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business
south western federal taxation

Questions and Answers of South Western Federal Taxation

During the year, Eugene had the four property transactions summarized on the next page. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are
Enzo is a single taxpayer with the following gains and losses for 2018:$2,100 short-term capital loss.$24,000 long-term capital gain from sale of stock.$14,000 § 1231 gain that is all unrecaptured
An apartment building was acquired in 2009. 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?
Sissie owns two items of business equipment. Both were purchased in 2014 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering
Jacob purchased business equipment for $56,000 in 2015 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2018 for $26,000. What is the amount and character of
Renata Corporation purchased equipment in 2016 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2018 for $110,000. What is the amount and
Elliott has the following capital gain and loss transactions for 2018.Short-term capital gain .............................$ 1,500Short-term capital loss
Coline has the following capital gain and loss transactions for 2018.Short-term capital gain ..........................................$ 5,000Short-term capital loss
Shen purchased corporate stock for $20,000 on April 10, 2016. On July 14, 2018, when die stock was worth $12,000, Shen died and his son, Mijo, inherited the stock. Mijo sold the stock for $14,200 on
On May 9, 2018, Glenna purchases 500 shares of Ignaz Company stock for $7,500. On June 30, 2018, she writes a call option on the stock, giving the grantee the right to buy the stock for $9,000 during
Thomas receives tangible personal property as an inheritance from a decedent who died in 2018. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the
If depreciable equipment used in a business is sold at a recognized gain on July 10, 2018, and it was purchased on August 21, 2017, does § 1245 depreciation recapture apply to the asset? Explain.
Steven established a sole proprietorship in 2012. He sold § 1231 assets at a loss in 2016 and 2017. He had only sold § 1231 assets at a gain before 2016. In 2018, he could sell a § 1231 asset at a
An individual taxpayer had a net § 1231 loss in 2018. Could any of this loss be treated as a long-term capital loss? Why or why not?
Marsha exchanged land in Florida with an FMV of $52,700 and an adjusted basis of $60,000 for land in Iowa with an FMV of $57,700. Marsha also paid $5,000 cash in the transaction. What is Marsha’s
Marsha exchanged land in Florida with an FMV of $72,700 and an adjusted basis of $40,000 for land in Iowa with an FMV of $57,700. Marsha also assumed a $5,000 liability on the land received in the
Marsha exchanged land in Florida with an FMV of $72,700 and an adjusted basis of $40,000 for land in Iowa with an FMV of $57,700. Marsha also paid $5,000 cash in the transaction and received an
Chad owned an office building that was destroyed in a tornado. The adjusted basis of the building at the time was $890,000. After the deductible, Chad received an insurance check for $950,000. He
Chad owned an office building that was destroyed in a tornado. The adjusted basis of die building at the time was $890,000. After the deductible, Chad received an insurance check for $850,000. He
John purchased a primary residence on October 15, year 2, for $240,000. On June 10, year 4, he married Karen, and she moved into the house. Karen was not added to the deed. On October 15, year 6,
Agnes sold 50 shares of ABC stock to her son, Steve, in year 4 for $42,000. She bought the stock eight years ago for $50,000. Steve sold the stock to an unrelated party in year 6 for $60,000. How
Jerry inherits an asset from his uncle, who purchased the asset five days before he died. Which of the following statements is correct?a. If Jerry sells the asset a few days after receiving it, any
Alice gifted stock to her son, Bob, in year 5. Alice bought the stock in year 1 for $8,300. Hie value of the stock on the date of gift was $6,400. Bob sold the stock in year 7 for $15,800. What is
Jasmin purchased 100 shares of Pinkstey Corporation (publicly traded company) on January 1 of year 1 for $5,000. The FMV of the shares at the end of year 1 was $6,000. On January 1 of year 4,
Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2018, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on
Karl purchased his residence on January 2, 2017, for $260,000, after having lived in it during 2016 as a tenant under a lease with an option to buy clause. On August 1, 2018, Karl sells the residence
Wanda, a calendar year taxpayer, owned a building (adjusted basis of $250,000) in which she operated a bakery that was destroyed by fire in December 2018. She receives insurance proceeds of $290,000
