Chapter 3 Homework IRA deductions

1. Dick owns a house that he rents to college students. Dick receives $750 per month rent and incurs the following expenses during the year:

Real estate taxes$ 1,250

Mortgage interest 1,500

Insurance 375

Repairs 562

Dick purchased the house in 1980 for $48,000, excluding land costs, and depreciates it on a straight-line basis with no salvage value and a useful life of 30 years. Calculate Dick’s net rental income for the year, assuming the house was rented for a full 12 months.

Rental income: $750 * 12 = $9,000 annually

Expenses: 1250+1500+375+562 = 3687 total in expenses

Net rental income:

  $ 9,000
  Real Estate Tax   1,250  
  Mortgage Interest   1,500  
  Insurance     375  
  General repairs   562  
    House ($48,000/30)   1,600  
    $ 3,713

4. Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2009, his share of the loss from the limited partnership was $12,000, and his loss from the rental condo was $16,000. Assuming Clifford’s modified adjusted gross income is $120,000 for 2009; complete Form 8582 on page 3-41.

On this one, you have the $16,000 and the $12,000 switched.


11. Carl has had a couple of good years in his new business. However, in the current year he has a net operating loss of $80,000. He does not feel that the future of his business is very bright. As his tax accountant, how would you recommend Carl treat his net operating loss?

I think that Carl should do the carry back for 2 years then carry through the other 20.


Karen, 28 years old and a single taxpayer, has a salary of $23,000 and rental income of $33,000 for the 2009 calendar tax year. Karen is covered by a pension through her employer.

Karen would be able to deduct $5,000

  1. What is the maximum amount that Karen may deduct for contributions to her IRA for 2009?

$4,500 contribution = $5,000 x (($65,000 – 56,000) / $10,000)

The IRA contribution may be made at any time before the original due date of the tax return for

  1. If Karen is a calendar year taxpayer and files her tax return on August 15, what is the last date on which she can make her contribution to the IRA and deduct it for 2009?

year in which the deduction is to be claimed.

April 15, 2010

21. During 2009, Jerry is a self-employed therapist, and his net earned income is $160,000 from his practice. Jerry’s Keogh plan, a defined contribution plan, states that he will contribute the maximum amount allowable. Calculate Jerry’s contribution.

20% of $160,000 ($32,000) or $49,000

Thank you for showing me both answers, but in the future, make sure to tell me what your final answer is.

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