FIND:
FORM 1040-U.S. INDIVIDUAL INCOME TAX RETURN Assume that the taxpayers, George A. NAME_PLUG (born 1/11/1970, social security number 333-33- 3330) and Mary S. NAME PLUG (born 2/22/1970, social security number 444-44- 4440) file a joint return. Both have good eyesight and live with their three children, Edward (horn 3/3/20 01), John (born 4/4/2003) and Ruth (bom 5/5/2012). 9999. Mr. NAME_PLUG elects to have $3 of his in come tax go to the Presidential Election Campaign Fund. Mrs. NAME_PLUG elects not to contribute. T he NAME_PLUGs' oldest son, Edward, is a student at the Jasper University O. He worked during the su mmer and carned $4,500. Their other son, John, is a high school student. He camed $3,600 working full- time during the summer and part- time during the remainder of the year. Neither son had any additional income. Their daughter, Ruth, is an elementary school student. She had no earned or uneared income during the year. Edward's social secu rity number is 300-11-0001, John's social security number is 300-22- 0002, and Ruth's social security number is 300-55- 0005. In August, the NAME_PLUGs paid $4,500 in tuition for their son, Edward, for the academic perio d that started in September. They received a Form 1098- T for 2020 showing the payment received in Box 1. Box 8 is checked indicating Edward was at least a ha If- time student. Edward had not claimed the American Opportunity Credit or Hope Scholarship Credit in an y four prior tax years, did not complete the first four years of post- secondary education before 2020, and he had not been convicted of any felony. The NAME_PLUGs pro vide support for Mrs. NAME_PLUG's mother, Grace D. Taylor (hom 6/6/1948). The total support of Mr s. Taylor is $6,000, received from the following three sources: (1) $3,000 from Mary NAME PLUG, ( 2) $1,000 from another daughter, Thelma Taylor, and (3) $2,000 in social security benefits. Mrs. Grace D. Taylor lived with the NAME PLUGs during all of 2020. Her social security number is 400-44- 0004. Thelma Taylor provides the NAME_PLUG's with a written, signed statement that she will not clai m her mother as a dependent in 2020, Thelma Taylor lives at 1425 S. 62nd Street, Chicago, IL 60699, an d her social security number is 500-55- 0005. The NAME_PLUGs use Trish Ford, a professional tax preparer, to prepare their income tax retum Trish Ford's PTIN is P98765432, and she works for E&Z Tax Preparation (EIN #36- 20987654), which is located in a nearby suburb of Yonkers (telephone number 914-555- 1040). However, the NAME PLUG's do not authorize her to discuss their return with the IRS. INCOM E AND EXPENSES GENERALLY During 2020, Mrs. NAME_PLUG was employed as a salesperson b y XPert Publishing Inc. Her Form W- 2 for 2020 reports the following: Box 1. Wages, tips and other compensation $87.000 Box 2. Federal inc ome tax withheld $8,613 Box 4. FICA tax withheld $5 304 Box 6. Medicare tax withheld SL 262 Box 1 7. State income tax $2.250 Mrs. NAME_PLUG is not covered by her employer's retirement plan. In addi tion, Mr. NAME PLUG is a self- employed individual who does not maintain a Keogh or a SEP plan. Mrs. NAME_PLUG made a $2,000 contribution to a traditional IRA and a $3,000 contribution to a Roth IRA in 2020. Mr. NAME_PLUG de cided against making a contribution to any IRA. The NAME_PLUGs received a $30 state income tax ref und. They itemized in the prior year and clected to take their $2,000 state income tax payment as a deduc tion. The NAME_PLUGs also received a $130 federal income tax refund. Form 1040, Schedule A The NAME_PLUGs made federal estimated tax payments of $2,400 for tax year 2020. These $2,400 are paid in the following dates: $600 on April 15, 2020 $600 on June 15, 2020 $600 on September 15, 2020. $600 on January 15, 2021 The NAME_PLUGs incurred the following medical expenses during 2020: 3 . prescription drugs, $1,000;. doctor bills, $3,462; hospital bills, S1,750; . transportation, S78; and eyeglasses, $500. In addition, Mr. NAME_PLUG, who is self- employed, paid $3,750 in premiums for