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payment of two mortgage notes secured by the Third Street
property and the additional note executed by petitioner and Mr.
Moosbrugger individually and secured by their guarantees.
On Schedule E, Supplemental Income Schedule, attached to
petitioners' 1979 Federal income tax return, petitioners reported
rental income in the amount of $7,114 and deducted expenses of
$6,020.69 for interest and $4,331.80 for depreciation related to
the Third Street property. The interest and depreciation
expenses claimed were indicated to be 50 percent of the total
expenses on the building.
A depreciation schedule attached to petitioners' 1987
Federal income tax return reflects that petitioners reported a
one-half interest in the Third Street property and all
improvements.
On Schedule E, Supplemental Income Schedule, of petitioners'
Federal income tax returns for the years 1986 and 1987, they
reported the following amounts in connection with the Third
Street property:
Item 1986 1987
Rents received $7,425 $7,425
Expenses:
Interest 6,542 6,542
Taxes 2,173 2,173
Depreciation 1,200 1,200
The rental income reported by petitioners for the taxable years
1986 and 1987 was 50 percent of the total rental income.
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