South Western Federal Taxation 2018 Essentials Of Taxation Individuals And Business Entities 21st Edition William A. Raabe, James C. Young, Annette Nellen, David M. Maloney - Solutions

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 to 40% for business, 30% for production of income, and 30% for personal use. Mary did not elect
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 additional first-year depreciation. If Muhammad uses the MACRS statutory percentage method, determine
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. Calculate Hamlet's cost recovery deductions for 2017 and 2018?
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 nonresidential real estate?
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 McKenzie's § 179 expense deduction for 2017 and any carryover to 2018?
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 is used 70% for business and 30% for personal use in each tax year.Kinsey chooses the MACRS 200%
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 costs. In 2017, when the plants became viable, Jed placed the vineyard in service. Jed wants to know
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 lease signing can be declared as a business expense on Schedule C of Newton's 2017 tax return? a. All
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 provided Randy with a power of attorney to use the $200,000 to purchase and sell securities on
Mary, a single taxpayer with two dependent children, has the following items of income and expense during 2017:Gross receipts from business ....................................... $144,000Business expenses ..................................................... 180,000Alimony received
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 much can he deduct in each year?
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 of the partnership loss is $35,000 in 2016, while her share of the partnership income is $15,000 in
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 the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15,
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 $120,000 at the beginning of 2017. Blue-Sky incurred a loss of $400,000 in 2017 and reported income of
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 were as follows: Year ___________________ Income (Loss) 2016 .................................
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 about filing separately to save taxes. Their income and expenses for 2017 are as follows:Bonnie's salary
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 the claim was denied. Because the insurance claim was denied, Mary took a casualty loss deduction for
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 surrounding her home. In September 2016, Esther engaged a local arborist to evaluate and treat the
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 United National Bank. This loan was secured by John's personal residence. Although Maze was listed
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. According to market quotations, Bluebird stock is selling for $285 per share on December 31, 2017. Finch
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 Rod's basis for each of the assets.c. Write a letter to Rod informing him of the tax consequences of
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 $35,000. Roberto sells the land for $95,000 in 2017. b. In 1956, he received stock in Gold Company.
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 Basis _________ FMV Land ........................ $100,000 ............ $212,000 Building
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 was $2,800,000. The fair market value six months later was $2,850,000. a. What is the basis of the
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 on July 15, 2017. Tyneka sold the stock on July 30, 2018, for $33,000. After giving the matter more
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 their lives easier, they decide to exchange the investment properties. Under the terms of the
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 building for $900,000. Randall accepts the offer with the stipulation that the sale be structured as
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 Mitchell that his property is going to be condemned so that the highway can be widened. On June 20,
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 realized gain or loss, recognized gain or loss, and basis for the replacement property if she: a.
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 August 16, 2017, he and the purchaser signed a contract to sell for $363,000. The sale (i.e.,
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 $950,000 on the property.To enable the purchaser to obtain adequate financing, Peyton is to pay the
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, 2017, Melvin invests $30,000 of cash that Ruth had in her money market account in acquiring 1,000
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 terminated. This led to the sale of the apartment building and a division of the proceeds. The realized gain
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 (e.g., antique automobile shows) while he is holding them. In 2017, he sold a classic automobile for $1.5
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 sells two contiguous lots to another purchaser. The sales price of each lot is $30,000. The
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 an exit ramp from a new freeway. Raymond gave Carla $836,000 for an option on her land in 2016. The
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 January 22, 2017. Maria was going to hold the house for several years and then sell it. However, she
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 short sale by delivering 100 of the shares purchased on April 1. a. What are the amount and nature
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 bonding process. The patent had not yet been reduced to practice. Bertha purchased the patent as an
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 Gain2012 ............................ $18,000 ..................................2013
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 recognized gain or loss from the disposition of each asset in 2017. b. Assuming that Siena has no
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 allocated to the patent, and it was amortized at the rate of $275 per month. On July 30, 2017, Lavender
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 proceeds were $15,000. The land, acquired in 1986, had an allocable basis of $40,000. Larry has
Coline has the following capital gain and loss transactions for 2017. Short-term capital gain ......................................... $ 5,000 Short-term capital loss ......................................... (2,100) Long-term capital gain (28%) ................................... 6,000 Long-term
Elliott has the following capital gain and loss transactions for 2017. Short-term capital gain ............................................ $ 1,500 Short-term capital loss ............................................ (3,600) Long-term capital gain (28%) ....................................
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 character of Renata's gain or loss?
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 gain or loss?
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 selling these assets in 2017. One of them is worth $60,000, and the other is worth $23,000. Because both
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 25% gain?
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 executed a document under which Clyde's stock in Red would be redeemed and Clyde would agree not to
