Questions and Answers of South-Western Federal Taxation 2022 Individual Income Taxes

Mahan purchases 1,000 shares of Bluebird Corporation stock on October 3, 2021, for $300,000. On December 12, 2021, Mahan purchases an additional 750 shares of Bluebird stock for $210,000. According
Roberto has received various gifts over the years and has decided to dispose of several of these assets. What is the recognized gain or loss from each of the following transactions, assuming that no
Dan bought a hotel for $2,600,000 in January 2017. In May 2021, 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 2021
Ichiro, age 93, has accumulated substantial assets during his life. Among his many assets are the following, which he is considering giving to Koji, his grandson.Ichiro has been in ill health for the
Ella and Emma are twin sisters who live in Louisiana and Mississippi, respectively. Ella is married to Frank, and Emma is married to Richard. Frank and Richard are killed in an auto accident in 2021
Thania inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe’s basis in the stock was $35,000, and the fair market value of the stock on July 1, 2021 (the date of Joe’s death) was $45,000. The
On December 28, 2021, Kramer sells 150 shares of Lavender, Inc. stock for $77,000. On January 10, 2022, he purchases 100 shares of the same stock for $82,000. a. Assuming that Kramer’s
Noelle’s diamond ring was stolen in November 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the
Jayda maintains an office in her home that comprises 8% (200 square feet) of total floor space. Gross income for her business is $42,000, and her residence expenses are as follows:What is Jayda’s
In 2018, José purchased a house for $325,000 ($300,000 relates to the house; $25,000 relates to the land). He used the house as his personal residence. In March 2021, when the fair market value of
Diana acquires, for $65,000, and places in service a 5-year class asset on December 19, 2021. It is the only asset that Diana acquires during 2021. Diana does not elect immediate expensing under §
Many states have their income tax calculations “piggyback” the Federal income tax calculation. In other words, these states’ income tax calculations incorporate many of the Federal calculations
Esther owns a large home on the Southeast Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In September 2021, a hurricane damaged many of
In 2021, Kelsey sustained a loss on the theft of a painting. She had paid $20,000 for the painting, but it was worth $40,000 at the time of the theft. Evaluate the tax consequences of treating the
Kelly decided to invest in Lime, Inc. common stock after reviewing Lime’s public disclosures, including recent financial statements and a number of press releases issued by Lime. On August 7, 2019,
In 2018, 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 2018. John
Amos began a business, Silver LLC (a single-member LLC), on July 1, 2018. The business extracts and processes silver ore. During 2021, as a result of a decline in demand for silver ore, Amos expects
Last year Aleshia identified $15,000 as a nonbusiness bad debt. In that tax year, before considering the tax implications of the nonbusiness bad debt, Aleshia had $100,000 of taxable income, of which
On May 9, 2019, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as § 1244 stock
Emily, who is single, sustains an NOL of $7,800 in 2021. The loss is carried forward to 2022. For 2022, Emily’s income tax information before taking into account the 2021 NOL is as
Belinda was involved in a boating accident in 2021. Her speedboat, which was used only for personal use and had a fair market value of $28,000 and an adjusted basis of $14,000, was completely
Sandstorm Corporation decides to develop a new line of paints. The project begins in 2021. Sandstorm incurs the following expenses in 2021 in connection with the project:Salaries
Tim, a single taxpayer, operates a business as a single-member LLC. In 2021, his LLC reports business income of $225,000 and business deductions of $587,000, resulting in a loss of $362,000. What are
Olaf lives in the state of Minnesota. In May 2021, a tornado hit the area and damaged his home and automobile. Applicable information is as follows: Because of the extensive damage caused by the
Valeria and Trey are married and file a joint tax return. For 2021, they have $4,800 of nonbusiness capital gains, $2,300 of nonbusiness capital losses, $500 of interest income, and no itemized
Mario, a single taxpayer with two dependent children, has the following items of income and expense during 2021: a. Determine Mario’s taxable income for 2021.b. Determine Mario’s NOL for
On July 24 of the current year, Trevor Pickard was involved in an accident with his business use automobile. Trevor had purchased the car for $30,000. The automobile had a fair market value of
During 2021, Leisel, a single taxpayer, operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $142,000 and deductions of $420,000,
Jed, age 55, is married with no children. During 2021, Jed had the following income and expense items:a. Three years ago, Jed loaned a friend $10,000 to help him purchase a new car. In June of the
Mason Phillips, age 45, and his wife, Alyssa, live at 230 Wood Lane, Salt Lake City, UT 84101. Mason’s Social Security number is 111-11-1111. Alyssa’s Social Security number is 123-45-6789. Mason
Your client, Dave’s Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2021, the CFO decided that keeping track of inventory using a combination of
In 2017, 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 nondepreciable land
Discuss the definition of business income as it is used in limiting the § 179 expensing amount.
