1. On February 11, 2012, Bill inherits his father s summer home. The house, located in South Lake Tahoe, Nevada, has a fair market value of $496,000 at the date of his father s death. His parents had purchased the house in 1974 for $127,000 and made $59,000 worth of capital improvements to it. Twenty percent of the total value of the property is attributable to the land. Because Bill and Joyce ultimately would like to use the property as a vacation home, they decide to rent it out. Bill actively participates in the management of the property. The property is first advertised for rent on March 1, 2012, but is not rented until April 15, 2012. Bill provides the following income and expense information for the Lake Tahoe rental
property:
Rent $18,000
Repairs 4,720
Management fee 2,750
Property taxes 9,375
Insurance 1,900
In addition, Bill buys a new stove for $1,240 and a new refrigerator for $970 on March 20, 2012.
2. The Schnappaufs receive Form 1099-B (Exhibit A-15) from Pebble Beach Investors for the sale of several securities. Details on the securities sales are provided below. The selling price listed is net of brokerage commissions and represents the amount the Schnappaufs actually receive from the sale.
Stock DateAcquired DateSold SalePrice PurchasePrice 150 shares Pfizer Corp 5/12/89 8/15/12 $ 6,000 $ *
300 " Texas Instruments 7/30/94 10/25/12 17,100 **
50 shares Alcoa 6/10/06 10/23/12 525 1,800
25 shares Luminent 4/28/12 9/4/12 900 2,700
60 " Textron 9/11/12 10/27/12 10,410 9,100
300 shares Hasbro 1/7/01 12/20/12 6,125 3,150
*When Joyce graduated from college on May 12, 1989, her father gave her 150 shares of Pfizer Corporation stock that he had acquired on October 27, 1981, for $1,300. At the date of the gift, the fair market value of the stock was $1,800. In January 1998, Pfizer Corporation stock split 2 for 1.
**The Schnappaufs acquired 500 shares of preferred stock in Texas Instruments for $7,810. Shortly after the purchase, they received a nontaxable 10% stock dividend.
3. On May 18, 2012, Joyce purchases a computer system for $2,560. She also buys a color printer/copier/fax machine for $560. All the equipment is used exclusively in her business.
4. On June 12, 2012, Joyce sells her old computer system for $355 and her printer for $110. She had acquired the computer system and printer on February 18, 2009, for $2,710 and $490, respectively. When the Schnappaufs prepared their 2009 tax return, they elected to expense the computer and printer using Section 179. The computer system and the printer were used exclusively in her business.
5. Joyce receives a Schedule K-1 (Exhibit A-16) for her interest in the furniture-restoration business.
6. Other information:
a. The rental property in Lake Tahoe is located at XXX XXXXXXX XXXXX, South Lake Tahoe (88197).