Cumulative Problems 57. Devon Bishop, age 45, is single. He lives at 1507 Rose lane, Albuquerque, NM 87131. Tax Computation Proc His Social Security number is 111-11-1112. Devon does not want $3 to go to the Presi- dential Election Campaign Fund. Devon's wife, Ariane, passed away in 2014. Devon's son, Tom, who is age 18, resides with Devon. Tom's Social Security number is 123-45-6788 Devon owns a sole proprietorship for which he uses the accrual method of account- ing and maintains no inventory His revenues and expenses for 2018 are as folonws. Sales revenue Cost of goods sold (based on purchases for the year) Salary expense Rent expense Utilities $740,000 405,000 88,000 30,000 8,000 5,500 4,000 5,000 21,000 26,000 7,000 1,000 Advertising Bad debts Depreclation Health insurance" Accounting and legal fees New office equipment ($21,000: Devon uses the immediate expense election $18,000 for employees and $8,000 for Devon. Other income received by Devon includes the following: Dividend income (qualified dividends): Swan, Inc. Wren, Inc. $10,000 2,000 Interest income: 11,000 2,500 17,000 First National Bank Second City Bank County of Santa Fe, NM bonds During the year, Devon and his sole proprietorship had the following property transactions a. Sold Blue, Inc. stock for $45,000 on March 12, 2018. He had purchased the stock on September 5, 2015, for $50,000. b. Received an inheritance of $300,000 from his uncle, Henry. Devon used $200,000 to purchase Green, Inc. stock on May 15, 2018, and invested $100,000 in Gold Inc. stock on May 30, 2018. c. Received Orange, Inc. stock worth $9,500 as a gift from his aunt, Jane, on June 17, 2018. Her adjusted basis for the stock was $5,000. No gift taxes were paid on the transfer. Jane had purchased the stock on April 1, 2012. Devon sold the stock on July 1, 2018, for $22,000. d. On July 15, 2018, Devon sold one-half of the Green, Inc. stock for $40,000 ansactions from e. Devon was notified on August 1, 2018, that Yellow, Inc. stock he purchased f a colleague on September 1, 2017, for $52,500 had become worthless. While perceived that the investment was risky, he did not anticipate that the corporation. would declare bankruptcy E. On August 15, 2018, Devon received a parcel of land in Phoenix worth $220 parcel in exchange for a parcel of land he owned in Tucson. Because the Tucson basis for 18, iving was worth $245,000, he also received $25,000 cash. Devon's adjusted the Tucson parcel was $210,000. He originally purchased it on September 2015. g On December 1, 2018, Devon sold the condominium in which he had been for the past 20 years (1844 Lighthouse Lane, Albuquerque, NM 87131) and ling expenses were into a rented townhouse. The sales price was $480,000, sel $28,500, and repair expenses related to the sale were $9,400. Devon the condominium for $180,00. Devon's potential temized deductions, exclusive of the aforementioned are as follows information, 9,500 5,800 Medical expenses before the 75% floor) Property taxes on residence State income taxes Charitable contributions Mortgage interest on residence (First National Bank) Sales taxes paid 4,000 10,000 9,900 5,000 During the year, Devon makes estimated Federal income tax payments of $35,000 Compute Devon's lowest net tax payable or refund due for 2018 assuming that he makes any available elections that will reduce the tax. If you use tax forms for your computations, you will need Forms 1040, 4562, 8824, and 8949 and Schedules A, B, C, D, and SE. 58. Tom and Alice Honeycutt, ages 45 and 46, respectively, live at 101 Glass Road, Delton, MI -19046. Tom is a county employee, and Alice is a self employed accountant. Toms Social Security number is 111-11-1111; Alice's Social Security number is 123-45-678 The income and expenses associated with Alice's accounting practice for 2018 are as Revenues (cash receipts during 2018) Office supplies Postage Depreciation of equipment 3,200 2,900 Because Alice is a cash method taxpayer, she does not record her revenue until she cash receivables as e receives cash payment. At the beginning of 2018, her ac receivable were $48,000, and the balance had decreased to $8,000 by the end of Alice used one room in their 10-room house as the office for her ae fo practice (400 square feet out of a total square footage of 4,000). They lowing expenses related to the house during 2018 Utilities They paid the $4,500 2,100 5,200 3,500 Property taxes Repairs CHAPTER 15 Property Transactions: Nontaxable Tom and Alice purchased the house on September 1, 2017, for $400,000 (exclusive of land cost). Tom and Alice have one child, Connor, age 18. Connor's Social Security number is 123-45-6788. Tom received a salary of $50,000 during 2018. The appropriate amounts of Social Security tax and Medicare tax were withheld. In addition, $5,000 of Federal income taxes and $2,000 of state income taxes were withheld Tom and Alice's allowable itemized deductions during 2018, excluding any item ized deductions related to the house, were $20,600. They made estimated tax pay ments of $20,000. Part 1-Tax Computation Compute Tom and Alice's lowest net tax payable or refund due for 2018 Part 2-Tax Planning Tom and Alice have 30 acres of prime farmland that they inherited from Tom's father several years ago. At that time, the fair market value of the land was $150,000 (which became their basis in the land). The Honeycutts have been holding the land as an investment. The property was recently appraised for $190,000, and there is an outstanding mortgage on the land of $28,000. They are considering trading this land for property in the mountains of southern Colorado. The Colorado property owner-who has significant land holdings in the area-has provided two options to Tom and Alice (in both cases, the Colorado property owner would assume the mortgage as part of the exchange) 15 acres of property with a fair market value of $135,000 plus $27,000 of cash; or 1. 10 acres of property with a fair market value of $160,000 plus $2,000 of cash The Honeycutts have come to you for advice, believing either transaction to be a like-kind exchange that will allow them to defer any gain. Assume that Tom and lice expect their marginal tax rate to remain the same for 2019. Write a letter to Tom and Alice that contains your advice on the proposed transactions. Also prepare a memo for the tax files