health insurance coverage for himself, his wife, and children. Th c health insurance coverage meets all the requirements under the individual mandate. Grace Taylor is cov a ered under Medicare. The NAME_PLUGs paid their 2019 real estate taxes of $2,810 on July 1, 2020. In addition, they sold their residence on September 13, 2020. They allowed the buyer a credit equal to 70% of the estimated real estate taxes of $3,000 for 2020 (30% of the real estate taxes is the buyer's share). T he real estate taxes on the new property they purchased on May 1, 2020, are not payable until 2021. Ther e was no taxable gain on the sale of their prior residence. Mr. and Mrs. NAME_PLUG paid $4,878 in ded uctible home mortgage interest to a bank. They also paid $2,750 in points when they purchased their new home. They paid the following personal interest in 2020: . $600 to finance Mrs. NAME_PLUG's car, a nd . $400 in credit card interest. The NAME_PLUGs gave $1,500 in cash to various recognized charitie s; no individual gift was $250 or more, all charities sent an acknowledgment of the contribution. In 2020 the NAME_PLUGs paid $500 for the preparation of their 2019 tax return (including $250 for the prepar ation of Schedule C, Profit or Loss from Business for George NAME_PLUG's furniture business), $50 f or the rental of a safe deposit box where they stored their securities, and $350 for investment publications . Form 4684, Section A On March 2, 2020, a burglar entered their home and stole a ring and a coin colle ction. The ring had been purchased in May 15, 2015 at a cost of $3,000. Mrs. NAME_PLUG had purchas ed the coin collection in July 15, 2010 at a cost of $1,100. An insurance company appraised the ring at a fair market value of $5,000, but limited its loss coverage on jewelry under a homeowners' policy to $1,5 00. The insurance company excluded the coin collection from the insurance policy 4 because of its polic y restrictions on such items. At the time of the theft, the fair market value of the coin collection was $2,0 00. Form 1040, Schedule B During 2020, the NAME_PLUGs received $500 in interest from the Heartla nd National. They received $200 in interest from tax- exempt bonds issued by the state of New York. The NAME_PLUG's received the following qualified di vidends: $400 from Rambling Motorcycles, Inc., $300 from Secure Fund, and $250 from Rapid Growth Mutual Fund. They also received a $100 capital gain distribution from Rapid Growth. In addition, the N AME PLUG's received $700 in non- qualified foreign corporation dividends from Consolidated Tapioca, and paid foreign taxes of $10 to vari ous countries in connection with this investment. The responses to the questions on Part III of Schedule Bare "No." Form 1040, Schedule D During 2020, the NAME_PLUGs sold the following capital assets: (1) On February 2, 100 shares of Ahab Inc. were sold for $1,000. They had been purchased on Novembe r 12, 2019 for $2,500 (2) On November 5, 200 shares of Pequod Inc. were sold for $5,000. They had he en purchased on January 5, 2020 for $2,000. (3) On December 4, 100 shares of Squall Inc. were sold for $10,000. They had been purchased on January 4, 2009 for $4,000. (4) On December 10, 200 shares of Kismet Inc. were sold for $5,000. They had heen purchased on September 5, 2013 for $2,000. (5) On D ecember 15, a number of gold coins were sold for $2,000. The coins had been purchased on October 15, 2014 for $3,000. The NAME PLUGs received a Form 1099- B from their broker for 2020 that showed the proceeds and basis for Items 1 - 4 (basis reported to the IR S). The gold coins were sold to an acquaintance who did not provide a Form 1099- B. Form 1040, Schedule E Mr. and Mrs. NAME_PLUG own and rent a studio located in an apartment b uilding. The studio is not used for personal purposes by either the 5 NAME_PLUGs or members of their family and was rented at fair rental value for the entire year. Mr. NAME_PLUG actively participates in t he operation of the rental. The NAME_PLUGs received rents of $23,100 in 2020. Their