For 2023***
Comprehenslve Problem 14.69 (LO 14-1, LO 14-2, LO 14-3, LO 14-4, LO 14-5, LO 14-6) (Algo) James and Kate Sawyer were marred on New Year's Eve of 2022 Before their marriage, Kate Ilved in New York and worked as a halr stylist for one of the city's top salons. James lives in Atlanta, where he works for a public accounting firm earning an annual salary of $104,500. After their marrlage, Kate left her job in New York and moved into the couple's newly purchased, 3,200-square-foot home in Atlanta. Kate incurred $2,650 of moving expenses, The couple purchased the home on January 3, 2023, by paylng $100,000 down and obtaining a $400,000 mortgage for the remainder. The interest rate on this loan was 3 percent, and the Sawyers made interestonly payments on the loan through June 30,2023 (assume they pald exactly one-half of a year's worth of interest on this loan by June 30). On July 1, 2023, the Sawyers borrowed an additional $50,000, secured by the home, in order to make home improvements (the loan was called a "home equity loan" by the lenden. The interest rate on the loan was 3 percent lassume they pald exactly one-half of a year's worth of interest on this loan by year-end). Shortly after moving into the new home. Kate started a new business called Kate's Beauty Cuts LLC. She set up shop in a 384 -squarefoot corner room of the couple's home and began to get it ready for business. The room convenlently had a door to the outside. providing customers direct access to the shop. Kate pald $2280 to have the carpet replaced with a tlle floor. She also pald $1,290 to have the room painted wth vbrant colors and $740 to have the room rewired for appropriate lighting. Kate ran an ad in the local newspaper and officlally opened her shop on January 24,2023 . By the end of the year, Kate's Beauty Cuts LLC generated $41,800 of net income before considering the home office deduction. The Sawyers incurred the following home-related expenditures during 2023: - $4.650 of real property taxos. - \$2225 forhomeowner's insurance - $2850 for electricity. - \$1,950 for gas and other utitites. They determined depreciation expense for their entire house was $17,658. Also, on March 2 Kate was able to finally sell her one-bedroom Manhattan condominlum for $482,500. She purchased the condo. which she had lived in for six years prior to her marriage, for $214,000. Kate owns a vacatton home in Myrtle Beach, South Carolina. She purchased the home several years ago, largely as an investment. To help cover the expenses of maintaining the home. James and Kate decided to rent the home out. They rented the home for a total of 106 days at fair market value (this Included 8 days that they rented the home to James's brother Jack). In addition to the 106 days, Kate allowed a good friend and customer, Clair, to stay in the home for half-price for 2 days. James and Kate stayed in the home for 6 days for a romantlc getaway and another 3 days in order to do some repalr and maintenance work on the home. The rental revenues from the home in 2023 were $18.760. The Sawyers incurred the following expenses assoclated with the home: - $9,460 of interest (assume not limited by acquiition debt limit). - $3,310 of real property taxes. - \$1,990 for homeowner's insurance. - $1,290 for electricity. - \$1,690 for gas, other utilites, and landscaping. - $5,425 for depreclation. Required: Determine the Sawyers' taxable income for 2023. Disregard self-employment taves and the qualified business income deduction. Assume the couple paid $4,490 in state income taxes and files a joint return. For determining deductible home office expenses and allocating expences to the rental, the Sawyers want to use the tax court method for the year, Note: Do not round any division. Round other intermediate calculations to the nearest whole dollar amount. Assume 365 days in the current year
