at $$16,000.$The museum added the guns to its extensive collection of firearms$\mathrm{.}13.$ In late $2023,$ Jose received life insurance proceeds of $$50,000$ from a policy owned by Uncle Diego that named Jose as the sole beneficiary. This receipt came as a complete surprise to Jose as he never knew the policy existed$\mathrm{.}1.$ While walking the dog in late December $2022,$ Rosa was hit by an out$-$of$-$control delivery truck. The mishap sent Rosa to the hospital for several days of observation and medical evaluation. Aside from severe bruises, she suffered no permanent injury. Once apprehended, the driver of the truck was ticketed for DUI. The owner of the truck, a local distributor for a national brewery, was quite concerned about the adverse publicity that would result if Rosa filed a lawsuit. Consequently, it paid all Rosa's medical expenses and offered her a settlement if she would sign a release. Under the terms of the settlement, Rosa would receive $$134,000$$$126,000$ for personal injury and $$8,000$ for loss of income because her injuries prevented her from painting for a period of weeks. On January $31,2023,$ Rosa signed the release and was immediately paid $$134,000\mathrm{.}2.$ In August $2022,$ Jose was rear$-$ended while stopped for a red light. Thankfully, Jose was uninjured. However, his car was damaged. The driver who caused the accident left the scene immediately, so Jose was forced to use his insurance to repair the damage to his car. The insurance company paid for all of the repairs except for $$1,000,$ which Jose was required to pay as the deductible on his policy. Jose paid the $$1,000$ in $2022,$ when the repairs were com$-$pleted. The Navas claimed no deductions with respect to the accident on their $2022$ income tax return. In $2023,$ the insurance company $($Peregrine Casualty$)$ located the driver at fault and recovered the amount paid for repairs by both Jose and Peregrine. Consequently, in April $2023,$ Jose received a check from Peregrine refunding the $$1,000$ he paid for repairs according to his policy's deductible$\mathrm{.}3.$ After an acrimonious divorce, the Navas' only child $($Madeline Ibarra$)$ moved back home in December $2022.$ She brought her twins $($Olivia and Emma$)$ with her. Under the divorce decree, Madeline was given custody of the children and awarded child support of $$2,450$ a month. The decree does not indicate who is entitled to the dependency exemptions for the children. Following the divorce, Madeline is taking some time to decide how to move forward with her life. She did not work in $2023,$ so she has no income for the year except the $$4,900$ she received for two months of child support. She plans to initiate legal proceedings against her ex$-$husband for delinquent child support. Subsequent to Madeline moving back home, Jose and Rosa provided all of Madeline's and the twins' support beyond the $$4,900$ received in child support.In addition to the receipts previously noted, the Navas received these amounts during $2023$:Social Security benefits $($Jose$,$ $ $12,000$; Rosa, $$6,000)$Qualified dividend income $($reported on separate Forms $1099-$DIV$)$:Ragusa CorporationPelican Exploration CorporationInterest income $($reported on separate Forms $1099-$INT$)$:IBM bondsCD at First National Bank of McKinneyWells Fargo money market fundCity of Beaumont $($X$)$ general$-$purpose bonds$$18,0001,2004006004003009,000$payment o$/$ Madeline tea fes and out cos cent arenaMedicare B in suedice iremiums for Jose and Rosapremiumson ed under eate fox deer boat tom a plan that vasDental implants for RosaAppendis f Practce Set AsighmenteComprehersue Tox tatuin Problemsnot established under either taxpayers business$$9,000$Taxes on personal residenceInterest on home mortgage$2,244$Cash donationur New Samaria Baptist Church, Makiney TX$.$professional journals:$3,600$Oil and gas related $($Jose$)8,0003,600$Art related $($Rosa$)2,200$Dues to professional organizations $($Jose$)1,200$State professional license fee $($Jose$)2022$ tax returns separatess te $5450$ for Jose's business:$5250$ for Rosa's business; and $$450$ for personal income tax return$)160120140250$Texas does nomi ascitinome sax, so the Navas choose the state and local sales tax option. $1\%$ comino he state general sales tax, the the stasies talk rac is $2\%(1\%$ city, $1\%$ or routinity development$).$ They do noe keep tales tat sate rax expenditures on routine purchases $(\mathrm{.}8,$ clothes, prepare track of sales verify the sales tax on exceptional items $($le$,$ big$-$ticket purchases like the ca$.$The Navas made quartery Rederal income tax payments of $82,400$ on each of the following dates: April $10,2023,$ June $12,2023,$ September $11,2023,$ and of che$-$bet $28,2023.$ Last year's Federal income tax return reflected an overpayment $3800$ tax, which the Names chose to apply to their $2023$ income tax layiy. The trustee of Jose's retirement plan also withheld $86,500$ of tax with respect to his retirement withdrawals for the year.The Navas do not hold any foreign financial accounts, nor do they have any with digital assets.dealings with foreign trusts. In addition, the taxpayers do not have any dealings Relevant Social Security numbers are noted below.RequirementsPrepare an income tax return $($with all appropriate forms and schedules$)$ for the Navas for $2023$ following these guidelines:$*$ Make necessary assumptions for info not given in the problem but needed to complete the return.$*$ The Navas are employing the same tax return preparer who completed their prior year tax return.$*$ The taxpayers have substantiation $($eg$.,$ records, receipts$)$ to support all transactions for the year.$*$ If any refund is due, the Navas want it applied to next year's tax liability.$*$ The Navas do not want to contribute to the Presidential Election Campaign Fund.F$-$gNameSocial Security NumberBirth Date$214-45-6784$Jose Nava$09/15/1952$Rosa Nava$214-45-678512/03/1957$Madeline Ibarra$214-45-678610/19/1990$Olivia Ibarra$214-45-678706/25/2017$Emma Ibarra$214-45-678806/25/2017$