Questions and Answers of Concepts In Federal Taxation

On April 3, 2020, Arlene sells land that she holds as an investment to a construction company. The deed conveying the land to the construction company contains a covenant restricting construction on
At the beginning of 2021, Heather owns the following stocks:In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2020.
Duke Plumbing and Wallpaper Company is a corporation that has been in business since 2021 (Typo-Should be 2000). During the current year, it has the following property transactions:a. A warehouse
Martina purchases 10,000 shares of Monrovia Corporation stock for $90,000 on November 14, 2020. On June 18, 2021, Monrovia declares bankruptcy. Because the corporation’s assets are less than its
Barney is a farmer who has the following transactions during 2021:a. A barn that had cost $36,000 in 2013 with an adjusted basis of $16,000 is destroyed by a tornado. Barney's insurance pays him
Tawana purchased real property in 2019 at a cost of $200,000. In 2021, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is $185,000.
In 2020, Nuts & Seeds Inc., purchased a new “high-tech” shelling machine from Soft-Core Corporation. Nuts & Seeds paid $1,000 in cash and gave Soft-Core a $29,000 note. The note is
Jeremiah owns farm land that he paid $20,000 for in 2009. In 2020, he planted a winter wheat crop on the land, incurring $35,000 of expenses. Jeremiah deducted the $20,000 of planting expenses that
Aretha sells her house on June 9, 2021, for $220,000 and pays commissions of $10,000 on the sale. She had purchased the house for $60,000 and made capital improvements costing $15,000. What are
On July 8, 2021, Cynthia and her daughter Constance agree to exchange land they held for investment. Both tracts are worth $18,000. Cynthia acquired her land 4 years earlier for $9,000. Constance
Gary and Gertrude are married on April 8, 2020. They use Gertrude’s home as their residence. Gertrude purchased the home on November 14, 2018, for $60,000. On February 19, 2021, Gertrude is killed
Bonnie wants to trade her Snow Bird, Utah, condominium, which she has held for investment, for investment property in Steamboat Springs or Crested Butte, Colo. On April 20, 2021, she transfers title
Inez is a freelance artist. She purchased 10 acres of land in 2016 for $5,000. On July 15, 2021, the land is condemned by the county government to build a new courthouse and jail facility. The county
Laurie bought a home in 2018 for $65,000. On November 2, 2021, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her
Harvey sells his personal residence on March 18, 2021, for $78,000. He paid $86,000 for it on April 22, 2019.
Eva and Mario are married on June 14, 2020. They use Eva’s home as their principal residence. Eva purchased the home for $97,000 in 2017. On January 13, 2021, Eva and Mario are divorced. As part of
The Viking Corporation has the following items of income for 2021:a. Calculate the corporation's 2021 taxable income and its tax liability.b. Assume that Viking is, and always has been, an S
In October 2021, fire completely destroys the principal residence of Olaf, who is 63 and single, and lives in Bemidji, Minnesota. He owned the home for 16 years; his adjusted basis is $58,000. Olaf
Lacy Corporation sells equipment and a building during the current year. The equipment, which cost $14,000 in 2018, is sold for $9,000. The equipment was expensed using the Section 179 election in
Powell owns a 20 percent interest in Cooke Partnership. At the beginning of 2020, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2020, and Powell withdraws $10,000 from the
In October 2019, the Clark Corporation decides to establish a SIMPLE-401(k) retirement plan for its employees. Clark meets all requirements for establishing a SIMPLE. The company has notified its
Ghon is a married taxpayer who retired from his job at Smithfield Printing in 2021. During 2022, he turns 72 and begins withdrawing the $215,000 (balance December 31, 2021) in assets in his pension
Ross is single and maintains an IRA. During a trip to Las Vegas in 2021, he wins $15,000 at the roulette wheel. He decides to put half his earnings in his IRA account and spend the other half on a
On September 1, 2021, Beaconsfield Corporation grants Albert a nonqualified stock option to acquire 500 shares of the company’s stock for $8 per share. The fair market value of the stock on the
On July 1, 2021, Howard is granted the right to acquire 500 shares of the Matoney Corporation for $15 per share. The option qualifies under the company’s incentive stock option plan. The current
On May 10, 2021, Somerton Inc., grants Louise a nonqualified stock option to acquire 700 shares of the company’s stock for $11 per share. The fair market value of the stock on the date of grant is
Lavinia owns an advertising agency. In February 2021, Lavinia purchases a building for $125,000. Lavinia spends $275,000 rehabilitating the building for use as her advertising agency office. The
Nina is the auditor for Geiger Construction, a local builder. Geiger recently renovated a historic building in downtown Kingston. The building, which consists of 5 shops, is owned by the Restoring
Refer to problem 52. Guadalupe sells the building on October 26, 2021. What is her 2021 depreciation deduction if she purchased the building ona. June 30, 1992?b. June 30, 1994?Data From Problem 52
Martina is single and has two children in college. Matthew is a sophomore and Christine is in her fifth year of college. Martina pays $3,600 in tuition and fees for Matthew, $700 for textbooks, and
Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2020 and $22,000 in 2021 and income of $9,000 in 2022. Her adjusted gross income, before considering the rental
Mason owns a passive activity that generates a loss of $14,000 in 2020, $12,000 in 2021, and income of $4,000 in 2022. In 2021, Mason purchases a second passive activity that has passive income of
Return to the facts of problem 36. At the end of 2022, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity
During 2021, Yoko has total capital gains of $8,000 and total capital losses of $16,000.a. What is the effect of the capital gains and losses on Yoko's 2021 taxable income? Explain.b. Assume that in
Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2021. She paid $27,000 for the stock in February 2018.a. Assuming that Goldie has no other capital asset transactions in
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2021. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's 2021
Bongo Corporation is incorporated in 2019. It has no capital asset transactions in 2019. From 2020 through 2023, Bongo has the following capital gains and losses:Assuming that Bongo's marginal tax
Newcastle Corporation was incorporated in 2020. For the years 2020 through 2022, Newcastle has the following net capital gain or loss.If Newcastle is in the 21% marginal tax bracket for each of these
Katelyn purchased 300 shares of Condine, Inc., stock in 2019 for $9,000. During 2021, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated
Faith, who is single, sells the following assets during 2021:20,000 shares of qualified small business stock at a loss of $62,000. Faith bought the stock in 2016. 1,200 shares of Geelong
The Readyhough Corporation was incorporated in 2013. During 2020, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of
Zoriana sells stock that she acquired in 2017 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2020.
