David and Susan Holman are married and file a joint return. David is 38 years old and Susan is 36. David is a self-employed certified real estate…

David and Susan Holman are married and file a joint return. David is 38 years old and Susan is 36. David is a self-employed certified real estate appraiser (C.R.E.) and Susan is employed by Wells Fargo Bank as a trust officer. They have two children: Richard Lawrence, age 7 and Karen Ann, age 4. The Holmans currently live at 5901 W. 75th Street, Los Angeles, California 90034, in a home they purchased and occupied on September 6, 2008.

Until August 12, 2008 the Holman family lived at 3085 Windmill Lane in Dallas, Texas, where David was employed by Vestpar Company, a real estate appraisal company and Susan was a bank officer for First National Bank. They sold their home in Dallas and moved to Los Angeles so that Susan could assume her new role as a trust officer and Davidcould become self-employed.

B.) David and Susan sold there home in Dallas for $315,000 and incurred the following expenses:

Sales commission…….. $18,900

Attorney’s fees…….. $1,800

Title Insurance……. $2,650

Document preparation fee……. $90

Recording fee……. $30

Pest Inspection fee…… $190

Prepayment penalty for early

retirement of home mortgage…… $1,500

The Holmans had purchased the Dallas home on August 4, 2000 and never

held it for rent or used it for business purposes. The home originally

cost $177,500 and they had paid $6,200 for a cedar fence and $7,900

for landscaping. Within seven weeks of receiving a contract of sale on

their house, the Holmans paid $8,500 for interior and exterior

painting and $600 for steam-cleaning of the carpets. The sale was

closed on August 1, 2008 and the Holmans were required to move out of

the home by August 15, 2008.

C.) In moving from Dallas to Los Angeles, the Holmans incurred the

following expenses, none of which were reimbursed:

Cost of moving household goods………$9,250



House-hunting expenses

($150 for meals included)…….$1,000

Temporary living expenses (20 days;

including meals costing $400)……..$1,700

Not included in any of the above expenses are the costs for driving

two auto mobiles from Dallas to Los Angeles. David and Susan each

drove a car, taking turns driving with the children. Although neither

one of them kept receipts, Susan noted that her auto milage was 1,500

miles. In addition, David noted that the number of miles from their

old home to their old workplace was 24 miles and the number of miles

from their old home to their new workplace is 1,514 miles.

D.) The Holmans purchased their new home for $525,000 by making a

$125,000 down payment and financing the remaining balance with a

30-year, 6% conventional mortgage loan from California Federal Savings

and Loan. They were required to prepay 2 points ($8,000) in return for

the favorable mortgage terms. New furniture and drapes cost an

additional $27,500.

E.) The Holmans received the following Forms W-2, reporting their

salaries for 2008:

1.) David Holman, Social Security No. 452-64-5837

Gross salary……..$75,000

Federal income taxes withheld……$9,050

F.I.C.A. Taxes withheld:

Social security……..$4,650


2.) Susan Holman, Social security No. 467-32-5452

First National BankWells Fargo BankTotalGross

salary$17,500$34,000$51,000Federal Income Taxes

Withheld$1,100$4,150$5,250FICA taxes withheld:Social

Security$1,085$2,108$3,193Medicare$254$493$747California income taxes


F.) On October 1, 2008 David rented office space at 5510 Wacker Drive,

Los Angeles, California 90025. The terms of the one-year lease

agreement called for a monthly rent of $800, with the first and last

month’s rent paid in advance.

David decided to operate his business in the name of “David R. Holman,

Certified Real Estate Appraiser,” and he elected to use the cash

method of accounting for his revenues and expenses. The following

items relate to his business for 2008:

Gross receipts……$85,000



Bank service charges…….$50

Dues and publications……$450

Insurance…….$600 *


Professional services……$525

Office rent……$3,200 **

Office supplies…….$700

Meal and entertainment……$500

Miscellaneous expenses……$75

*Three months coverage

**Includes prepayment of rent for September, 2009

David drove his personal automobile, a 2007 Buick LeSabre, 5,000 miles

for business purposes form October 1 through December 31. Rather than

keeping receipts, he elected to use automatic mileage method for

determining his auto expenses. David’s total auto mileage for the year

was 20,000 miles.

