Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm just received new clients, Robert and Catherine Tate, a married couple who have filed a joint return for many years. Robert is 67

Your firm just received new clients, Robert and Catherine Tate, a married couple who have filed a joint return for many years. Robert is 67 years old and retired. Catherine, 63, is a licensed real estate agent and still works part-time for a real estate brokerage firm. She worked 625 hours in that capacity during 2021.

The couple acquired 2 rental properties early in the year. They actively own and operate the three properties. The projected 2021 financial results for the properties are shown below.

112 Willow Street

422 2nd Avenue

1352 W. Harmon Avenue

Rents Received

$28,800

$58,500

$82,000

Rental Expenses

44,000

66,000

74,000

Rental Profit or Loss

(15,200)

(7,500)

8,000

The Willow and 2nd Avenue properties experienced some difficulties this year. Significant losses occurred with those properties due to vacancies during the year, extensive cleanup costs, some eviction and nonpayment experiences, and some repairs and new costs of fixtures and appliances. The couple acquired the Willow and 2nd Avenue properties very early in the 2021 tax year. In the prior year, they had only the Harmon property. They have never made any particular tax elections regarding their rental properties because they only had one property in the past.

Although the couple does hire outside people to help with some of the maintenance and legal issues, the couple does actively manage and work on these properties. Most of the working hours were performed by Robert but Catherine also worked some hours on managing and maintaining the properties. Their time spent on the properties during 2021 is well documented and consists of the following number of hours by each person:

112 Willow Street

422 2nd Avenue

1352 W. Harmon Avenue

Hours worked by Robert

200

120

60

Hours worked by Catherine

100

30

20

Other income of the couple is as follows:

Taxable pension income

85,000

Catherines commission on real estate sales

30,000

Taxable social security income

38,500

Other taxable investment income

10,000

Total Adjusted Gross Income w/o rental

160,500

Do the Tate's count this as a passive activity or a trade or business? Why?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Sustainable Finance

Authors: Dirk Schoenmaker, Willem Schramade

1st Edition

0198826605, 978-0198826606

More Books

Students also viewed these Finance questions

Question

Describe what a one-minute self-sell is and what it contains.

Answered: 1 week ago

Question

List and explain the steps in the negotiating process.

Answered: 1 week ago