Question

Back on December 23, 2000, Jasmine Crusher purchased a home in Pahoa, Hawaii for $1,500,000 which included the land and the home. Her property tax bill for 2001 showed assessed value of the land of $300,000 and of the building for $1,200,000. She used the home as her personal residence until October 15, 2010 when her employer transferred her to San Francisco. Jasmine put the house on the market for a sale price of $1,900,000 but was receiving no offers. In February 2011, she found out that a house down the road had just sold for $1,250,000. So, she decided to rent it and use it for occasional vacations for herself. Jasmine hired a management company to find the renters. Since the house is in Hawaii, the management firm never had a problem having the house rented for most of the year. Because Jasmine used a 15 year loan, the loan was completely paid off in December 2015. Jasmine turned over all bill paying responsibilities to the management company starting in 2014. Below are the details Jasmine received from the management company for 2014 and 2015. However, in 2016, she decided that the management company was charging her too much for the small amount of work they seemed to be doing, so she fired them on June 1 and took over all of the work of renting the house and paying the bills. On December 2, 2016, the nearby volcano erupted and Jasmine’s house was burned to the ground by one of the advancing lava flows, while she was working in San Francisco. As a result of having been so busy with work and the rental, Jasmine neglected to pay her homeowners insurance that was due July 1, 2016, so at the time of the eruption, she had no insurance. The 2016 information is a combination of the management company information through May 31, and Jasmine’s records for the rest of the year up until the house was caught in the lava flow. Jasmine sold the land in a fire sale “as-is” for $50,000 on December 31, 2016. Jasmine is a successful IT consultant with AGI, made up of wages and interest income, for 2016 of $375,500 and $365,750 for 2015.

	2014	2015	2016
Days rented	300	310	300
Personal days used	32	28	29
Rental income per day	240	260	280
Property taxes	22,500	23,063	23,639
Interest on mortgage	18,000	15,000	0
Insurance	1,150	1,250	0
Alarm Company	500	600	600
Management company	12,000	12,000	5,000
Advertising	1,250	1,300	1,400
Repairs	2,500	1,000	1,950
Cleaning fees	3,000	3,500	3,250
Accounting fees	1,250	1,300	1,200
Utilities	2,400	2,500	2,600
Landscaper fees	1,800	1,900	2,100
Cable TV	1,500	1,600	1,800
Required: Calculate all of the impacts of the above transactions on Jasmine’s 2016 taxes. Explain how you arrived at each conclusion.

Answer 1

Particulars	2014	2015	2016
Income
Wages & Interest Income		$365,750.00	$ 375,500.00
Rental Income	$72,000.00	$ 80,600.00	$   84,000.00
(Days Rented X Rental income per day)
Capital gain/(Loss)			$(275,589.00)
Total Income (A)	$72,000.00	$446,350.00	$ 183,911.00
Expenese
Interest on mortgage	$18,000.00	$ 15,000.00
Insurance	$ 1,150.00	$    1,250.00
Alarm Company	$     500.00	$      600.00	$       600.00
Management company	$12,000.00	$ 12,000.00	$     5,000.00
Advertising	$ 1,250.00	$    1,300.00	$     1,400.00
Cleaning fees	$ 3,000.00	$    3,500.00	$     3,250.00
Accounting fees	$ 1,250.00	$    1,300.00	$     1,200.00
Utilities	$ 2,400.00	$    2,500.00	$     2,600.00
Landscaper fees	$           -	$             -	$              -
Cable TV	$           -	$             -	$              -
(No deduction allowed as conderised as personal use)
Total Expenses (B)	$39,550.00	$ 37,450.00	$   14,050.00
Taxable Income (A)-(B)	$32,450.00	$408,900.00	$ 169,861.00

Capital Gain/(Loss) Computation
Sale Price	$   50,000.00
Less: Selling expenses	$              -
Less: Cost of Land	$ 300,000.00
Less: Property Taxes	$   23,639.00
Less: Repairs	$     1,950.00
Capital Loss	$(275,589.00)