Wages, a rental, and a brokerage account
One return that pulls together three worlds: a W-2 job, a rental property with depreciation and the passive-loss allowance, and a brokerage account with qualified dividends and a long-term gain.
The taxpayer's facts and source documents are free with an account. No card, nothing to cancel.
Taxpayer facts
Who this is and what their year looked like.
Priya is single, an engineer in Houston, Texas, who also owns a single rental house and invests in a taxable brokerage account.
Her return combines her salary, the rental, and her investment income. Her employer withheld federal tax; the rental and investments had none.
Source documents
The 4 documents you will prepare the return from: W-2 (Wage and Tax Statement), 1099-DIV (Dividends and Distributions), 1099-B (Proceeds from Broker Transactions), Rental records: 2215 Dunlavy St.
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Create a free account to open the taxpayer's facts and every source document. No card, nothing to cancel.
Objectives
What a correct return should capture.
- Assemble three income types on one return: W-2 wages (line 1), rental on Schedule E, and investments on Schedule B and Schedule D.
- Rental: net the rents against the operating expenses AND this year's depreciation on the building (27.5-year residential, IRS MACRS table, using the month and year it was placed in service) for the Schedule E result. Land is never depreciated.
- Passive-loss rules: rental losses are passive, but the special $25,000 active-participation allowance can let you deduct up to $25,000. It phases out 50 cents per dollar of MAGI over $100,000. Figure her MAGI and the reduced allowance, then how much of any rental loss is deductible.
- Investments: report the ordinary dividends and the long-term gain (Schedule D line 8a; with basis reported and no adjustments, no Form 8949).
- Preferential rates: the qualified dividends and the long-term gain go through the Qualified Dividends and Capital Gain Tax Worksheet; find the rate that applies to them, and tax the rest as ordinary income.
- Compute tax on the ordinary layer (Tax Computation Worksheet if it is $100,000 or more) plus the tax on the preferential layer.
- Apply withholding to reach the refund or balance due.
- Note that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.