Lyle and Kaye James are married, have two minor children, Jessica age 8 and Jerron age 4, and are filing a joint

tax return in the current year. They are both employed. Lyle and Kaye, ages 38 and 37, respectively, have

combined salaries of $240,000, from which $42,000 of federal income tax and $10,000 of state income tax are

withheld. Lyle and Kaye own two homes. Their primary residence is located at 11620 N. Mount Ave., New Haven,

Connecticut 22222, and their vacation home is on the beach in Fort Lauderdale, Florida. They often rent their

vacation home to supplement their income. The following items are related to the James’ ownership of the two

homes:

Item New Haven Fort Lauderdale

Rental income $— $15,000

Qualified residence interest 7,200 5,000

Property taxes 1,400 1,000

Utilities 1,000 1,300

Repairs 200 300

Depreciation 0 3,500

Advertising 0 200

Insurance 1,500 1,500

The James family used their Fort Lauderdale home 20 days during the year. They rented the vacation home

60 days during the year. Lyle and Kaye jointly purchase stock in various corporations and make the following

transactions in the current year. (None of the stock qualifies as small business stock.)

Price

Date Transaction Paid/Sold

2/15 Bought 50 shares of Lake common stock (they own no other Lake $1,000

stock)

5/14 Bought 100 shares of Bass common stock (they own no other Bass 3,000

stock)

5/24 Sold 25 shares of Lake common stock 250

5/27 Bought 50 shares of Lake common stock 900

Sold 50 shares of Bass common stock 1,750

7/12 Bought 100 shares of Bass common stock 2,800

The James’ have no other income or expense items. Lyle and Kaye’s Social Security numbers are 111-22-

3333 and 444-55-6666, respectively. Jessica and Jerron’s Social Security numbers are 123-45-6789 and 888-99-

1010. The James’ use the IRS method of allocating all expenses between personal and rental use.

File the James’ income tax return Form 1040, Schedules A, D, and E using the

currently available forms and rates. Disregard any tax credits for which they may be

eligible.