Review the following scenario. Use the information provided to answer questions about the taxpayer’s 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. Liam’s 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 1

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.

$2,833

$3,050

$4,750

$6,000

Transcribed Image Text:#1 Supplemental Income and Lss OMB No. 1545-0074 SCHEDULE E (Form 1040) (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICS, etc.) Attach to Form 1040, 1040-SR, 1040-NR, or 1041. 2020 Attachment Sequence No. 13 Your social security number XXX-XX-хх Department of the Treasury Internal Revenue Service (99) Go to www.lrs.gov/ScheduleE for Instructions and the latest Information. Name(s) shown on return LIAM HERNANDEZ Part I Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use Schedule C. See instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2. line 40. A Did you make any payments in 2020 that would require you to file Form(s) 1099? See instructions B I1 "Yes," did you or will you file required Fom(s) 1099?.... 1a Physical addross of each property (street, city, state, ZIP code) A 108 NORTH ASH STREET YOUR CITY YS XXXXX Yes No Yes No B For each rental real estate property listed above, report the number of fair rental and personal use days. Check the QJV box only if you meet the requirements to file as a qualified joint venture. See instructions. Fair Rental Days 184 1b Туре of Property (from list below) 1. 2 Personal Use QJV Days A A B B Type of Property: 1 Single Family Residence 2 Multi-Family Residence Income: 3 Rents received 4 Royalties received - Expenses: 5 Advertising .. 6 Auto and travel (soo instructions) 7 Cleaning and maintenance 8 Commissions .. 9 Insurance .. 3 Vacation/Short-Term Rental 5 Land 7 Self-Rontal Commercial Royalties 8 Other (describe) 4 Properties: A 3 4 5 6 7 9 10 Legal and other professional fees. 10 11 Management fees... 11 12 Mortgage interest paid to banks, etc. (soe instructions) 12 13 Other interest - 13
Transcribed Image Text:Properties: Income: 3 Rents received 4 Royalties roceived Expenses: 5 Advertising 6 Auto and travel (soo instructions) 7 Cleaning and maintenance 8 Commissions 9 Insurance A B 3 4 6 7 8 10 Legal and other professional fees.. 11 Management fees.... 12 Mortgage interest paid to banks, etc. (sce instructions) 10 11 12 13 Other interest 13 14 Repairs.. 14 15 Supplies.. 15 16 Taxes 16 17 Utilitios 17 18 Depreciation expense or depletion. 18 19 Other (list) 19 20 Total expenses. Add lines 5 through 19 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If 20 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 b Total of all amounts reported on line 4 for all royalty properties c Total of all amounts reported on line 12 for all properties ..... d Total of all amounts reported on line 18 for all properties .. e Total of all amounts reported on line 20 for all properties 23a 23b 23c 23d 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. For Paperwork Reduction Act Notice, see the separate instructions. 26 Schedule E (Form 1040) 2020 FDA 20 E1 BWF 1040 Form Software Copyright 1996 - 2021 HAB Tax Group, Inc.

Question

Review the following scenario. Use the information provided to answer questions about the taxpayer’s 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. Liam’s 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 1

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.

$2,833
$3,050
$4,750
$6,000

#1
Supplemental Income and Lss
OMB No. 1545-0074
SCHEDULE E
(Form 1040)
(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICS, etc.)
Attach to Form 1040, 1040-SR, 1040-NR, or 1041.
2020
Attachment
Sequence No. 13
Your social security number
XXX-XX-хх
Department of the Treasury
Internal Revenue Service (99)
Go to www.lrs.gov/ScheduleE for Instructions and the latest Information.
Name(s) shown on return
LIAM HERNANDEZ
Part I Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property,
use Schedule C. See instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2. line 40.
A Did you make any payments in 2020 that would require you to file Form(s) 1099? See instructions
B I1 "Yes," did you or will you file required Fom(s) 1099?....
1a Physical addross of each property (street, city, state, ZIP code)
A 108 NORTH ASH STREET YOUR CITY YS XXXXX
Yes
No
Yes
No
B
For each rental real estate property listed
above, report the number of fair rental and
personal use days. Check the QJV box
only if you meet the requirements to file as
a qualified joint venture. See instructions.
Fair Rental
Days
184
1b
Туре of Property
(from list below)
1.
2
Personal Use
QJV
Days
A
A
B
B
Type of Property:
1 Single Family Residence
2 Multi-Family Residence
Income:
3 Rents received
4 Royalties received -
Expenses:
5 Advertising ..
6 Auto and travel (soo instructions)
7 Cleaning and maintenance
8 Commissions ..
9 Insurance ..
3 Vacation/Short-Term Rental
5 Land
7 Self-Rontal
Commercial
Royalties
8
Other (describe)
4
Properties:
A
3
4
5
6
7
9
10 Legal and other professional fees.
10
11 Management fees...
11
12 Mortgage interest paid to banks, etc. (soe instructions)
12
13 Other interest -
13

Properties:
Income:
3 Rents received
4 Royalties roceived
Expenses:
5 Advertising
6 Auto and travel (soo instructions)
7 Cleaning and maintenance
8 Commissions
9 Insurance
A
B
3
4
6
7
8
10 Legal and other professional fees..
11 Management fees....
12 Mortgage interest paid to banks, etc. (sce instructions)
10
11
12
13
Other interest
13
14 Repairs..
14
15 Supplies..
15
16 Taxes
16
17 Utilitios
17
18 Depreciation expense or depletion.
18
19 Other (list)
19
20 Total expenses. Add lines 5 through 19
21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If
20
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
b Total of all amounts reported on line 4 for all royalty properties
c Total of all amounts reported on line 12 for all properties .....
d Total of all amounts reported on line 18 for all properties ..
e Total of all amounts reported on line 20 for all properties
23a
23b
23c
23d
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.
For Paperwork Reduction Act Notice, see the separate instructions.
26
Schedule E (Form 1040) 2020
FDA
20 E1
BWF 1040
Form Software Copyright 1996 - 2021 HAB Tax Group, Inc.

Accepted Answer

It is the amount of reduction in the value of a tangible fixed asset due to tear and wear,…