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Student instructions:
Use IRS Publication 527 and California 540A / 540 Booklet to complete this topic.
Prepare Form 1040, Form 4562, Schedule A, Schedule E, California Form 540 and California Schedule CA.
Teresa is single and has no children.
In August, 2007, Teresa moved in with her mother to keep her company. Instead of selling the condo she had been living in, she decided to convert it to rental property. Teresa selected her tenant and started renting the condo on September 1st. Teresa charges $800 per month for rent and collects it herself. Teresa received an $800 security deposit and $800 last months rent from her tenant. She plans to return the security deposit to her tenant at the end of the lease but not until doing an inspection on the condition of the condo. She actively participated in the rental activities. She had advertised and rented the condo to the current tenant herself. She also collected the rents. All repairs were contracted by Teresa.
Her condo expenses for the 2007 tax year are:
 | Mortgage interest........................$8,500.00 |
| Fire insurance (1-year policy).............$350.00 |
| Miscellaneous repairs (after renting).....$200.00 |
| Real estate taxes imposed and paid....$1,300.00 |
Teresa bought this property in 1983 for $35,000. Her property tax was based on assessed values of $10,000 for the land and $25,000 for the condo. Before changing it to rental property, Teresa added several improvements to the condo. She figures her adjusted basis as follows:
Improvements...............................Cost
| Building......................................$25,000 |
| Remodeled kitchen ..........................$4,200 |
| Added a recreation room....................$5,800 |
| New roof.......................................$1,600 |
| Patio and deck................................$2,400. |
| Adjusted basis...............................$39,000. |
On September 1st, 2007, when Teresa changed her 1 bedroom condo to rental property. The property had a fair market value of $92,000 ($20,000 land and $72,000 building). Property is located at 5161 Cesar Chavez Blvd, Lompoc, CA 93436.
Because the condo is residential rental property, she must use the straight line method of depreciation using either the GDS recovery period or the ADS recovery period. She chooses the GDS recovery period of 27.5 years. She uses Table 4-D to find her depreciation percentage. Because she placed the property in service in September, she finds the percentage to be 1.061%.
Teresa does not pay rent to her mother. All her information on
the W-2 is current.
Have your return prepared and ready to answer the questions.
Option 1: Complete Quiz online.
Instructions to submit quiz successfully: Step-by-Step check list
When prompted for your name, please enter your CTEC or Preparer Number (if you have a number) with your name as follows: First, last name, Number (e.g. John Smith A012345 / John Smith P012345)
Option 2: Complete and mail answer sheet.
If you choose not to complete the quiz by pressing "Start quiz" above, you can print questions and answer-sheet to mail to us. If you complete the online quiz, the advantage is that you get an automatic score as apposed to waiting for a response on a manually graded quiz. You can also print the questions and answer sheet and after you answered the questions on paper submit it online by choosing "Start Quiz" above. Please don't sent answer sheet by certified mail.
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Please Note: You must also complete the tax return for this assignment. If you turn in incomplete work, such as purposely not answering the questions regarding the return you prepared, you will not be given credit for the topic.
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