Cabel's warehouse, which has an adjusted basis of $380,000 and a fair market Decision Making value of $490,000, is condemned by an agency of the Federal government to make way for a highway
Edith’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2018. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2019- Calculate Edith
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, 2018, state authorities notify
In two unrelated transactions, Laura exchanges property that qualifies for like-kind exchange treatment. In the first exchange, Laura gives up land purchased in May 2016 (adjusted basis of $20,000;
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, 1971, and
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2018, she exchanges it with Lisa Martin (an unrelated party) for
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, 2018 (the date of death) was $45,000. The shares were distributed to Tyneka
Helene and Pauline are twin sisters who live in Louisiana and Mississippi, Communications respectively. Helene is married to Frank, and Pauline is married to Richard.Frank and Richard are killed in
Dan bought a hotel for $2,600,000 in January 2014. In May 2018, 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 2018
As sole heir, Dazie receives all of Mary's property (adjusted basts of $11,400,000 and fair market value of $13,820,000). Six months after Mary’s death in 2018, the fair market value is
On September 18, 2018, 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:No gift tax was paid on the
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
Rod Clooney purchases Agnes Mitchell's sole proprietorship for $990,000 on August 15, 2018. The assets of the business are as follows:a. Calculate Agnes's realized and recognized gain.b. Determine
Kevin purchases 1,000 shares of Bluebird Corporation stock on October 3, 2018, for $300,000. On December 12, 2018, Kevin purchases an additional 750 shares of Bluebird stock for $210,000. According
Karen Samuels (Social Security number 123-45-6789) makes the following purchases and sales of stock:Assuming that Karen is unable to identify the particular lots that are sold with the original
Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2018. The face value of the bonds is $100,000; the maturity date is December 31, 2022; and the annual interest rate is 5%. Chee will
Kareem bought a rental house in March 2013 for $300,000, of which $50,000 is allocated to the land and $250,000 to the building. Early in 2015, he had atennis court built in the backyard at a cost of
Anne sold her home for $290,000 in 2018. Selling expenses were $17,400. She purchased it in 2012 for $200,000. During the period of ownership, Anne had done die following:Deducted $50,500
On August 31, 2017, Harvey and Margaret, who file a joint return and live in Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized
Gary, who is single, sells his principal residence (owned and occupied by him for seven years) in November 2018 for a realized gain of $148,000. He had purchased a more expensive new residence eight
On February 24, 2018, Allison's building, with an adjusted basis of $1.3 million (and used in her trade or business), is destroyed by fire. On March 31, 2018, she receives an insurance reimbursement
On June 5, 2018, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of
In June 2018, Sue exchanges a sport-utility vehicle (adjusted basis of $16,000; fair market value of $19,500) for cash of $2,000 and a pickup truck (fair market value of $17,500). Both vehicles are
On July 1, 2018, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 6%. The market rate of interest is 2%.a. How
Sally owns real property for which the annual property taxes are $9,000. She sells the property to Kate on March 9, 2018, for $550,000. Kate pays the real property taxes for the entire year on
Bob is notified by the city public housing authority on May 3, 2018, that his apartment building is going to be condemned as part of an urban renewal project. On June 1, 2018, Carol offers to buy die
Reba, a calendar year taxpayer, owns an office building that she uses in her business. The building is involuntarily converted on November 15, 2018. On January 5, 2019, Reba receives enough proceeds
a. Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2018, he sells 100 shares for $3,000. On August 16, 2018, he purchases another 100 shares for $3,400.
Thelma inherited land from Sadie on June 7, 2018. The land appreciated in value by 100% during the six months it was owned by Sadie. The value has remained stable during the three months Thelma has
Robin inherits 1,000 shares of Wal-Mart stock from her aunt in 2018. According to the information received from the executor of her aunt's estate, Robin's adjusted basis for the stock is $55,000.