expenses are as f ollows: .cleaning and maintenance, $2,500; . mortgage interest, $4,000; . repairs, $750; . advertisin 8. $500; insurance, $1,000 and real estate taxes, $1,250. The current depreciation figure, taken from the NAME_PLUGs' work papers is $3,636. The studio was purchased on February 5, 2011 at $100,000. The NAME_PLUGs did not make any payments that required them to file Form(8) 1099. The NAME_P LUGs has rented the rental property for more than four years. NAME_PLUGs kept separate books and re cords for their rental property. The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all ser vices performed; dates on which such services were performed; and who performed the services. This pr operty is treated as a trade or business for purposes of the section 199A deduction under Rev. Proc. 2019- 38. Form 2441 During 2020, the NAME_PLUGs' daughter, Ruth, attended two child care centers. They were: Happy Day Care, 4210 W. Maple, Riverdale, New York 10471, whose identification number is 36 0987654; and Greenfields Day Care, whose identification number is 36- 1234567. The NAME_PLUGS paid $3,720 to Happy Day Care and $1,920 to Greenfields Day Care. The NAME PLUGs did not receive employer- provided dependent care benefits. BUSINESS INCOME Form 1040, Schedule C Mr. NAME_PLUGO perated Interiors Unlimited, selling home furnishings at retail, as a sole proprietor during the entire year. The business address is. His employer identification number is 36- 3456789. The business code is 442200. Mr. NAME_PLUG filed all of the appropriate payroll tax forms and Form(s) 1099 for 2020. In order to clearly show business income, Mr. NAME_PLUG maintains an i nventory at cost and he uses the accrual method of accounting for his sales and purchases. Total gross rec cipts of the business were $144,800 and returns and allowances amounted to $2,200. The business books and records showed the following at the end of the year. Inventory at beginning of year (valued at cost) $37,500 Merchandise purchased 75,000 Inventory at end of year 22,000 Truck expenses 550 Other interest 300 Rent (property) 6,500 Repairs 280 Taxes 2,000 Wages (W-2 wages) 12,541 Insurance 1,450 Utilities and telephone 1,200 Advertising 3,200 Legal and accounting 400 (includes $200 of tax preparation fees) Office expense 125 Depreciation 14,698 Travel 400 Meals 550 Entertainment 670 Miscellaneous 330 Form 4562 7 On January 10, 2020, Mr. NAME_PLUG purchased office furniture at a cost of $5,000. Th e fumiture is used 100% for business. It is seven- year MACRS property. Mr. NAME_PLUG elected to expense $1,000 of the cost under Code Sec. 179. Mr. NAME_PLUG elected not to claim the homs depreciation available for any business property placed in service during 2020. On July 15, 2020, Mr. NAME_PLUG purchased a pickup truck for use in his bu siness. It was driven 8,000 miles. The truck, used 100% for business, cost 547,000 and sales tax was $3,0 00 for a basis of $50,000. The truck is considered five- year MACRS property. Also, it falls in the classification of a light, general purpose truck, subject to depreciation limits. The NAME_PLUGS opt out of Sec. 168(K) bonus depreciat ion for this truck. On June 15, 2016, Mr. NAME_PLUG purchased fixtures for the store for $6,000. The current depreciation deduction for the fixtures was $536. Mr. NAME_PLUG bought a brick building on July 1, 2008, $75,000 of the price being allocable to the building for depreciation purposes. No capital im provements were made. Depreciation on the building is computed by using the MACRS method (non- residential). The allowable MACRS deduction for 2020 would be calculated at the rate of 2.564%. Form 4684 On September 1, 2020, a garage that had been purchased for $25,000 on July 1, 2011 and used exc lusively for Mr. NAME_PLUG's business was damaged by fire. The garage was located in Bronx, NY (2 ip code: 10471). In order to repair the garage after the fire, Mr. NAME_PLUG spent $7,905. The repairs were considered to be an improvement to the property, which, prior to the