Question

Julio and Maria Gomez are retired and they live at 567 Ono Way, Cambria, CA 94457. Julio's Social Security number is 777-88-5555 and Maria's is 666-88-4444.

Julio received Social Security retirement benefits of $28,400 and Maria received Social Security retirement benefits of $22,858. In addition, Maria received

a pension form the state of California in the amount of $16,752, and she had $3500 withheld for federal taxes ( include this on page 2 of Form 1040 as a

credit towards the tax liability). Julio and Maria also have a savings account with Wells Fargo Bank and they earned $4200 in interest income.

Julio and Maria own and live in their own home but do not pay a mortgage because they have paid it completely prior to retiring. Their property taxes are

very low and their medical expenses as well so they do not itemize deductions.

Julio and Maria have a rental and need to include the income on their tax returns. They received $36000 in rents and had the following expenses for their rental which is located in Cambria, CA.

Property taxes $3400

Utilities $1200

Repairs $5478

Depreciation $1234.

Prepare their 2020 tax return. Include Forms 1040, Schedule 1, and Schedules B and E. Only part of their Social Security retirement benefits are taxable. Provide the calculations you made to determine how much of their Social Security retirement benefits are taxable.

Answer 1

Julio and Maria Gomez must calculate the taxable portion of their Social Security benefits and report additional incomes using IRS Form 1040 and accompanying schedules. They need to consider income sources such as pensions, interest, and rental income minus related expenses.

Step-by-step explanation:

The couple received Social Security benefits:

Julio and Maria Gomez need to prepare their tax return with various forms such as the 1040, Schedule 1, and Schedules B and E. The couple received Social Security benefits, a state pension, interest income, and rental income. Calculating the taxable portion of Social Security benefits requires a formula set by the IRS, which is beyond the information given in the question. However, general steps include combining half of the Social Security benefits with all other income and comparing it to the base amounts determined by the IRS. If the combined income exceeds the base amount, part of the benefits may be taxable.

For their rental property income, expenses such as property taxes, utilities, repairs, and depreciation will be deducted from the rental income on Schedule E. As Maria had federal taxes withheld from her pension, this amount will be credited towards their tax liability.