In May 2021, Gwen began searching for a trade or business to acquire. In anticipation of finding a suitable acquisition, Gwen hired an investment banker to evaluate three potential businesses. She
Euclid acquires a 7-year class asset on May 9, 2021, for $80,000 (the only asset acquired during the year). Euclid does not elect immediate expensing under § 179. She does not claim any available
Hamlet acquires a 7-year class asset on November 23, 2021, for $100,000 (the only asset acquired during the year). Hamlet does not elect immediate expensing under § 179. He does not claim any
Andre acquired a computer on March 3, 2021, for $2,800. He elects the straight-line method for cost recovery. Andre does not elect immediate expensing under § 179. He does not claim any available
McKenzie purchased qualifying equipment for his business that cost $212,000 in 2021. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction.a.
On April 5, 2021, Kinsey places in service a new automobile that cost $60,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car
On October 1, 2021, Verónica purchased a business. Of the purchase price, $60,000 is allocated to a patent and $375,000 is allocated to goodwill. Calculate Verónica’s 2021 § 197 amortization
On November 4, 2019, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2019 and 2020, respectively, Blue deducted $642 and $5,128 of cost
Debra acquired the following new assets during 2021. Determine Debra’s cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not claim
Orange Corporation acquired new office furniture on August 15, 2021, for $130,000. Orange does not elect immediate expensing under § 179. Orange claims any available additional first-year
Juan acquires a new 5-year class asset on March 14, 2021, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. He does not claim any
On August 2, 2021, Wendy purchased a new office building for $3,800,000. On October 1, 2021, she began to rent out office space in the building. On July 15, 2025, Wendy sold the office building.a.
On April 3, 2021, Terry purchased and placed in service a building that cost $2,000,000. An appraisal determined that 25% of the total cost was attributed to the value of the land. The bottom floor
On May 5, 2021, Christy purchased and placed in service a hotel. The hotel cost $10,800,000, and the land cost $1,200,000 ($12,000,000 in total). Calculate Christy’s cost recovery deductions for
Janice acquired an apartment building on June 4, 2021, for $1,600,000. The value of the land is $300,000. Janice sold the apartment building on November 29, 2027.a. Determine Janice’s cost recovery
Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $420,000 on May 20, 2021. Lori expects the taxable income derived from her business (before
On June 5, 2020, Leo purchased and placed in service a new car that cost $75,000. The business use percentage for the car is always 100%. Leo does not claim any available additional first-year
On May 28, 2021, Mary purchased and placed in service a new $60,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2021. In 2022, the usage changed
Naya purchased a new computer (5-year property) on June 1, 2021, for $4,000. Naya could use the computer 100% of the time in her business, or she could allow her family to use the computer as well.
Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2020, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her
Dennis Harding is considering acquiring a new automobile that he will use 100% for business. The purchase price of the automobile would be $64,500. If Dennis leased the car for five years, the lease
In 2021, 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
Calculate the taxpayer’s 2021 qualified business income deduction for a qualified trade or business: Filing status: Taxable income: Net capital gains: Qualified business income (QBI): W-2 wages: a.
In the current year, Barlow moved from Chicago to Miami to start a new job, incurring costs of $1,200 to move household goods and $2,500 in temporary living expenses. Barlow was not reimbursed for
Bob and Nancy are married and file a joint return in 2020. They are both under age 50 and employed, with wages of $50,000 each. Their total AGI is $112,000. Neither of them is an active participant
In each of the following situations, indicate whether the 50% reduction for meals applies. Assume the year is 2023. a. Each year, the employer awards its top salesperson an all-expense-paid trip
In 2019, Emma purchased an automobile, which she uses for both business and personal purposes. Although Emma does not keep records as to operating expenses (e.g., gas, oil, and repairs), she can
Calculate the taxpayer’s 2021 qualified business income deduction for a qualified trade or business: Filing status: Taxable income: Net capital gains: Qualified business income (QBI): W-2
Lara uses the standard mileage method for determining auto expenses. During 2021, she used her car as follows: 9,000 miles for business, 2,000 miles for personal use, 2,500 miles for a move to a new
Tyler, a self-employed taxpayer, travels from Denver to Miami primarily on business. He spends five days conducting business and two days sightseeing. His expenses are $400 (airfare), $150 per day
In 2021, Robert takes four key clients and their spouses out to dinner at a local restaurant. Business discussions occurred over dinner. Expenses were $700 (drinks and dinner) and $140 (tips to
In 2021, Meghann, a single taxpayer, has QBI of $110,000 and modified taxable income of $78,000 (this is also her taxable income before the QBI deduction). Given this information, what is
In 2020, Henry Jones (Social Security number 123-45-6789) works as a freelance driver, finding customers using various platforms like Uber and Grubhub. He is single and has no other sources of