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 stock for $40 per share. All of Ali's shares are held by his stockbroker. The broker's records track
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 note that they have large medical expenses and a casualty loss, neither of which is covered by
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 children, they have AGI of $65,000 and itemized deductions of $15,000. b. Sybil, age 40, is single
Compute the taxable income for 2017 for Emily on the basis of the following information. Her filing status is single. Salary ........................................................................... $85,000 Interest income from bonds issued by Xerox ................................ 1,100 Alimony
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 ...................................................................................... $ 80,000 Interest on bonds issued by the City
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 exemption. c. The standard deduction allowed to David. d. The availability of any additional
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, age 18, has income as follows: $700 interest from a certificate of deposit and $6,100 from repairing
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 on his 2016 Federal income tax return but does so on his 2017 return? Explain.
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 job. b. Ruby and Woody are married and file a joint tax return. Ruby is age 66, and Woody is 69. Their
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 and furnish more than 50% of the support of their two children, Elton (age 18) and Trista (age 24).
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 dependency exemptions for 2017?
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: __________________________________ Percentage of Support Social Security benefits ............................. 16% Son
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 interest from City of Boston bonds. a. What is Taylor's taxable income for 2017? b. What is Taylor's tax
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 their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte's father
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 Jerold (a French citizen) lives in Canada. Morgan earns a salary of $95,000, contributes $5,000 to a
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 cannot afford separate housing or the legal costs of a divorce. So Bob moves out of their house in
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 self-employed single individual with gross income of $5,200 from an unincorporated business. Business
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 scholarships, he is self-supporting. For the year, Brandi is employed and has wages of $61,000. How much income
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 is there a difference? b. Is Jayden's approach permissible? Why or why not?
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 $4,100 in interest on a savings account. What are Paige's taxable income and tax liability for 2017?
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 much of Terri's income is taxed at her rate? At her parents' rate?c. Can the parental election be
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 claim the standard deduction. a. Evaluate Paul's suggestion. b. What should they do?
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 taxpayer, has taxable income of $93,000. b. Lazare, who files as a head of household, has taxable
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 paralegal for a law firm.During 2016, the Deans had the following receipts:Wanda was previously
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 following receipts:Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2016.
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 estranged. They have contemplated getting a divorce. However, because of financial concerns and because they
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 deduction and personal exemptions. How do the changes compare to the rules described in this chapter?
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 to the foreign earned income exclusion was $220,000. Given a 3.8% Unearned Income Medicare
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 becomes final, they pay an additional $8,000. Their AGI in 2017 is $135,000. a. Determine the amount
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 residence as collateral), and withdrew $2,000 from his savings account (including $60 of interest
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 expenses as they came due. Adrian's expenditures for the relevant period were as follows: Tuition,
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 ...................................................... $3,700 Doctor and dentist bills for Bob and April (Emma's parents)
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 he needs medical and nursing care. During the year, Reba made the following payments on behalf of
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 incurs and pays the following amounts during 2017. Doctor and hospital bills
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 state income taxes. During 2017, her withholdings for state income tax purposes amount to $7,400,
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 gain on the sale of securities. Kathleen asks you to compute the amount of her deduction for
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 items related to Helen's investments include the following: Interest and annuity income
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 charitable contribution deduction in each of the following independent situations, and indicate the
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) ...................... $33,000State and local income taxes
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 adoption expenses of $5,000 in 2016 and $11,000 in 2017. Assume that the adoption becomes final in
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 they can work outside the home, Paul and Karen pay $3,800 ($1,900 for each child) to Sunnyside Day
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 Jean). To care for their children while they work, they pay Eleanor (Jim's mother) $5,600. Eleanor
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 education seminars offered by the architecture school at State University. During 2017, Bernadette spends
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, of Joyce's earned income credit.b. During the year, Joyce is offered a new job that has greater
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 estimated payments of $975 toward his 2017 state income tax liability. When Pierre files his 2017
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 she made the donation. a. What is Donna's charitable contribution deduction? b. Assume instead that
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 local income taxes ................................................ 8,900Real estate taxes
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 Bruce's is June 27, 1968. They live at 473 Revere Avenue, Lowell, MA 01850. Alice is the office manager
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 Carmel Motor Inn, and Donna is a teacher at Carmel Elementary School. They present you with W-2

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South Western Federal Taxation 2018 Essentials Of Taxation Individuals And Business Entities 21st Edition William A. Raabe, James C. Young, Annette Nellen, David M. Maloney - Solutions

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