You are preparing part of a 2012 tax return and that the current tax year for information purposes is 2012.
Sam Tyler, a single taxpayer, social security number 111-44-1111, bought Rental Equipment on 04/01/2010. He paid $400,000 including all closing and delivery costs. In the current year, he collected rents of $27000 and paid tangible taxes of $7,000, insurance $3700, maintenance $12000, repairs $1700, Note interest $11500.
On June 1, of the current year, Sam sold the rental property for $465,000. Sam paid the closing costs and commissions of $15,000. The buyer put a $65,000 deposit down on the property and signs a promissory note for $400,000 with interest payable at 5% annually.
Sam receives $10667 of interest from the buyer in current year and $50000. in principal payments on the seller financed loan. Assume the buyer is not a related party and that Sam does not participate in this equipment rental activity.
1) Prepare a depreciation schedule for the rental equipment through the current year (2012) assuming 50% bonus depreciation was available in 2010. Assume equipment has a 5 year life. This schedule may be an Excel spreadsheet and usually includes asset costs, date acquired, depreciation expense allowed each year and accumulated deprecation to date. You must use the MACRS tables containing percentages to use in your Excel spreadsheet for calculating the depreciation. Half year convention will apply to year of sale. It would also tie to the fixed asset section of a balance sheet if one existed. HINT: Accumulated Depreciation at 12/31/11 is $304,000
2) Prepare Schedule B, E (You will use schedule E since the actual schedule required for Tangible property rents would simply be a manually prepared schedule identical to schedule E.) and form 4562 for the taxpayer’s current year rental activity.
3) Prepare forms 4797, 6252 and schedule D for the sale of the property. Prepare these forms in the order shown here. You will use part III of form 4797. Read the instructions for 4797 Line 32 will be blank with installment sale or gain will get reported twice. Filled in forms 4797 and 6252 may be found in your text see Appendix B for page numbers. See pages 13-25 and 11-29 in your text for filled out forms 4797 and 6252 this may help you.
4) Write a brief memo explaining to the taxpayer the character of all of the income, gains and losses and applicable tax rates from this activity and transaction in the current year. Include any planning options they have for the future years taxes from this transaction. Bullet points are fine.