The Tragic Life of Billy Bob

...

Issue 7: rental vacation home

Billy rents out the Hamptons home for $10,000 a week for the entire 16-week period. It is a 100% passive rental. Rental tax for property should be $4923 (=$16,000*16/52), utilities and maintenance costs should be $20,000 (=$20,000*16/16). So his rental income will be 0 (=$10,000*16-$4923-$20,000

Issue 8: invoice from lawyer

Mr. Woolworth is entitled to 30% of any amount over and above compensatory damages. For invoices, only expenses related to tax service can be deducted. In Billy’s case, all services from Mr. Woolworth are about compensations Billy may get. There is no tax service so nothing can be deducted. Therefore, lawyer expense should be $1,545,000 (=30%*($5,500,000-$350,000)

Issue 9: gains and losses from gambling

On gambling, Billy lost $50,000 and won $5,000. He can deduct his lost up to his winning. So he could only deduct $5,000.

Issue 10: sale of property

Billy sold his house for $1.5M cash, outstanding mortgage of $1.2M, and paid a sales commission and closing costs of $150,000. So his gain on sales is $1,050,000 (=$1.5M+$1.2M-$150,000-$1.5M), which should be included in income.

Issue 11: foreign earned income

He earned a salary of $120,000 in Guangzhou, China. Assume he stays or will stay for more than 330 days of a year, he can deduct up to $102,100 of a year. The rest of $17,900 need to be included in income.

Issue 12: moving expense

Moving from Manhattan to Guangzhou cost him $20,000 for airfare, lodging, and transporting his furniture and household effects. This case meets the requirement of “50-mile rule”, so his moving expense can be deducted.

Issue 13: divorce lawsuit

Mrs. Billy Bob wants to divorce with Billy and asks for the $500,000 check from the Pack-n-Ship, the $100,000 and the Mercedes E from the TV show, the house in the Hamptons, one-half of any money from the lawsuits, and one-half Billy Bob’s $401K. None of it as alimony. In this case, only property exchange is not included. Therefore, if Mrs. Billy Bob wins the suit, she will receive $4,050,500 (=$500,000+$100,000+0.5*$6,500,000+0.5*$401,000) and report in income.