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Petitioner had a commission agreement with Shirley Baughan
and Associates to handle the rental of the Indian Wells
condominium. The Indian Wells condominium was rented to a tenant
from January 1 through 31, 1997, and to another tenant from
February through December 1997. The residential lease agreement
directed the tenants to remit their rent to Shirley Baughan’s
address. Shirley Baughan and Associates collected the rent
payments, paid itself the agreed commission, reimbursed itself
for expenses and repairs related to the rental property, and
issued a check for the remaining amount to petitioners. Some of
the expenses paid by Shirley Baughan and Associates were for
shower parts, a water hose, a dryer vent hose, labor, the water
bill, and keys. Petitioners deducted the commission expense that
they paid to Shirley Baughan and Associates in the amount of
$1,367 on Schedule E, Supplemental Income and Loss, of their 1997
joint income tax return.
Petitioners reported the rents received and expenses from
the Indian Wells properties on Schedule E of their 1997 joint
income tax return as follows:
Indian Wells Indian Wells
Condominium Unit Total
Rents received $13,805 $10,900 $24,705
Less: Expenses 29,255 10,487 39,742
Income/(Loss) (15,450) 413 (15,037)
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Last modified: May 25, 2011