Edith exchanges a machine used in her business for another machine and stock of Teal, Inc. If Edith had sold her machine, she would have had a realized gain. Explain why the new machine will have a different holding period than the stock.
> Enzo is a single taxpayer with the following gains and losses for 2017: • $2,100 short-term capital loss. • $24,000 long-term capital gain from sale of stock. • $14,000 § 1231 gain that is all unrecaptured § 1250 gain. What is the amount and character
> An apartment building was acquired in 2008. 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?
> Jacob purchased business equipment for $56,000 in 2014 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2017 for $26,000. What is the amount and character of Jacob’s gain or loss?
> Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $26,000 with an adjusted basis of $15,500 for $17,000. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basi
> On May 9, 2017, Glenna purchases 500 shares of Ignaz Company stock for $7,500. On June 30, 2017, she writes a call option on the stock, giving the grantee the right to buy the stock for $9,000 during the following 12-month period. Glenna receives a call
> Dexter owns a large tract of land and subdivides it for sale. Assume that Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers for $22,000 each. Dexter’s basis in each lot sold is $15
> In a § 1031 like-kind exchange, Rafael exchanges a piece of equipment that originally cost $200,000. On the date of the exchange, the equipment given up has an adjusted basis of $85,000 and a fair market value of $110,000. Rafael pays $15,000 and receive
> Faith Godwin is a dealer in securities. She has spotted a fast-rising company and would like to buy and hold its stock for investment. The stock is currently selling for $2 per share, and Faith thinks it will climb to $40 a share within two years. Faith’
> Tom Howard and Frank Peters are good friends (and former college roommates). Each owns investment property in the other’s hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX). To make their lives easier, they decide to exchange the investment
> Sissie owns two items of business equipment. Both were purchased in 2013 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2017. One of them is worth $60,000,
> Dora incurs the following research expenditures. In-house wages…………………………………...$60,000 In-house supplies…………………………………….5,000 Paid to ABC, Inc., for research services…..80,000 a. Determine the amount of Dora’s qualified research expenditures for the tax
> Renata Corporation purchased equipment in 2015 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2017 for $110,000. What is the amount and character of Renata’s gain or loss?
> Paul suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2017: Doc
> Elliott has the following capital gain and loss transactions for 2017. Short-term capital gain $......................1,500 Short-term capital loss……………………(3,600) Long-term capital gain (28%)…………..12,000 Long-term capital gain (25%)……………4,800 Long-term
> Coline has the following capital gain and loss transactions for 2017. Short-term capital gain $....................5,000 Short-term capital loss…………………..(2,100) Long-term capital gain (28%)…………..6,000 Long-term capital gain (15%)……………2,000 Long-term cap
> Shen purchased corporate stock for $20,000 on April 10, 2015. On July 14, 2017, when the stock was worth $12,000, Shen died and his son, Mijo, inherited the stock. Mijo sold the stock for $14,200 on November 12, 2017. What is the amount and character of
> Ted and Marvin Brown purchased an apartment building in 2006 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be terminated. This led to the sale of the apartment building and
> Your client, Jacob, turned 66 years old this year. Jacob has no heirs and has decided that he would like to sell a life insurance policy to fund a trip to Africa that he has wanted to take. Jacob knew that he could surrender the policy (a whole-life poli
> Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2017, she files her state income tax return for 2016 and pays an additional $1,000 in state income taxes. During 2017, her withholdings for
> Terry owns real estate with an adjusted basis of $600,000 and a fair market value of $1.1 million. The amount of the nonrecourse mortgage on the property is $2.5 million. Because of substantial past and projected future losses associated with the real es
> Karla exchanges personal use property for property to be held for productive use in a trade or business. Can this transaction qualify for like-kind exchange treatment? Explain.
> In general, the 45-day identification period and the 180-day exchange period for like-kind exchanges cannot be extended. Does this rule change if the like-kind property or the taxpayer involved in the exchange is located in a Presidentially declared disa
> How are transactions using Bitcoin (virtual currency) treated under U.S. tax law? Some background on Bitcoin can be found at https://bitcoin .org/en/faq. Locate the IRS guidance on this question, and provide a one-page written summary for your instructor
> During 2017, 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 year. Determine the amount of Lincoln’s work opportunit
> Norm is negotiating the sale of a tract of his land to Pat. Use the following classification scheme to classify each of the items contained in the proposed sales contract: Legend DARN = Decreases amount realized by Norm IARN = Increases amount realized
> Tab exchanges real estate used in his business along with stock for real estate to be held for investment. The stock transferred has an adjusted basis of $45,000 and a fair market value of $50,000. The real estate transferred has an adjusted basis of $85
> Emma Doyle is employed as a corporate attorney. For calendar year 2017, she had AGI of $100,000 and paid the following medical expenses: Medical insurance premiums………………………………………………….….…$3,700 Doctor and dentist bills for Bob and April (Emma’s parents).