Simon owns stock that has declined in value since acquired. He has decided either to give the stock to his nephew, Fred, or to sell it and give Fred the proceeds. If Fred receives the stock, he will
On July 16, 2018, Logan acquires land and a building for $500,000 to use in his sole proprietorship. Of the purchase price, $400,000 is allocated to the building, and $100,000 is allocated to the
Disregarding any small business exceptions, for the current year, which of the following situations will result in a taxpayer owing a penalty for underpayment of taxes?a. A married filing joint
Jim spent four years earning his undergraduate degree at a local university. He l^egan his first year of law school in January of the current year. Assuming he is under the phaseout limitation, what
Which of the following credits Is considered “refundable”?a. Child and dependent care creditb. Retirement plan contribution creditc. Child tax creditd. Credit for elderly
Which of die following statements regarding the self-employment tax Is true?a. Income and expenses from self-employment are reported on Schedule D (Form 1040).b. Self-employment income is subject to
What are the most significant credits claimed by individual taxpayers? How do the credits claimed differ by income class? To answer these questions, go to the IRS Tax Statistics page
Jenna Rosen, 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
Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2017, good news comes their way and an adoption seems imminent. They pay qualified
Same as Problem 30, except that Jimenez paid $2 million in income taxes to other countries.Data From Problem 30Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its
Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 million in income taxes to various countries on these profits.
Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom's research-credit base
Green Corporation hires six individuals on January 4, 2018, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2018, and each individual
Oak Corporation holds the following general business credit carryovers.2014..............................$
Determine the appropriate amount of 2018 additional Medicare tax for Mario, a single individual. His wages total $440,000.
In 2018, Bianca earned a salary of $164,000 from her employer, CallMart. How much in FICA and Medicare taxes will CallMart withhold from Bianca’s salary?
In late 2017, 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. The adoption becomes final in 2018, and
During 2018, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the
Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket. Ava’s salary is $75,000. Her employer offers a child and dependent care reimbursement plan that allows
Can the earned income credit 1x? characterized as a form of negative income 1ax? Why or why not?
Sam rents his second home. During the current year, he reported a $40,000 net loss from the rental. Assume Sam actively participates in the rental activity and no phaseout limitations apply. What is
What is the correct order of applying the loss limitation rules?a. Passive lass limits, tax basis, at-risk amountb. Tax basis, at-risk amount, passive loss limitsc. At-risk amount, tax basis, passive
Michael owns a rental house that generated a $10,000 loss this year. Michael manages the rental property, but does not meet the standards for material participation. Michael is a college professor
Which of the following statements regarding passive activity losses is true?a. A net passive activity loss may lx? deducted against wages.b. Losses on rental property are always considered passive.c.
In 2018, 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
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
Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2017, his amount al risk in the activity was $30,000. His shares of the income and losses
A number of years ago, Lee acquired a 20% interest in the BlueSky Partnership for $60,000. The partnership was profitable through 2017, and Lees amount at risk in the partnership interest was
Seojun acquired an activity several years ago, and in the current year, it generates a loss of $50,000. Seojun has AGI of $140,000 before considering the loss from die activity. If the activity is a
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 2017 is $40,000. Kay’s
Dorothy acquired a 100% interest in two passive activities: Activity A in January 2013 and Activity B in 2014. Through 2016, Activity A was profitable, but it produced losses of $200,000 in 2017 and
In 2017, 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 2017 and $25,000 in 2018,
Jordan Johnson is single and has adjusted gross income of $50,000 in the current year. Additional information is as follows:State income taxes
In the current year. Wells paid the following expenses:Premiums on an insurance policy against loss of earnings due to sickness or accident.............$3,000Physical therapy after spinal
Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2018. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at
For calendar year 2018, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows:Casualty loss in a Federally declared disaster area after$100
Linda, who files as a single taxpayer, had AGI of $280,000 for 2018. She incurred the following expenses and losses during the year:Medical expenses (before the 75%-of-AGI limitation)
Evan is single and has AGI of $277,300 in 2018. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following:Medical expenses (before the AGI
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 2018. They present you with the following
On December 27, 2018, 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
Ramon had AGI of $180,000 in 2018. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable
Liz had AGI of $130,000 in 2018. She donated Bluebird Corporation stock with a basis of $10,000 to a qualified charitable organization on July 5, 2018.a. What is the amount of Liz's deduction

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