casualty, was being depreciate d under the MACRS method for nonresidential property. The amount of depreciation claimed prior to 20 20 was $5,422. Mr. NAME_PLUG uses Form 4684, Section B, to determine the recognized casualty gain or lors from the fire damage to the garage. Assume that the fair market value of the garage was $24,650 before the fire and it had a fair market value immediately after the fire of $14,760. Assume, in completin g Form 4684, that the total amount of depreciation that Mr. NAME_PLUG had claimed for the garage up to the date of the fire was $5,876 (2020 depreciation - $454) and that he had received $5,000 from a fire insurance policy he had on the garage. After the fire, and taking into account the allowable loss deductio n, the cost of repair and the insurance recovery, the new adjusted basis of the garage for depreciation pur poses was $22,029. Since the basis had to be adjusted, the garage would be depreciated on a straight- line method for the remainder of the original depreciation period. The allowable MACRS deduction for 2020 would be calculated based on a rate of 3.33% (from September to December using a mid- month convention). & Form 4797 On January 3, 2020, Mr. NAME_PLUG sold a business truck for $55 0. He had purchased the truck for $5,000 on March 12, 2011. Total depreciation allowed or allowable on the truck prior to 2020 was $5,000. 1 Main schedule 2 [Not all blank lines have to be filled.] 3 4 Gross income: 5 Wages 6 Interest income 7 Dividend income 8 Social security benefits 9 business income 10 rental income 11 tax refunds 12 Capital gains/losses 13 Business casualty income/loss 14 15 16 Deductions for AGI 17 Half of self-employment tax 18 Self employed health insurance deduction 19 Alimony 20 HSA contribution 21 IRA contribution 22 student loan interest 23 Special charitable contribution if use standard 24 25 Adjusted gross income 26 27 Less: 28 Standard or itemized deduction 29 30 Qualified business income deduction 31 32 33 34 35 36 Taxable income 37 (300) FORM 1040-U.S. INDIVIDUAL INCOME TAX RETURN Assume that the taxpayers, George A. NAME_PLUG (born 1/11/1970, social security number 333-33- 3330) and Mary S. NAME PLUG (born 2/22/1970, social security number 444-44- 4440) file a joint return. Both have good eyesight and live with their three children, Edward (horn 3/3/20 01), John (born 4/4/2003) and Ruth (bom 5/5/2012). 9999. Mr. NAME_PLUG elects to have $3 of his in come tax go to the Presidential Election Campaign Fund. Mrs. NAME_PLUG elects not to contribute. T he NAME_PLUGs' oldest son, Edward, is a student at the Jasper University O. He worked during the su mmer and carned $4,500. Their other son, John, is a high school student. He camed $3,600 working full- time during the summer and part- time during the remainder of the year. Neither son had any additional income. Their daughter, Ruth, is an elementary school student. She had no earned or uneared income during the year. Edward's social secu rity number is 300-11-0001, John's social security number is 300-22- 0002, and Ruth's social security number is 300-55- 0005. In August, the NAME_PLUGs paid $4,500 in tuition for their son, Edward, for the academic perio d that started in September. They received a Form 1098- T for 2020 showing the payment received in Box 1. Box 8 is checked indicating Edward was at least a ha If- time student. Edward had not claimed the American Opportunity Credit or Hope Scholarship Credit in an y four prior tax years, did not complete the first four years of post- secondary education before 2020, and he had not been convicted of any felony. The NAME_PLUGs pro vide support for Mrs. NAME_PLUG's mother, Grace D. Taylor (hom 6/6/1948). The total support of Mr s. Taylor is $6,000, received from the following three sources: (1) $3,000 from Mary NAME PLUG, ( 2) $1,000 from another daughter, Thelma Taylor, and (3) $2,000 in social security benefits. Mrs. Grace D. Taylor lived with the NAME PLUGs during all of 2020. Her social security number is 400-44- 0004. Thelma