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On December 22, 1992, petitioner wrote a check for $20,500 to her
attorney, William E. Powers, which was applied to the initial
deposit on the house.4 The check cleared on January 6, 1993. On
March 30, 1993, the purchase of the house closed and petitioner
paid $29,501 at the closing. Of this amount, $22,500 was a
further downpayment on the house, and $6,977 represented closing
costs paid to the mortgage lender, which included $2,500 as a
prepayment of interest, referred to as "points", on the mortgage.
During 1993, petitioner spent $5,893 on property improvements to
the house.
Beginning in May 1993, petitioner rented one-half of the
house to a tenant. Petitioner reported rent income and expenses
on the Schedule E of her 1993 return as follows:
Rents received $5,600
Expenses
Insurance 996
Mortgage interest 6,600
Repairs 4,000
Supplies 3,407
Taxes 2,128
Other (water, sewer, gas) 1,681
Depreciation expense 3,588
Total expenses 22,400
Income (loss) (16,800)
50 percent correction
only � of residence rented (8,400)
Petitioner reported expenses paid for the entire house,
even though she only rented one-half of it to a tenant. To
4 The record does not disclose the source of the additional
$2,000 paid as an initial deposit.
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