1.     In May 2000, Wanda Wilstoner purchased a house in San Diego with an original cost of $1,800,000. The house was on the beach and was a perfect weekly or weekend rental. Wanda would occasionally stay in the house on short vacation trips when the place was not being rented. The rental company statement provided the following information for 2015 and 2016 (the information is provided to Wanda for comparative purposes). Note that your supervisor made sure that the 2015 amounts appearing here also tied to the amounts used on the 2015 return:

 

Item

2015

2016

Wanda’s personal use days

28

35

Days rented at market value

315

304

Daily rental income

$225

$200

Management fees

$15,000

$12,000

Interest on mortgage

$35,000

$0 *

Property taxes

$25,000

$26,000

Cleaning costs

$2,000

$2,500

Repairs

$1,500

$1,200

Insurance

$2,500

$2,500

New carpet

$0

$5,000

Painting the exterior

$3,000

$0

New kitchen countertops

$0

$10,000

New appliances

$0

$4,000

Alarm company

$1,000

$1,000

*Mortgage was paid off in December 2015.

 

In November 2016, Wanda received an offer to purchase the San Diego house that she just could not refuse and sold the property for a price of $2,050,000. The sale closed on December 30, 2016. As part of the closing process, the escrow agent was required to withhold 3% of the sales price and remit the money to the state of California as income tax withholding (this is standard procedure when a non-resident sells California real property and thus there was no way for Wanda to avoid the cost). Wanda also paid the real estate broker a fee of 6% for helping close the sale. For both 2015 and 2016, Wanda’s AGI exclusive of the impact from the San Diego property is over $200,000.

 

Required: Calculate Wanda’s total net impact on her taxable income, by type of item, from the San Diego property for 2016. For the gain on the sale, describe what type of gain it is (capital or ordinary) and explain how you arrived at that conclusion. Show your work as to how you arrived at the amounts.

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Status NEW Posted 20 Jun 2017 04:06 AM My Price 9.00

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