Taylor provides the NAME_PLUG's with a written, signed statement that she will not clai m her mother as a dependent in 2020, Thelma Taylor lives at 1425 S. 62nd Street, Chicago, IL 60699, an d her social security number is 500-55- 0005. The NAME_PLUGs use Trish Ford, a professional tax preparer, to prepare their income tax retum Trish Ford's PTIN is P98765432, and she works for E&Z Tax Preparation (EIN #36- 20987654), which is located in a nearby suburb of Yonkers (telephone number 914-555- 1040). However, the NAME PLUG's do not authorize her to discuss their return with the IRS. INCOM E AND EXPENSES GENERALLY During 2020, Mrs. NAME_PLUG was employed as a salesperson b y XPert Publishing Inc. Her Form W- 2 for 2020 reports the following: Box 1. Wages, tips and other compensation $87.000 Box 2. Federal inc ome tax withheld $8,613 Box 4. FICA tax withheld $5 304 Box 6. Medicare tax withheld SL 262 Box 1 7. State income tax $2.250 Mrs. NAME_PLUG is not covered by her employer's retirement plan. In addi tion, Mr. NAME PLUG is a self- employed individual who does not maintain a Keogh or a SEP plan. Mrs. NAME_PLUG made a $2,000 contribution to a traditional IRA and a $3,000 contribution to a Roth IRA in 2020. Mr. NAME_PLUG de cided against making a contribution to any IRA. The NAME_PLUGs received a $30 state income tax ref und. They itemized in the prior year and clected to take their $2,000 state income tax payment as a deduc tion. The NAME_PLUGs also received a $130 federal income tax refund. Form 1040, Schedule A The NAME_PLUGs made federal estimated tax payments of $2,400 for tax year 2020. These $2,400 are paid in the following dates: $600 on April 15, 2020 $600 on June 15, 2020 $600 on September 15, 2020. $600 on January 15, 2021 The NAME_PLUGs incurred the following medical expenses during 2020: 3 . prescription drugs, $1,000;. doctor bills, $3,462; hospital bills, S1,750; . transportation, S78; and eyeglasses, $500. In addition, Mr. NAME_PLUG, who is self- employed, paid $3,750 in premiums for health insurance coverage for himself, his wife, and children. Th c health insurance coverage meets all the requirements under the individual mandate. Grace Taylor is cov a ered under Medicare. The NAME_PLUGs paid their 2019 real estate taxes of $2,810 on July 1, 2020. In addition, they sold their residence on September 13, 2020. They allowed the buyer a credit equal to 70% of the estimated real estate taxes of $3,000 for 2020 (30% of the real estate taxes is the buyer's share). T he real estate taxes on the new property they purchased on May 1, 2020, are not payable until 2021. Ther e was no taxable gain on the sale of their prior residence. Mr. and Mrs. NAME_PLUG paid $4,878 in ded uctible home mortgage interest to a bank. They also paid $2,750 in points when they purchased their new home. They paid the following personal interest in 2020: . $600 to finance Mrs. NAME_PLUG's car, a nd . $400 in credit card interest. The NAME_PLUGs gave $1,500 in cash to various recognized charitie s; no individual gift was $250 or more, all charities sent an acknowledgment of the contribution. In 2020 the NAME_PLUGs paid $500 for the preparation of their 2019 tax return (including $250 for the prepar ation of Schedule C, Profit or Loss from Business for George NAME_PLUG's furniture business), $50 f or the rental of a safe deposit box where they stored their securities, and $350 for investment publications . Form 4684, Section A On March 2, 2020, a burglar entered their home and stole a ring and a coin colle ction. The ring had been purchased in May 15, 2015 at a cost of $3,000. Mrs. NAME_PLUG had purchas ed the coin collection in July 15, 2010 at a cost of $1,100. An insurance company appraised the ring at a fair market value of $5,000, but limited its loss coverage on jewelry under a homeowners' policy to $1,5 00. The insurance company excluded the coin collection from the insurance policy 4 because of its polic y restrictions on such items. At the time of the theft, the fair market value of the coin collection