Review the following scenario. Use the information provided to answer questions about the taxpayers 2020 return. Liam Hernandez (38) paid $112,000 for a single-family home on July 1, 2020 and immediately placed it in service as a residential rental property. At the time, the land was valued at $10,000. The property generated $6,000 in rental income for the year. Liams only expenses consisted of depreciation, $500 in insurance, and $750 in real estate taxes. Liam is not a real estate professional, but he does actively participate in his rental real estate activity. He did not provide any personal services during the year, although he has notified his tenant that he will make minor repairs to the property as needed. Liam has no other passive income or losses.

Question 9

What amount should Liam claim for depreciation on his rental property for 2020? You may refer to the depreciation Table A-6 from IRS Publication 946, How to Depreciate Property, to assist you in answering this question. The table is shown below.

Question 10

What amount should Liam report for his total rental real estate and royalty income? His partially completed Schedule E, Supplemental Income and Loss, is shown below. You may use the form to assist you in answering this question.

Table A-6. Residential Rental Property Mid-Month Convention Straight Line-27.5 Years Year 1 2 3 4 9 10 11 12 1 2-9 10 11 12 3.485% 3.636 3.637 3.636 3.637 3.182% 3.636 3.637 3.636 3.637 2.879% 3.636 3.637 3.636 3.637 2.576% 3.636 3.637 3.636 3.637 Month property placed in service 5 6 7 8 2.273% 1.970% 1.667% 1.364% 3.636 3.636 3.636 3.636 3.637 3.637 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.636 3.636 1.061% 3.636 3.636 3.637 3.636 0.758% 3.636 3.636 3.637 3.636 0.455% 3.636 3.636 3.637 3.636 0.1529 3.636 3.636 3.637 3.636 13 14 15 16 17 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 18 19 20 21 22 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 23 24 25 26 27 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 3.637 3.636 3.637 3.636 3.637 1.97 2.273 2.576 2.879 3.182 28 29 3.485 3.636 0.152 3.636 0.455 3.636 0.758 3.636 1.061 3.636 1.364 3.636 1.667 $1,700 $1,867 $3,555 $3,903 (from list below) above, report the number of fair rental and QJV personal use days. Check the QJV box Days Days A 1 only if you meet the requirements to file as A 184 B a qualified joint venture. See instructions. B Type of Property: 1 Single Family Residence 3 Vacation/Short-Term Rental 5 Land 7 Self-Rental 2 Multi-Family Residence 4 Commercial 6 Royalties 8 Other (describe) Income: Properties: A B 3 Rents received 3 4 Royalties received 4 Expenses: 5 Advertising 5 6 Auto and travel (see instructions) 6 7 Cleaning and maintenance 7 8 Commissions 8 9 Insurance 9 10 Legal and other professional fees. 10 11 Management fees.. 11 12 Mortgage interest paid to banks, etc. (sce instructions) 12 13 Other interest 13 14 Repairs... 14 15 Supplies 15 16 Taxes 16 17 Utilities 17 18 Depreciation expense or depletion. 19 Other (list) 19 20 Total expenses. Add linos 5 through 19 20 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 21 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) ...... 22 ( 23a Total of all amounts reported on line 3 for all rental properties 23a b Total of all amounts reported on line 4 for all royalty properties 23b c Total of all amounts reported on line 12 for all properties 23c d Total of all amounts reported on line 18 for all properties 23d e Total of all amounts reported on line 20 for all properties 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 ( 26 Total rental real estate and royalty Income or loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 5. Otherwise, include this amount in the total on line 41 on page 2 26 For Paperwork Reduction Act Notice, see the separate instructions. Schedule E (Form 1040) 2020 FDA 20 E1 BWF 1040 Form Software Copyright 1996 - 2021 HAB Tax Group, Inc. $2,833 $3,050 $4,750 $6.000 18