4 Quiz Part 2 Tax Return Assignment
Maya Chang, age 35, is a single
taxpayer who lives at 1225 Primrose Lane, Austin, Texas, 93221. Her social
security number is 365-87-2012. Maya is the manager of a spa and her earnings
and withholdings for 2015 are:
W-2 Wages $105,000
Federal Taxes Withheld
State Taxes Withheld $0 (Texas
has no income taxes)
Maya owns a single family home as a
rental property at 2012 Boulder Drive, Hutto, Texas, 93110. The house is rented
for the entire year at $1,100 per month and she has the following information:
Property taxes $4,000
Mortgage Interest $12,500
Depreciation: $0 (for simplicity we
assume it is fully depreciated. We will cover depreciation in Chapter 7).
Gardening Services $800
Other Maintenance $3,000
Maya handles all of the rental
management activities herself. She is completely “at risk” in her ownership of
IMPORTANT! Assume that there are NO
prior year suspended losses and any prior year losses have been allowed.
Maya likes to gamble and she has
made a net of $6,000 during the year in playing the slot machines. (Ignore the
deductibility of gambling losses for this problem; we cover it in Chapter 5).
She has a checking account that
earns no interest income. Except for her rental property, her bank account, and
her 401(k) retirement accounts, she has no other investments.
Maya changed jobs last year and is
only now moving her 401 (k) plan balance from her old employer’s 401(k) plan to
her current employer’s 401(k) plan. The balance in her 401(k) account was
$102,000 at the time of the transfer and she had it done directly from her old
employer’s 401(k) plan trustee to the new employer’s trustee. She received a
Form 1099 confirming the transfer.
Maya is too busy to do her own tax
return and hired you to do it. Prepare her Form 1040, Schedule E, and Form
8582. (Hint: this last form is important). Do not prepare Form 4562. Make
reasonable assumptions about missing information.
Hint 1: Expect to do Form 8582 and
Schedule E at the same time. You will jump back and forth between the two
forms. This is normal. You will also need to do the first page of Form 1040
(well, everything except the rental property) before you do these forms.
Hint 2: IMPORTANT. Form 8582 is an
insane form and challenging to prepare manually. That said, I’m going to give
you some big hints to get through it:
- Do Part 1 on page 1, then Worksheet 1 on Page 2, then
Part II. When you get to Line 16 on Page 1, use that result to go back to
- Don’t let Form 8582 make you panic. Focus on Parts I
and II and apply the knowledge you have learned about passive losses, real
estate, and active participants in real estate. READ the form instructions
(but not forever, see below). It’s a similar story with Schedule E; read
the directions, apply your knowledge of how rental real estate works.
- It is REALLY easy to get caught up in how
confusing the instructions are for Form 8582 and all of the worksheets
supporting it. Don’t do that. Follow my hints and try to follow how to
carry the amounts through to the other forms, but if you find yourself
getting lost, use common sense. Frankly, some of these forms are designed
with computer tax software in mind and I don’t want you to get tied-up. I
admit that when using forms like this, when the doing by hand method, has
its limits. DO YOUR BEST!
If you don’t get this don’t
panic. I will review all of your work and give you credit for your overall tax