Questions and Answers of Taxation

On May 28, 2017, Mary purchased and placed in service a new $20,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2017. In 2018, the usage changed
In 2017, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available
Hamlet acquires a 7-year class asset on November 23, 2017, for $100,000. Hamlet does not elect immediate expensing under § 179. He does not claim any available additional first-year depreciation.
Lopez acquired a building on June 1, 2012, for $1 million. Calculate Lopez's cost recovery deduction for 2017 if the building is: a. Classified as residential rental real estate. b. Classified as
In 2017, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction. Calculate
On April 5, 2017, Kinsey places in service a new automobile that cost $36,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car
In 2013, Jed James began planting a vineyard. The costs of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any non-depreciable land
1. Newton, a business owner, signed a ten-year lease beginning in July of 2017, and immediately paid rent for the remainder of 2017, all of 2018, and all of 2019. How much of the rent paid at the
In 2014, John opened an investment account with Randy Hansen, who held himself out to the public as an investment adviser and securities broker. John contributed $200,000 to the account in 2014. John
Mary, a single taxpayer with two dependent children, has the following items of income and expense during 2017:Gross receipts from business ....................................... $144,000Business
In 2016, Fred invested $50,000 in a general partnership. Fred's interest is not considered to be a passive activity. If his share of the partnership losses is $35,000 in 2016 and $25,000 in 2017, how
A number of years ago, Kay acquired an interest in a partnership in which she is not a material participant. Kay's basis in her partnership interest at the beginning of 2016 is $40,000. Kay's share
On May 9, 2015, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as § 1244 stock (at
A number of years ago, Lee acquired a 20% interest in the Blue-Sky Partnership for $60,000. The partnership was profitable through 2016, and Lee's amount at risk in the partnership interest was
Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2016, his amount at risk in the activity was $30,000. His shares of the income and losses
Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice
Mary's diamond ring was stolen in 2016. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Mary filed an insurance claim for the stolen ring, but
Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In August 2016, a hurricane damaged many of the trees
During 2017, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2014, John and Maze, as co-borrowers, obtained a $100,000 loan from
Finch, Inc., purchases 1,000 shares of Bluebird Corporation stock on October 3, 2017, for $300,000. On December 12, 2017, Finch purchases an additional 750 shares of Bluebird stock for $210,000.
Rod Clooney purchases Agnes Mitchell's sole proprietorship for $990,000 on August 15, 2017. The assets of the business are as follows:a. Calculate Agnes's realized and recognized gain.b. Determine
Roberto has received various gifts over the years. He has decided to dispose of the following assets he received as gifts: a. In 1951, he received land worth $32,000. The donor's adjusted basis was
On September 18, 2017, Gerald received land and a building from Frank as a gift. Frank's adjusted basis and the fair market value at the date of the gift are as follows: Asset _____________ Adjusted
Dan bought a hotel for $2,600,000 in January 2013. In May 2017, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery. The fair market value in May 2017
Tyneka inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe's basis was $35,000, and the fair market value on July 1, 2017 (the date of death), was $45,000. The shares were distributed to Tyneka
Tom Howard and Frank Peters are good friends (and former college roommates). Each owns investment property in the other's hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX.). To make
Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the
Mitchell, a calendar year taxpayer, is the sole proprietor of a fast-food restaurant. His adjusted basis for the building and the related land is $450,000. On March 12, 2017, state authorities notify
Edith's warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2017. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2018. Calculate Edith's
Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2017, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on
Peyton sells an office building and the associated land on May 1, 2017. Under the terms of the sales contract, Peyton is to receive $1,600,000 in cash. The purchaser is to assume Peyton's mortgage of
Ruth Ames died on January 10, 2017. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
Ted and Marvin Brown purchased an apartment building in 2006 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events
Eagle Partners meets all of the requirements of § 1237 (subdivided realty). In 2017, Eagle Partners begins selling lots and sells four separate lots to four different purchasers. Eagle Partners also
Carla was the owner of vacant land that she was holding for investment. She paid $2 million for the land in 2015. Raymond was an investor in vacant land. He thought Carla's land might be the site of
Maria held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2013. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on
Thrasher Corporation sells short 100 shares of ARC stock at $20 per share on January 15, 2017. It buys 200 shares of ARC stock on April 1, 2017, at $25 per share. On May 2, 2017, Thrasher closes the
In 2017, Bertha Jarow had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two months for $18,000) a patent on a rubber
Geranium, Inc., has the following net § 1231 results for each of the years shown. What is the nature of the net gain in 2016 and 2017?Tax Year ____________ Net § 1231 Loss ___________ Net § 1231
Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2017. Data on these property dispositions are as follows.a. Determine the amount and the character of the
On December 1, 2015, Lavender Manufacturing Company (a corporation) purchased another company's assets, including a patent. The patent was used in Lavender's manufacturing operations; $49,500 was
Larry is the sole proprietor of a trampoline shop. During 2017, the following transactions occurred.• Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation
Coline has the following capital gain and loss transactions for 2017. Short-term capital gain ......................................... $ 5,000 Short-term capital loss
Elliott has the following capital gain and loss transactions for 2017. Short-term capital gain ............................................ $ 1,500 Short-term capital loss
Renata Corporation purchased equipment in 2015 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2017 for $110,000. What is the amount and
Jacob purchased business equipment for $56,000 in 2014 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2017 for $26,000. What is the amount and character of Jacob's
Sissie owns two items of business equipment. Both were purchased in 2013 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering
An apartment building was acquired in 2008 by an individual taxpayer. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Ali owns 100 shares of Brown Corporation stock. He purchased the stock at five different times and at five different prices per share as indicated.On April 28, 2017, Ali will sell 40 shares of Brown
In late 2017, the Polks come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you
Compute the taxable income for 2017 in each of the following independent situations: a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent
Compute the taxable income for 2017 for Emily on the basis of the following information. Her filing status is single. Salary
Compute the taxable income for 2017 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2015. Salary
In 2017, David is age 78, is a widower, and is being claimed as a dependent by his son. How does this situation affect the following? a. David's own individual filing requirement. b. David's personal
Determine the amount of the standard deduction allowed for 2017 in the following independent situations. In each case, assume that the taxpayer is claimed as another person's dependent. a. Curtis,
Caden and Lily are divorced on March 3, 2016. For financial reasons, however, Lily continues to live in Caden's apartment and receives her support from him. Caden does not claim Lily as a dependent
Compute the 2017 standard deduction for the following taxpayers. a. Margie is 15 and claimed as a dependent by her parents. She has $800 in dividend income and $1,400 in wages from a part-time
For tax year 2017, determine the number of personal and dependency exemptions in each of the following independent situations: a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife
Sam and Elizabeth Jefferson file a joint return and have three children-all of whom qualify as dependents. If the Jefferson's have AGI of $335,900, what is their allowable deduction for personal and
Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for 2016 and 2017 received their support from the following sources: __________________________________
Taylor, age 18, is claimed as a dependent by her parents. For 2017, she has the following income: $4,000 of wages from a summer job, $1,800 of interest from a money market account, and $2,000 of
Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the household in which her parents live and furnished 60% of
Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but
Bob and Carol have been in and out of marital counseling for the past few years. Early in 2017, they decide to separate. However, because they are barely able to get by on their current incomes, they
Which of the following individuals are required to file a tax return for 2017? Should any of these individuals file a return even if filing is not required? Why or why not?a. Patricia, age 19, is a
Roy and Brandi are engaged and plan to get married. During 2017, Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable
Jayden calculates his 2017 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount. a. Why
In 2017, Dominique and Felix are married and file a joint tax return. Their AGI is $316,550 and they claim three exemptions. Determine their total exemption amount for 2017?
Paige, age 17, is claimed as a dependent on her parents' 2017 return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and
Terri, age 16, is claimed as a dependent on her parents' 2017 return. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs.a. What is Terri's taxable income?b. How
Paul and Sonja, who are married, had itemized deductions of $8,200 and $400, respectively, during 2017. Paul suggests that they file separately-he will itemize his deductions from AGI, and she will
Compute the 2017 tax liability and the marginal and average tax rates for the following taxpayers (use the 2017 tax rate schedules in Appendix A for this purpose). a. Chandler, who files as a single
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a
Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2014. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2016, he had the
Kathy and Brett Ouray married in 1999. They began to experience marital difficulties in 2013 and, in the current year, although they are not legally separated, consider themselves completely
Examine the tax reform bills or laws (if not yet passed, consider the "Blueprint" issued by the House Republicans in June 2016) that suggest changes in the amount and treatment of the standard
1. Keller is a single individual who in 2017 qualified for a foreign earned income exclusion of $80,000. Keller's 2017 net investment income was $25,000, and Keller's 2017 adjusted gross income prior
In late 2016, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. In 2017, the year in which the adoption
Herbert was employed for the first six months of 2017 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal
Adrian was awarded an academic scholarship to State University for the 2017-2018 academic year. He received $6,500 in August and $7,200 in December 2017. Adrian had enough personal savings to pay all
Emma Doyle is employed as a corporate attorney. For calendar year 2017, she had AGI of $100,000 and paid the following medical expenses: Medical insurance premiums
Reba, who is single, does a lot of business entertaining at home. Lawrence, Reba's 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because
Paul suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul
Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2017, she files her state income tax return for 2016 and pays an additional $1,000
In 2017, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net capital
Helen Derby borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During the current year, she reported AGI of $90,000 and paid interest of $12,000 on the loan. Other
Ramon had AGI of $180,000 in 2017. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable
Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2017.She incurred the following expenses and losses during the year:Medical expenses (before the 10%-of-AGI limitation)
Ann and Bill were on the list of a local adoption agency for several years, seeking to adopt a child. Finally, in 2016, good news came their way, and an adoption seems imminent. They paid qualified
Paul and Karen are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2017). Paul and Karen have two dependent children, both under the age of 13 (Samuel and Joy). So
Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are employed outside the home and during 2017 earn salaries as follows: $16,000 (Jim) and $5,200 (Mary
Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2017. She uses the standard deduction.a. Calculate the amount, if any,
Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2017. Also in 2017, Pierre paid $455 that was due when he filed his 2016 state income tax return and made
Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2017. She purchased the stock for $18,100 on December 28, 2016, and it had a fair market value of $27,000 when
Pedro, who is a single taxpayer, had AGI of $328,000 for 2017. He incurred the following expenses during the year:Medical expenses before 10%-of-AGI limitation ..................... $12,000State and
Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Alice's birthday is September 21, 1969, and
Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2017. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at

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