Military Scenario 5: William and Nancy Ware Directions: Using the tax software, complete the tax return, including Form 1040 and all appropriate forms, schedules, or worksheets. Answer the questions following the scenario. When entering Social Security numbers (SSNs) or Employer Identification Numbers (EINs), replace the Xs as directed, or with any four digits of your choice. Interview Notes:

William and Nancy are married and want to file a joint return.

William and Nancy have an 18-year-old son, Jeffery, who lived with them the entire year.

William was deployed to Jordan and entered a combat zone on July 7, 2022. He returned to the U.S. on January 28, 2023.

Nancy has rental property, which she placed into service in 2017.

Rental property:

Nancy is an active participant.

Single family residence at 5460 Lafayette Road, Your City, Your State, Your Zip.

Purchased property: 5/3/2016.

Rented: 1/1/2022 to 12/31/2022

Annual rental income: $21,300

Insurance: $2,100

Management fees: $1,075

Nancy paid $1,850 to repair an air conditioner, a broken lock, and a shed door. She did the broken lock repair herself and feels her time completing the repair was worth $200 compared to the estimate from the locksmith.

Real estate property tax: $2,438.

Mortgage Interest: $4,279.

Depreciation: $2,400 (annual amount previously calculated by Nancy's accountant).

Nancy did not make any payments that require her to file Form 1099.

The Wares did not itemize last year and do not have enough deductions to itemize this year.

x

Military Scenario 5: Test Questions:

1. William and Nancy can claim $14,142 as their total rental expenses on their joint return?

a. True

b. False

2. Code Q in box 12a of Williams W-2 represents combat pay.

a. True

b. False

3. Which schedule is used to report rental income and expenses?

a. Schedule C, Profit or Loss From Business

b. Schedule D, Capital Gains or Losses

c. Schedule E, Supplemental Income and Loss

d. Schedule F, Profit or Loss from Farming

4. Combat pay ______________________

a. May increase the Earned Income Credit

b. Is reported on Form W-2 Box 12 with Code Q

c. May increase the Child Tax Credit

d. All of the above

15. Which of the following credits can be claimed for their son, Jeffery?

a. Credit for Other Dependents.

b. Earned Income Credit (Not counting his combat pay)

c. Child Tax Credit

d. Both a and b