In 2021, Ava, an employee, has AGI of $58,000 and the following itemized deductions:Home office expenses $1,200Union dues and work uniforms 350Unreimbursed employee expenses 415Gambling losses to the
Jackson, a self-employed taxpayer, uses his automobile 90% for business and during 2021 drove a total of 14,000 business miles. Information regarding his car expenses is listed below.What is
Kim works for a clothing manufacturer as a dress designer. During 2021, she travels to New York City to attend five days of fashion shows and then spends three days sightseeing. Her expenses are as
Melanie is employed full-time as an accountant for a national hardware chain. She recently started a private consulting practice, which provides tax advice and financial planning to the general
During 2021, Stork Associates paid $60,000 for a 20-seat skybox at Veterans Stadium for eight professional football games. Regular seats to these games range from $80 to $250 each. At one game, an
Shelly has $200,000 of QBI from her local jewelry store (a sole proprietorship). Shelly’s proprietorship paid $30,000 in W–2 wages and has $20,000 of qualified property. Shelly’s spouse earned
Tristan, who is single, operates three sole proprietorships that generate the following information in 2021 (none are “specified services” businesses). Tristan chooses not to aggregate the
Peter owns and manages his single-member LLC that provides a wide variety of financial services to his clients. He is married and will file a joint tax return with his spouse, Marta. His LLC reports
Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (which reports as a sole proprietorship) generates QBI of $900,000 and is not a “specified services” business. ABC paid total W–2
Donald (a married taxpayer filing jointly) owns a wide variety of commercial rental properties held in a single-member LLC. Donald’s LLC reports rental income of $1,500,000. The LLC pays no W–2
Stella Watters is a CPA who operates her own accounting firm (Watters CPA LLC). As a single-member LLC, Stella reports her accounting firm operations as a sole proprietor. Stella has QBI from her
Marcia, a shareholder in a corporation with stores in five states, donated stock with a basis of $10,000 to a qualified charitable organization in 2020. Although the stock of the corporation was not
Cheryl incurred $8,700 of medical expenses in November 2021. On December 5, the clinic where she was treated mailed her the insurance claim form it had prepared for her with a suggestion that she
Jayden, a calendar year taxpayer, paid $16,000 in medical expenses and sustained a $20,000 casualty loss in 2021 (the loss occurred in a Federally declared disaster area). He expects $12,000 of the
William, a high school teacher, earns about $50,000 each year. In December 2021, he won $1,000,000 in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax
Barbara incurred the following expenses during 2021: $840 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $240 for multiple vitamins and
Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2021. Also in 2021, Pierre paid $455 that was due when he filed his 2020 state income tax return and made
Emma Doyle is employed as a corporate attorney. For calendar year 2021, she had AGI of $75,000 and paid the following medical expenses: Bob and April would qualify as Emma’s dependents except
Derek, a cash basis, unmarried taxpayer, had $610 of state income tax withheld during 2021. Also in 2021, Derek paid $50 that was due when he filed his 2020 state income tax return and made estimated
Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2021. She purchased the stock for $18,100 on December 28, 2020, and it had a fair market value of $27,000 when
During 2021, Susan incurred and paid the following expenses for Beth (her daughter), Ed (her father), and herself: Beth qualifies as Susan’s dependent, and Ed would also qualify except that he
For calendar year 2021, Giana was a self-employed consultant with no employees. She had $80,000 of net profit from consulting and paid $7,000 in medical insurance premiums on her policy covering
Liz had AGI of $130,000 in 2021. She donated Bluebird Corporation stock with a basis of $10,000 to a qualified charitable organization on July 5, 2021.a. What is the amount of Liz’s deduction
Ramon had AGI of $180,000 in 2022. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable
Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2021. Bart incurred some significant medical
On December 27, 2021, Roberta purchased four tickets to a charity ball sponsored by the city of San Diego for the benefit of underprivileged children. Each ticket cost $200 and had a fair market
Linda, who files as a single taxpayer, had AGI of $280,000 for 2021. She incurred the following expenses and losses during the year: Calculate Linda’s allowable itemized deductions for the
For calendar year 2021, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows: Calculate the amount of itemized deductions the Gibsons
Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2021. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at
Explain why some non-real estate rental activities may not be treated as such under the passive activity loss rules.
Dorothy acquired a 100% interest in two passive activities: Activity A in January 2016 and Activity B in 2017. Through 2019, Activity A was profitable, but it produced losses of $200,000 in 2020 and
In 2020, 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 2020 and $25,000 in 2021,
In the current year, Ming invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ming’s at-risk amount
A number of years ago, Kayla acquired an interest in a partnership in which she is not a material participant. Kayla’s basis in her partnership interest at the beginning of 2020 is $40,000.

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