Determine the 2021 filing status in each of the following situationsa. Michaela and Harrison decide to separate on October 12, 2021. Before filing their 2021 tax return on February 18, 2022, Michaela
Determine the maximum deduction from AGI in 2021 for each of the following taxpayers:a. Pedro is single and maintains a household for his father. His father is not a dependent of Pedro’s. Pedro’s
Determine the maximum deduction from AGI in 2021 for each of the following taxpayers:a. Selen is single and has itemized deductions for the year of $12,900. In addition, Selen's mother lives with
Hongtao is single and has a gross income of $89,000. His allowable deductions for adjusted gross income are $4,200 and his itemized deductions are $19,000.a. What is Hongtao’s taxable income and
Jesse is a resident of New Jersey who works in New York City. He also owns rental property in South Carolina. During 2021, he pays the following taxes:During 2021, Jesse’s 2019 New York State and
Simon is single and a stockbroker for a large investment bank. During 2021, he has withheld from his paycheck $2,250 for state taxes and $400 for city taxes. In June 2022, Simon receives a state tax
Frank and Liz are married. During 2021, Frank has $2,800 in state income taxes withheld from his paycheck, and Liz makes estimated tax payments totaling $2,200. In May 2022, they receive a state tax
Rocco owns a piece of land as investment property. He acquired the land in 1995 for $18,000. On June 1, 2021, he sells the land for $80,000. As part of the sale, the buyer agrees to pay all of the
Determine the taxable income of each of the following dependents in 2021:a. Louis is 12 and receives $1,250 in interest income.b. Jackson is 16. He earns $2,050 from his newspaper route and receives
Calculate the 2021 tax liability and the tax or refund due for each situation:a. Mark is single with no dependents and has a taxable income of $60,000. He has $9,200 withheld from his salary for the
Determine the amount of the child-and-dependent care credit to which each of the following taxpayers is entitled:a. Caryle and Philip are married and have a 4-year-old daughter. Their adjusted gross
Darcy borrowed $4,000 in 2018 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6% interest on the unpaid balance in 2018, 2019, and 2020. After closing a big deal in
Partha owns a qualified annuity that cost $52,000. Under the contract, when he reaches age 65, he will receive $500 per month until he dies. Partha turns 65 on June 1, 2021and receives his first
Minnie owns a qualified annuity that cost $78,000. The annuity is to pay Minnie $650 per month for life after she reaches age 65. Minnie turns 65 on September 28, 2021, and receives her first payment
Duc has been employed by Longbow Corporation for 25 years. During that time, he bought an annuity at a cost of $50 per month ($15,000 total cost). The annuity will pay him $200 per month after he
The Rosco Partnership purchases a rental property in 2016 at a cost of $150,000. From 2016through 2021, Rosco deducts $14,000 in depreciation on the rental. The partnership sells the rental property
Ratliff Development Corporation purchases a tract of land in 2020 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2020, Ratliff installs
Pedro purchases 50 shares of Piper Company common stock on February 19, 2018, at a cost of $4,300. He sells the 50 shares on July 2, 2021, for $9,000. On March 14, 2021, Pedro purchases 100 shares of
Erin, a single taxpayer, has a taxable income of $168,000 in the current year before considering the following capital gains and losses:In addition, Erin has an $8,000 long-term capital loss
Jennifer is single and has the following income and expenses:Calculate Jennifer’s taxable income and income tax liability. Salary Interest income Dividend income Long-term capital gain Short-term
Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2021:a. A $10,000, 8.5%, 6-month loan made on October 1, 2021.
In January 2021, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a
How much income would an accrual basis taxpayer report in 2021in each of the following situations?a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a
Daryl purchases land in 2017 at a cost of $65,000. In 2021, he sells the land for $100,000.a. How much gain or loss does Daryl realize on the sale of the land?b. Assume that the sales contract on the
In 2018, Patricia purchases a rental property as an investment at a cost of $60,000. From 2018through 2021, she takes $7,000 in depreciation on the property. In 2021, Patricia sells the rental
WCM Builders enters into a contract to build a shopping mall in 2020 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM
In 2015, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2021, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds.
A stock appreciation right (SAR) entitles the holder of the right to a cash payment equal to the difference between the fair market value of the stock on the date the SAR is exercised and the fair
Throughout the textbook, it has been stated that tax relief can come in several forms. Assuming that the taxpayer in question is in a 24% marginal tax rate bracket and the time-value of money is 6%,
Tia is married and is employed by Carrera Auto Parts. In 2021, Carrera established high-deductible health insurance for all its employees. The plan has a $2,800 deductible for married taxpayers.
Hashem works for Close Corporation for 24 years. Close has a qualified, noncontributory pension plan that pays employees with more than 5 years of service $100 per month per year of service when they
Boris is an unmarried systems specialist with a public accounting firm. During all of 2021, he is on temporary assignment in London. He pays $21,000 in British income tax on his $100,000 salary.
Imani receives a 2-year scholarship to Big University. The scholarship stipulates that, to improve her teaching skills, she must spend her first-year teaching at an affiliated school. She will be
In April, a tornado damages the house owned by Malik and John. The damaged residence required extensive repairs, making it necessary for Malik and John to move into a motel and eat their meals in
Camila, 43, is an employee of Primus University. Her annual salary is $44,000. Primus provides all employees with health and accident insurance (Camila's policy cost $1,800) and group term life
Determine the amount of the child and dependent care credit to which each of the following taxpayers is entitled:a. Michael and Jermaine are married and have a 7-year-old child. Their adjusted gross
Determine whether each of the following taxpayers must file a return in 2021:a. Jamie is a dependent who has wages of $4,150.b. Joel is a dependent who has interest income of $1,200.c. Martin is
Determine whether each of the following taxpayers must file a return in 2021:a. Felicia is a dependent who has wages of $6,350 and interest income of $225.b. Jason is a dependent who has interest
Jacqueline is single. In June 2021, she receives a refund of $250 from her 2020 state tax return. Her 2020 itemized deductions were $8,000. In October 2021, her 2019 state tax return is audited, and
Troy’s 2019 tax return is audited. The auditor determines that Troy inadvertently understated his ending inventory in calculating his business income. The error creates an additional tax liability
Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2014. From 2014 through 2019, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net
Casandra and Hai are married and have a daughter who is a junior at State University. Their adjusted gross income for the year is $88,000, and they are in the 24% marginal tax bracket. They paid
Han owns a farm. He purchases a tractor in 2017 at a cost of $25,000. Because 2017 is a bad year, he does not deduct any depreciation on the tractor in 2017. He sells the tractor in 2021 for $16,000.
On October 1, 2021, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust's adjusted basis in the lot is $20,000. Real estate taxes attributable to
Erin purchases 2 acres of land in 2021 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10%. In
On January 5, 2021, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2021, he purchases an additional 300 shares for $19,500. On November 13, 2021,
Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1958 Thunderbird for $15,000 from the company. A car like Izzy's
Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2016. On December 14, 2021, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3,
On November 14, 2021, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock 2 years earlier for $10,000. Because the price of the stock continued to drop, Noel
On September 14 of last year, Wenona purchases 100 shares of Campbell Corporation common stock at a total cost of $8,000. In December of the current year, Campbell pays a nontaxable stock dividend of
Harry and Freddi, a married couple, purchased 100 shares of Opaque Mutual Fund in 2006 for $2,800 as joint tenants with the right of survivorship. Freddi dies during the current year. Fair market
Determine the total allowable 2020 earned income credit in each of the following situations:a. Rina is single and earns $6,800 in salary for the year. In addition, she receives $2,200 in unemployment
Determine the total allowable 2020 earned income credit in each of the following situations:a. Judy is single and earns $6,500 in salary for the year. In addition, she receives $3,500 in unemployment
Terry purchased stock in Yippee Corporation for $10,000 in May 1986. He bought stock in Zapper Corporation for $20,000 in June 1989. The Yippee Corporation stock is currently worth $90,000, and the
For each of the following tax treatments, determine the concept, construct, or doctrine that provides the rationale for the treatment:a. During the current year, Trafalger Corporation pays $475,000
Sidney lives in Hayes, Kansas. He owns land in Cotulla, Texas, that he inherited from his father several years ago. The land is unimproved and has never produced income. On January 26, 2021, Sidney
Andrew and Yuna each receive a salary of $80,000. Neither Andrew nor Yuna has any other source of income. During the current year, Yuna paid $800 more in tax than Andrew. What might explain why Yuna
Christie purchases a one-third interest in the Corporate Capital Partnership (CCP) in 2019for $40,000. During 2020, CCP earns an income of $90,000, and Christie withdraws $30,000 in cash from the

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