On October 3, 2008 David purchased the following furniture and

equipment for use in his business:

Office furniture……$17,000

Copying machine……$5,800


Laser printers……$2,500

Telephone system……$3,100

David elects to expense the maximum amount allowed under the optional

expensing rules of Section 179. He also elects to compute the maximum

depreciation allowance using the appropriate MACRS percentages.

G.) The Holmans received interest income during 2008 from the following:

US Treasury bills…….$1,475

First National Bank, Dallas…..$625

Wells Fargo Bank…….$400

Tarrant County municipal bonds….$800

Federal taxation homework help

H.) David and Susan received the following dividends during 2008:

Ford Motor Company……$300

Eastman Kodak Company…….$575

IBM Corporation…….$125

General motors stock dividend

(20 new shares of stock valued at $60 per share,

Received March 9,


I.) The Holmans have never maintained foreign bank accounts or created

foreign trusts.

J.) The Holmans report the following stock transactions for 2008:

Sold 100 shares of IBM stock for $120 per share on August 1, 2008.

David had inherited 500 shares of IBM stock from his uncle on July 18,

2004 and the stock was valued at $170 per share on the date of his

uncle’s death (the value used for estate tax purposes).

Sold 400 shares of General Motors stock for $78 per share on September

20, 2008. Susan had received 1,000 shares of General Motors stock as a

wedding present from her grandfather on June 3, 1996. Her grandfather

had purchased the stock for $35 per share on May 7, 1993 and the

stock was valued at $50 per share on the date of the gift. Susan’s

grandfather paid gift taxes of $10,000 as a result of the gift.

Sold 300 shares of Eastman Kodak stock for $40 per share on December

28, 2008, but did not receive the sales proceeds until January 3,

2009. The Holmans had paid $25 per share for the stock on October 21,


K.) Susan has summarized the following cash expenditures for 2008 from

cancelled check, mortgage company statements and other documents:

Prescription drugs……$982

Medical insurance premiums (paid by


Doctors’ and hospital bills (net of


Contact lenses for


Real Estate taxes paid on:

Dallas residence…..$3,400

Los Angeles


Sales taxes paid on Susan’s new


Ad valorem taxes paid on both


Interest paid for:

Dallas home



Los Angeles home



Credit card


Personal car


Cash contributions to:

United Methodist


American Heart


United Way


George W. Bush Campaign


Susan’s unreimbursed employee

expenses…..$470 ***

David’s unreimbursed employee expenses……$360

Tax return preparation


* Does not include the mortgage prepayment penalty identified in item (B) above.

** Does not include the interest points charged for the new mortgage

identified in item (D) above.

***Does not include any costs for meals or entertainment.

Susan also noted that she and David had driven their personal

automobiles 500 miles to receive medical treatment for themselves and

their children. She also has a receipt for 100 shares of General

Motors stock that she gave to her alma mater, Southern Methodist

University, on November 12, 2008. The stock was valued at $70 per

share on the date of the gift and was from the block of General Motors

stock Susan had received as a wedding present from her grandfather

[see item (J) (2) above for details].

L.) The Holmans paid the following child care expenses during 2008:

Kindergarten Day Care School…….$2,800

1177 Valley View

Dallas, TX 75210

EIN: 74-0186254

Happy Trails Day Center…….$2,200

3692 Airport Blvd

Los Angeles, California 90034

EIN: 78-0593676

Of the $5,000 total child care expenses, $3,000 was for Karen and the

remaining $2,000 was for Richard.

M.) Social security numbers for the Holman children are provided:

Richard L. Holman, SSN 582-60-4732

Karen A. Holman, SSN 582-60-5840

N.) David and Susan made estimated Federal income tax payments of

$1,750 each quarter, on 4/15/08, 6/15/08, 9/15/08 and 1/15/09

O.) The Holmans have always directed that $6 go to the Presidential

Election Campaign by checking the “yes” boxes on their Form 1040

Required: prepare tax return forms. May use Form 1040,2441,8283,3903,4562. Schedule A,B,C,D,SE

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