Passive Activity Gain or Loss: Rental House Example

What is the other passive activity gain or loss beside the two rental houses that the couple owns that is managed by a local realty company?

Individual Tax Task - Financial Information

Personal Data:

Spouse A is one of the partners in Fan Company A. Spouse A is married and has a total of three children living in the household. Spouse A and Spouse B have one 10-year-old child together. They each have one child from a previous marriage. Spouse B's child is an 18-year-old college freshman living at home, and Spouse A's child is a high school junior. Spouse B's mother lives with the family. She receives a monthly $750 Social Security check. She contributes all but $90 of this check to the family each month. The spouses have calculated the rent, food and other family contribution to her support at $7000 per year.

Earnings:

Spouse A has a K-1 from the partnership. It shows Spouse A's partnership share of income is $142,000. Spouse A's cash withdrawals during the year were $83,500. Spouse A has a W-2 showing $2,000 in gross earnings from the city park district for a part-time soccer referee job. Spouse B has 20 years experience as a corporate officer and was hired and began work the first of February as a controller for an electronics firm. Spouse B's gross earnings are $8,000 per month.

Investments:

• Spouse A invested in 1,000 shares of Company E stock before the couple married 11 years ago. Company E pays a quarterly dividend.
• Spouse B was not employed during January and tried day trading for the month. Spouse B bought and sold on a daily basis and experienced net losses of $5,000.
• The couple owns a $5,000 municipal bond that pays 9% interest in semi-annual payments.

Other Factors:

• Spouse A pays $600 in alimony monthly. This continues until his former spouse remarries or is deceased.
• Spouse B receives monthly child support of $200 for her child from her previous marriage until the child is 18.
• Spouse A has health insurance through the partnership. Spouse B covers herself and the children through her employer's plan.
• Spouse A has a Keogh retirement plan into which he contributes 10% of his earnings, up to the maximum allowed.
• When Spouse B was hired for her current position, the couple decided to move closer to Spouse B's new job to reduce commute time. When Spouse B had her former job, she commuted three miles to her workplace. Spouse B's new position, however, is located 52 miles from their former home.
• Due to Spouse B's new job the couple sold their house for $430,000. (They purchased it 10 years ago for $100,000, and four years ago they added 400 square feet to the house at a cost of $34,000.) They purchased their current home for $550,000.
• During the year, the family incurred a medical emergency while Spouse B was between jobs. One of the children required emergency surgery, and the hospital and doctor bills were $45,000. Spouse B had exercised her COBRA option with the previous employer, which provided for a $4,000 deductible and then 70% coverage of the hospital and doctor charges.
• Spouse A and Spouse B gave $6,000 to charities during the year.
• Because of Spouse B's new employer's dress standards, Spouse B spent about $2,600 to buy business suits for the new position.
• The couple owns two rental houses, which are managed by a local realty company. The gross yearly rents are $23,000, and the total expenses, including depreciation, are $29,200.
• The couple sold another rental house during the year. They purchased it four years ago for $90,000 and sold it during this year for $134,000.