was $2,0 00. Form 1040, Schedule B During 2020, the NAME_PLUGs received $500 in interest from the Heartla nd National. They received $200 in interest from tax- exempt bonds issued by the state of New York. The NAME_PLUG's received the following qualified di vidends: $400 from Rambling Motorcycles, Inc., $300 from Secure Fund, and $250 from Rapid Growth Mutual Fund. They also received a $100 capital gain distribution from Rapid Growth. In addition, the N AME PLUG's received $700 in non- qualified foreign corporation dividends from Consolidated Tapioca, and paid foreign taxes of $10 to vari ous countries in connection with this investment. The responses to the questions on Part III of Schedule Bare "No." Form 1040, Schedule D During 2020, the NAME_PLUGs sold the following capital assets: (1) On February 2, 100 shares of Ahab Inc. were sold for $1,000. They had been purchased on Novembe r 12, 2019 for $2,500 (2) On November 5, 200 shares of Pequod Inc. were sold for $5,000. They had he en purchased on January 5, 2020 for $2,000. (3) On December 4, 100 shares of Squall Inc. were sold for $10,000. They had been purchased on January 4, 2009 for $4,000. (4) On December 10, 200 shares of Kismet Inc. were sold for $5,000. They had heen purchased on September 5, 2013 for $2,000. (5) On D ecember 15, a number of gold coins were sold for $2,000. The coins had been purchased on October 15, 2014 for $3,000. The NAME PLUGs received a Form 1099- B from their broker for 2020 that showed the proceeds and basis for Items 1 - 4 (basis reported to the IR S). The gold coins were sold to an acquaintance who did not provide a Form 1099- B. Form 1040, Schedule E Mr. and Mrs. NAME_PLUG own and rent a studio located in an apartment b uilding. The studio is not used for personal purposes by either the 5 NAME_PLUGs or members of their family and was rented at fair rental value for the entire year. Mr. NAME_PLUG actively participates in t he operation of the rental. The NAME_PLUGs received rents of $23,100 in 2020. Their expenses are as f ollows: .cleaning and maintenance, $2,500; . mortgage interest, $4,000; . repairs, $750; . advertisin 8. $500; insurance, $1,000 and real estate taxes, $1,250. The current depreciation figure, taken from the NAME_PLUGs' work papers is $3,636. The studio was purchased on February 5, 2011 at $100,000. The NAME_PLUGs did not make any payments that required them to file Form(8) 1099. The NAME_P LUGs has rented the rental property for more than four years. NAME_PLUGs kept separate books and re cords for their rental property. The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all ser vices performed; dates on which such services were performed; and who performed the services. This pr operty is treated as a trade or business for purposes of the section 199A deduction under Rev. Proc. 2019- 38. Form 2441 During 2020, the NAME_PLUGs' daughter, Ruth, attended two child care centers. They were: Happy Day Care, 4210 W. Maple, Riverdale, New York 10471, whose identification number is 36 0987654; and Greenfields Day Care, whose identification number is 36- 1234567. The NAME_PLUGS paid $3,720 to Happy Day Care and $1,920 to Greenfields Day Care. The NAME PLUGs did not receive employer- provided dependent care benefits. BUSINESS INCOME Form 1040, Schedule C Mr. NAME_PLUGO perated Interiors Unlimited, selling home furnishings at retail, as a sole proprietor during the entire year. The business address is. His employer identification number is 36- 3456789. The business code is 442200. Mr. NAME_PLUG filed all of the appropriate payroll tax forms and Form(s) 1099 for 2020. In order to clearly show business income, Mr. NAME_PLUG maintains an i nventory at cost and he uses the accrual method of accounting for his sales and purchases. Total gross rec cipts of the business were $144,800 and returns and allowances amounted to $2,200. The business books and records showed the following at the end of the year. Inventory at beginning of year (valued at cost) $37,500 Merchandise purchased 75,000 