> Steve owns Machine A (adjusted basis of $12,000 and fair market value of $15,000), which he uses in his business. Steve sells Machine A for $15,000 to Aubry (a dealer) and then purchases Machine B for $15,000 from Joan (also a dealer). Machine B would no
> Ed owns investment land with an adjusted basis of $35,000. Polly has offered to purchase the land from Ed for $175,000 for use in a real estate development. The amount offered by Polly is $10,000 in excess of what Ed perceives as the fair market value of
> Barbella purchased a wedding ring for $15 at a yard sale in May. She thought the ring was costume jewelry, but it turned out to be a real diamond ring. She is not in the business of buying and selling anything. She researched the ring on the internet and
> On July 16, 2017, 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 land. Cost recovery of $4,708 is deducted in 2017 for the
> Marge owns land and a building (held for investment) with an adjusted basis of $75,000 and a fair market value of $250,000. The property is subject to a mortgage of $400,000. Because Marge is in arrears on the mortgage payments, the creditor is willing t
> Stephanie owns a machine (adjusted basis of $90,000; fair market value of $125,000) that she uses in her business. She exchanges it for another machine (worth $100,000) and stock (worth $25,000). Determine Stephanie’s: a. Realized and recognized gain or
> Taylor is negotiating to buy some land. Under the first option, Taylor will give Ella $150,000 and assume her mortgage on the land for $100,000. Under the second option, Taylor will give Ella $250,000, and she will immediately pay off the mortgage. Taylo
> If a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized: a. The property is sold on credit. b. A mortgage on the property is assumed by t
> Carol and Dave each purchase 100 shares of stock of Burgundy, Inc., a publicly owned corporation, in July for $10,000 each. Carol sells her stock on December 31 for $8,000. Because Burgundy’s stock is listed on a national exchange, Dave is able to ascert
> Ivan invests in land, and Grace invests in taxable bonds. The land appreciates by $8,000 each year, and the bonds earn interest of $8,000 each year. After holding the land and bonds for five years, Ivan and Grace sell them. There is a $40,000 realized ga
> To qualify for exclusion treatment on the sale of a principal residence, the residence must have been owned and used by the taxpayer for at least two years during the five-year period ending on the date of the sale. Are there any exceptions to this provi
> A warehouse owned by Martha and used in her business (i.e., to store inventory) is being condemned by the city to provide a right of way for a highway. The warehouse has appreciated by $180,000 based on Martha’s estimate of its fair market value. In the
> Bob is notified by the city public housing authority on May 3, 2017, that his apartment building is going to be condemned as part of an urban renewal project. On June 1, 2017, Carol offers to buy the building from Bob. Bob sells the building to Carol on
> Edith’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2017. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2018. Calculate Edith’s realized gain or loss, recognized gain or loss, and ba
> Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of $157,500. Miller gets a second mortgage on the residence and in return borrows $10,000 to purchase new jet skis. How much of the first and second m
> Ida Ross has decided to purchase a new home in a retirement community for $400,000. She has $50,000 in cash for the down payment but needs to borrow the remaining $350,000 to finance the purchase. Her financial adviser, Marc, suggests that rather than se
> Reba, a calendar year taxpayer, owns an office building that she uses in her business. The building is involuntarily converted on November 15, 2017. On January 5, 2018, Reba receives enough proceeds to produce a realized gain. What is the latest date she
> Susan owns a car that she uses exclusively for personal purposes. Its original cost was $26,000, and the fair market value is $12,000. She exchanges the car and $18,000 cash for a new car. a. Calculate Susan’s realized and recognized gain or loss. b. Cal
> Ron sold his sailboat for a $5,000 loss in the current year because he was diagnosed with skin cancer. His spouse wants him to sell his Harley Davidson motorcycle because her brother broke his leg while riding his motorcycle. Because Ron no longer has an
> Vera owns an office building that she leases to tenants. If the building is destroyed by a tornado, is the functional use test or the taxpayer use test applied as to replacement property? Explain the differences between the two tests.
> Sheila’s appreciated property is involuntarily converted. She receives insurance proceeds equal to the fair market value of the property. What is the minimum amount Sheila must reinvest in qualifying property to defer recognition of realized gain?
> Mortgaged real estate may be received in a like-kind exchange. If the taxpayer’s mortgage is assumed, what effect does the mortgage have on the recognition of realized gain? On the basis of the real estate received?
> Ross would like to dispose of some land he acquired five years ago because he believes that it will not continue to appreciate. Its value has increased by $50,000 over the five-year period. He also intends to sell stock that has declined in value by $50,
> George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events (e.g., antique automobile shows) while he is holding them. I
> Which of the following qualify as like-kind exchanges under § 1031? a. Improved for unimproved real estate. b. Vending machine (used in business) for inventory. c. Rental house for personal residence. d. Business equipment for securities. e. Warehouse fo
> Comment on the following transactions: a. Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2017, he sells 100 shares for $3,000. On August 16, 2017, he purchases another 100 shares for $3,400. