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business
federal taxation 2019

Questions and Answers of Federal Taxation 2019

Kevin Korda, age 35, married Emily, age 30, during 2019. Kevin pays alimony of $1,000 a month under a divorce decree from 2015, and provides $7,200 a year in support for his son from a previous
Carl Chubbs, age 64, earned $85,000 during 2019. His wife, Dawn, age 66, is blind. During 2019, Carl and Dawn received $1,000 in dividends. They sold their personal use automobile, which they had
Explain the difference between the taxpayer- use test and the functional-use test, and give an example as to when each applies.
What exchanges of insurance policies, endowment contracts, or annuities qualify for nonrecognition?
How is adjusted basis of a residence computed?
Leonard and Linda Lindsay sold for $350,000 in October 2019 their residence that they had purchased in 2009 for $100,000. They made major capital improvements during their 10-year ownership totaling
John Johnson, single, sold his home that he had owned for 20 years for $650,000. He purchased it for $125,000 and made $50,000 of capital improvements on the home during his time of ownership.a. How
Milton and Maxine Miller purchased a home in New York City for $350,000 on October 1, 2018. Milton obtained a job in Richmond, Virginia, and on December 1, 2019, the Millers sold their home in New
Tina and Tom Talley purchased a home in 2004 for $450,000. Over the years, they made substantial improvements, totaling $100,000. In 2018, the couple was divorced. As part of the settlement, the
Thomas and Tonya Taylor purchased a home for $125,000 on September 15, 2017. On October 8, 2018, they were divorced, and as part oft he divorce agreement, the home was transferred to Thomas, who sold
Arnold Atkins purchased a residence for $160,000 on September 26, 2017. In October 2018, he became ill and was confined to a nursing home. On October 8, 2019, he sold the residence for $245,000. How
Oscar Olson, single, purchased a residence on February 19, 2017, for $170,000. On September 7, 2019, a tornado completely destroyed his home. The home was insured for its replacement value, and homes
Carl Carter had purchased a residence on January 12, 2018, for $165,000 and then sold it on April 12, 2019, for $440,000 because of severe health problems.a. How much gain can Carl exclude and how
Which of the following exchanges qualify as like-kind exchanges?a. Unimproved land for warehouseb. Factory for apartment buildingc. Computer for small buildingd. Inventory for business machinee.
Lewis Lamont owns a yacht (personal use)that has a fair market value of $220,000 and an adjusted basis of $310,000. His AGI in the current year is $150,000. Calculate Lewis's realized and recognized
Sheila Sprinkle transferred a business building with a fair market value of $500,000 and an adjusted basis of $250,000 for a business building worth $400,000 and$100,000 cash.a. What is Sheila’s
Wayne Wyatt exchanges business land with an adjusted basis of $300,000 and a fair market value of $600,000 for Fred Forbes’s office building, worth $500,000, and $100,000 cash. Fred had an adjusted
Joe Jenner exchanges a business building with an adjusted basis of $120,000 (fair market value $150,000) for a business building worth $200,000. As part of the exchange, he gave up stock in Riveris
Susan Sundry exchanges her small office building (adjusted basis of $127,000 and fair market value of $154,000) for Tina Thompson's warehouse (adjusted basis of $112,000 and fair market value of
Allen Aubrey exchanges his factory (adjusted basis of $339,000 and fair market value of $525,000) for an apartment building with a fair market value of $360,000. He also receives $165,000 in cash.
Charlotte Citron exchanged a business building with Darlene Darbey. Charlotte's building had an adjusted basis of $105,000 and a fair market value of $90,000. Darlene's building had an adjusted basis
Debbie Davis and Elizabeth Engels exchanged like-kind business buildings. Debbie had an adjusted basis of $120,000 in her property (fair market value is $150,000). Elizabeth's property had an
Bruce Baxter exchanges an office building worth $1,025,000 for a warehouse owned by Dan Denton. Bruce's adjusted basis in the office building is $750,000 and Dan's basis is $800,000. The fair market
Emmett Embers exchanges a business building with an adjusted basis of $207,000 and a fair market value of $300,000 for George Gunn's land (to be held as investment) with an adjusted basis of $165,000
Linda Loren transfers an apartment building with an adjusted basis of $150,000 and a fair market value of $240,000 for Carol Comb's apartment building (adjusted basis $140,000) with a fair market
Peter Paterson transfers an apartment building with an adjusted basis of $160,000 and a fair market value of $235,000 for Charlie Claussen's apartment building (adjusted basis $120,000) with a fair
Chad Carter exchanged land with an adjusted basis of $100,000 and a fair market value of $150,000 for Nash Nunn’s land worth $140,000 (basis $120,000) and $15,000 cash. Chad’s mortgage of $35,000
Sidney Southern owned a restaurant which was condemned on November 20, 2018. On January 15, 2019, he received a condemnation award of $280,000. The adjusted basis of his restaurant was $120,000. He
Gerald Gold’s property is condemned by the local authorities. The property has an adjusted basis of $135,000 and a fair market value of $225,000. The local authorities replace Gerald’s property
The government condemns and seizes Gary Greene’s business property in order to widen the interstate. His adjusted basis in the property is $160,000. Gary receives $50,000 from the government.a.
Herbert Harrison's business property with an adjusted basis of $170,000 is condemned by the local authorities. He receives a $250,000 condemnation award.a. What is Herbert's realized and recognized
Steven Seller owned and managed a clothing store that was destroyed by a hurricane. He received an insurance award of $200,000 for the store, which had an adjusted basis of $120,000. A year later he
John and Amy Turner, married filing jointly, are both 36 years of age. They have two sons and a daughter. John and Amy have earned income of $93,500 and $58,300 respectively, and their allowable
For purposes of determining like-kind property for nontaxable exchanges, which of the following items held for business or investment purposes are not like-kind property?a. Improved real estate for
Which of the following statements is true regarding the exchange of like-kind property?a. If like-kind property is exchanged and money is paid, a taxable gain or deductible loss must be recognized by
Fred Frisby sells his personal residence for $178,000 (adjusted basis of $156,000) and within three months moves into a new residence he purchased for $250,000. What is his basis in the new
Within a 30-day time period, Martha Meyer transfers her property to Michelle Mann, who transfers cash to William Woolsey, and William transfers his like-kind property to Martha.Which of the following
Adam Armstrong, age 60 and single, earned $71,000 during 2019. He contributed $9,000 to the United church, paid $16,000 in federal income taxes, $3,400 in state income tax, and $4,600 in mortgage
Barry and Connie Rawles, husband and wife, are both age 34 and have two sons. Barry earned $51,000 and Connie earned $45,000 during 2019. Barry and Connie paid $4,200 state income taxes, $12,000
Carl Cushman, a college professor, age 58, purchased and moved into a house on August 1, 2017. He used the house continuously until September 1, 2018, on which date he went abroad for a one-year
What is not included in Section 1231 property?Section 1231Section 1231 property is a type of property, defined by section 1231 of the U.S. Internal Revenue Code. Section 1231
Describe what is meant by the "first netting."
Describe what is meant by the "second netting."
What was the purpose of enacting Section 1245?
What is Section 1245 property? What is the Section 1245 recapture rule?
What is Section 1250 property?
When is recapture on nonresidential real property governed by Section 1245 rules and when is it governed by Section 1250 recapture rules?
Describe the recapture provisions for both the donor and the donee when Section 1245 and Section 1250 property are given away.
What are the recapture rules in the event of death of the Section 1245 or Section 1250 property owner?
Is there recapture of depreciation when like- kind exchanges of Section 1245 and Section 1250 property occur? Explain.
What effect does giving away property with recapture potential have upon a charitable contribution?
Which of the following is a capital asset? Explain.a. Gold ring received as a giftb. Personal automobilec. Accounts receivable obtained in the ordinary course of businessd. Shares of stock in the
Explain the difference between the following situations:a. Lois sells a letter written to her by President Ronald Reagan in 1982 to a collector for $5,000.b. Lois sells a signed copy of the book 7a
Byron Bright, an inventor, sells the patent rights on his latest invention to Wilson Corporation. Wilson intends to manufacture and sell Byron’s invention.Byron will receive $50 per unit Wilson
Cathy Crafts grants Dan Deputy a franchise to sell cards and gifts. Dan pays Cathy a fee of $1,000 per month plus a percentage of the monthly profits. Dan must purchase his supplies from Cathy and
Jim Junction purchased a building business on November 17, 2018, for $400,000. On July 21, 2019, he exchanged the building for another business building in a like-kind exchange. The new building had
Boyd Bayer acquired 100 shares of Evans Corporation stock for $3,000 on January 8, 2018. He gave the stock to his daughter Susan on January 8, 2019, when the fair market value was $2,400. On March
Ed Elsewhere has the following capital gains and losses during 2019 as a result of sales of shares of stock. What is the net effect of the gains and losses on Ed’s tax return in each of the
Alice Almond purchased Smith Corporation stock on February 23, 2018, and on November 15, 2018, she gave the stock to her son Dennis. She paid $10,000 for the stock and the value at the time of the
Ted Thomas, a single taxpayer has the following transactions in 2019:a. What is Ted’s net capital gain or loss?b. If your answer to (a) was a net capital gain, what is the maximum rate at which it
Gordon Grumps is married and files separately. During 2019, he had the following capital gains and losses:Gordon’s taxable income is $6,000. What is Gordon's capital loss deduction for 2019 and his
Bert Baker had $50,000 salary during 2019 and had the following capital gains and losses:How should Bert treat the above on his 2019 tax return? STCL carryover from 2018 STCL STCG LTCL carryover from
Cannon Corporation had a net long-term capital gain of $50,000 and a net short-term capital loss of $75,000 in 2019. What are the tax consequences to Cannon as a result of its capital transactions?
On April 22, 2019, Al Aikens, a calendar year taxpayer, purchased stock in Webster Corp. for $15,000. What is the nature of Al’s loss if Webster Corp. files for bankruptcy and Al’s stock becomes
Charlotte and Carl Conner purchased 1,000 shares of qualifying Sec. 1244 stock in 2015 for $125,000. In 2019, they sold the stock for $15,000.a. What is the amount oft heir loss?b. What is the tax
Compute the taxpayer's losses for the following situations.a. Arthur Angler, single, acquires 500 shares of Section 1244 stock in 2016 for$100,000 and sells all of it for $40,000 in 2019. How is the
Shirley Swift transferred property with an adjusted basis of $24,000 and a fair market value of $18,000 to Alex Corporation in exchange for 100 shares of its Section 1244 stock. Three years later, in
Kirk Kelley, a single taxpayer, was engaged in the following transactions in 2019:∎ Kirk lent a friend $2,500; that person did not pay the loan when it was due and then declared bankruptcy. The
Andrew Graham had the following recognized gains and losses during 2019:What are the net tax consequences of these gains and losses to Andrew?Andrew’s adjusted gross income is $40,000 without
Barbara Bliss had the following recognized gains and losses during 2019:What are the net tax consequences of these gains and losses for Barbara?Barbara's adjusted gross income is $30,000 without
Steven Stronghold had a Section 1231 net gain of $25,000 in 2019. His previous net Section 1231 items were $12,000 in 2012, ($8,000) in 2013, ($6,000) in 2014, ($3,000) in 2015, ($1,000) in
What type of asset is each oft he following?a. Machinery used in the taxpayer's businessb. Personal-use automobilec. Business-use automobiled. Office furniture in taxpayer's businesse. Furniture in
Indicate whether the following items are Section 1245 or Section 1250 property or, if neither, indicate what type of property they are considered to be (e.g., capital asset, Section 1231 asset).
In 2019, Dan Dunne sold a business machine for $75,000. He had purchased the machine in 2015 for $90,000, had depreciated it on the straight-line basis using a life of five years, and had taken a
In 2019, Emma Evans sold a piece of equipment from her business for $80,000. The equipment was purchased in 2015 for $72,000, had a useful life of five years, and was depreciated on a straight-line
Harold Hunch purchased Section 1250 commercial property on January 1, 1980, and sold it on January 1, 2019, at a gain of $250,000. Depreciation taken was $500,000; straight-line depreciation would
Determine the taxpayer's income and the treatment oft he income.a. On January 1, 1975, Glen Gopher purchased an office building for his business for $1,000,000. He sold the building on January 1,
On January 1, 1985, Ivan Innkeeper purchased an office building for $900,000. He used the ACRS statutory (accelerated) depreciation method and took $900,000 depreciation before he sold the building
Assume the facts of the preceding problem except that the building was an apartment building.a. How much income does Ivan recognize and how will it be treated?b. What would your answer be to(a) if he
Irene Irwin gave her son James a Section 1245 machine. The machine has an adjusted basis of $25,000 and Irene had taken $10,000 in depreciation. James used the machine for 15 months and took $5,000
Karen Klaus has a business building (Section 1250 property) with an adjusted basis of $40,000 and a fair market value of $160,000. The building originally cost $170,000 when purchased in 2015. In
Larry Lyons donated a small office building to a qualified charity when the adjusted basis was $90,000 and the fair market value was $160,000. Larry had taken depreciation deductions in excess of
In March 2019, Mary Marionette sold equipment used in her business for $80,000, to be paid in eight annual installments of $10,000 plus interest beginning in 2020. The equipment was acquired in 2015
Ivan Investor sold a parcel of land during 2019 realizing a $50,000 gain. Ivan has used this parcel for a parking lot during the 120 months that he has owned the land. The amount and tax
Mary Martin owns a custom curtain/drapery business. In 2019, she purchased three new sewing machines and in a separate transaction, sold her three old machines for $6,000. She had bought the old
In 2019, Gordon Grant sold an office building for $180,000. He had purchased the building in 1986 for $150,000 and had properly deducted $100,000 of depreciation, which included $15,000 in
Which of the following property is not Section 1231 property?a. Unharvested crop on land held for more than one year and used for farmingb. Dairy cattle held more than two yearsc. Musical instruments
Section 1250 recapture provisions apply to all of the following except:a. Residential real propertyb. Government-financed housingc. Low-income housingd. ACRS nonresidential real property depreciated
Bill and Alice Savage, husband and wife and both age 42, have the following transactions during 2019:a. They sold their old residence on January 28, 2019, for $380,000. The basis of their old
Terry trooper, a single taxpayer, had the following transactions during 2019:a. Sold 60 shares of Troy Corporation common stock on March 22, 2019, for $660. The stock was purchased on January 31,
Mark Mullins had the following transactions or involuntary conversions during 2019:a. His diamond gemstones costing $4,009 in 2013 were sold for $5,000.b. His office building owned for four years was
In 2018, Allen Appleton sells his business to David, but he sells the claim against Fred that arose during the course of his business to George, who is not in a business. The claim becomes worthless
Harlan Huston had a net Section 1231 gain in 2019 of $40,000. His net Section 1231 gains and losses were as follows:How is the $40,000 net Section 1231 gain treated by Harlan in 2019? Year 2018 2017
When considering the cash versus the accrual method of accounting:a. Is there any type of business that must be on the cash method?b. Is there any type of business that must be on the accrual
A cash-basis taxpayer generally is allowed a deduction upon payment of business expenses. May it deduct all payments when paid?
May the same taxpayer use several different methods of recognizing income simultaneously?
Can the IRS require Bill Inc. to change its method of accounting in all circumstances?
Generally, what additional indirect production costs incurred in the manufacture of inventory must be capitalized under the uniform capitalization rules that were not required to be capitalized under
Rock Inc. is a manufacturer. It incurred numerous overhead costs this year. How should it treat the costs in determining its inventory?
$20 million of nondealer real estate obligations arose in and are outstanding at the end of calendar-year 2019. Deferred gross profit on such installment obligations equals $5 million. Assume that

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