Inventory at end of year 22,000 Truck expenses 550 Other interest 300 Rent (property) 6,500 Repairs 280 Taxes 2,000 Wages (W-2 wages) 12,541 Insurance 1,450 Utilities and telephone 1,200 Advertising 3,200 Legal and accounting 400 (includes $200 of tax preparation fees) Office expense 125 Depreciation 14,698 Travel 400 Meals 550 Entertainment 670 Miscellaneous 330 Form 4562 7 On January 10, 2020, Mr. NAME_PLUG purchased office furniture at a cost of $5,000. Th e fumiture is used 100% for business. It is seven- year MACRS property. Mr. NAME_PLUG elected to expense $1,000 of the cost under Code Sec. 179. Mr. NAME_PLUG elected not to claim the homs depreciation available for any business property placed in service during 2020. On July 15, 2020, Mr. NAME_PLUG purchased a pickup truck for use in his bu siness. It was driven 8,000 miles. The truck, used 100% for business, cost 547,000 and sales tax was $3,0 00 for a basis of $50,000. The truck is considered five- year MACRS property. Also, it falls in the classification of a light, general purpose truck, subject to depreciation limits. The NAME_PLUGS opt out of Sec. 168(K) bonus depreciat ion for this truck. On June 15, 2016, Mr. NAME_PLUG purchased fixtures for the store for $6,000. The current depreciation deduction for the fixtures was $536. Mr. NAME_PLUG bought a brick building on July 1, 2008, $75,000 of the price being allocable to the building for depreciation purposes. No capital im provements were made. Depreciation on the building is computed by using the MACRS method (non- residential). The allowable MACRS deduction for 2020 would be calculated at the rate of 2.564%. Form 4684 On September 1, 2020, a garage that had been purchased for $25,000 on July 1, 2011 and used exc lusively for Mr. NAME_PLUG's business was damaged by fire. The garage was located in Bronx, NY (2 ip code: 10471). In order to repair the garage after the fire, Mr. NAME_PLUG spent $7,905. The repairs were considered to be an improvement to the property, which, prior to the casualty, was being depreciate d under the MACRS method for nonresidential property. The amount of depreciation claimed prior to 20 20 was $5,422. Mr. NAME_PLUG uses Form 4684, Section B, to determine the recognized casualty gain or lors from the fire damage to the garage. Assume that the fair market value of the garage was $24,650 before the fire and it had a fair market value immediately after the fire of $14,760. Assume, in completin g Form 4684, that the total amount of depreciation that Mr. NAME_PLUG had claimed for the garage up to the date of the fire was $5,876 (2020 depreciation - $454) and that he had received $5,000 from a fire insurance policy he had on the garage. After the fire, and taking into account the allowable loss deductio n, the cost of repair and the insurance recovery, the new adjusted basis of the garage for depreciation pur poses was $22,029. Since the basis had to be adjusted, the garage would be depreciated on a straight- line method for the remainder of the original depreciation period. The allowable MACRS deduction for 2020 would be calculated based on a rate of 3.33% (from September to December using a mid- month convention). & Form 4797 On January 3, 2020, Mr. NAME_PLUG sold a business truck for $55 0. He had purchased the truck for $5,000 on March 12, 2011. Total depreciation allowed or allowable on the truck prior to 2020 was $5,000. 1 Main schedule 2 [Not all blank lines have to be filled.] 3 4 Gross income: 5 Wages 6 Interest income 7 Dividend income 8 Social security benefits 9 business income 10 rental income 11 tax refunds 12 Capital gains/losses 13 Business casualty income/loss 14 15 16 Deductions for AGI 17 Half of self-employment tax 18 Self employed health insurance deduction 19 Alimony 20 HSA contribution 21 IRA contribution 22 student loan interest 23 Special charitable contribution if use standard 24 25 Adjusted gross income 26 27 Less: 28 Standard or itemized deduction 29 30 Qualified business income deduction 31 32 33 34 35 36 Taxable income 37 (300)
