Armando Z. and Lourdes K. Gonzales are married and file a joint return. Armando is self-employed as a dentist, and Lourdes is a colle2e professor.


Office rent                                                                                                         $12000

Dental supplies                                                                                                $7672

Utilities and telephone                                                                                $3360

Wages                                                                                                               $30000 

Payroll Taxes                                                                                                    $2400

In June. Armando decided to refurbish his office. This project was completed, and the assets placed in service on July 1. Armando’s expenditures included $8.000 for new office furniture, $6.000 for new dental eqµjpment (seven-year recovery period). and $2.000 for a new computer. Armando elected to compute his cost recovery allowance using MACRS. He did not elect to use §179 immediate expensing. and he chose to not claim any bonus depreciation.

 5. Lourdes’s mother. Maria died on July 2. 2011. leaving Lourdes her entire estate. Included in the estate was Maria’s residence. (325 Oak Street Cincinnati. Ohio 45211). Maria’s basis in the residence was S30.000. The fair market value of the residence on July 2. 2011. was $155.000. The property was distributed to Lourdes on January 1. 2012. The Gonzales have held the property as rental property and have managed it themselves. From 2012 until June 30. 2016. they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant Armando and Lourdes sold the house on June 30. 2016. They received $140.000 for the house and land ($15.000 for the land and $125.000 for the house). less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house. the Gonzales., had allocated $15.000 of the property’s basis to the land on which the house is located. The Gonzales collected rent of Sl.000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period:

Property insurance                                        $500

Property taxes                                                 $800

Maintenance                                                    $465      

Depreciation (to be computed)               ?

6.           The Gonzales sold 200 shares of Capp Corporation stock on September 3. 2016. for $42 a share (minus a $50 commission). The Gonzales received the stock from Armando’s father on June 25, 1980. as a wedding present. Armando’s father originally purchased the stock for S10 per share on January I, 1968. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift.

7.           Lourdes is required by Xavier University to visit several high schools in the Cincinnati area to evaluate Xavier University students who doing their practice teaching. However. she is not reimbursed for the expenses she incurs in doing this. During the, spring semester (January through April 2016). she drove her personal automobile 6.800 miles in fulfilling this obligation. Lourdes drove an additional 6.700 personal miles during 2016. She has been using the car since June 30. 2015. Lourdes uses the standard mileage method to calculate her car expenses.

8.           Armando and Lourdes have given you a file containing the following receipts for expenditures during the year:

Prescription medicine and drugs (net of insurance reimbursement)                       $376

Doctor and hospital bills (net of insurance reimbursement)                                       $2468   

Penalty for underpayment of last year’s state income tax                                            $15

Real estate taxes on personal residence                                                                         $4762

Interest on home mortgage (paid to Home State Savings & Loan)                           $8250

Interest on credit cards (consumer purchases)                                                             $595

Cash contribution to St. Matthew’s church                                                                    $3080

Payroll deductions for Lourdes’s contributions to the United Way                           $150

Professional dues (Lourdes)                                                                                           $325

Professional subscriptions (Lourdes)                                                                            $245

Fee for preparation of2015 tax return paid April 12, 2016                                            $500

9.           The Gonzales filed their 2015 federal. state. and local returns on April 12. 2016. They paid the following additional 2015 taxes with their returns: federal income taxes of $630. state income taxes of $250. and city income taxes of S75.

10.         The Gonzales made timely estimated federal income tax payments of Sl.500 each quarter during 2016. ·They also made estimated state income tax payments of S300 each quarter and estimated city income tax payments of $160 each quarter. The Gonzales made all fourth-qµarter payments on December 31, 2016. ·They would like to receive a refund for any overpayments.

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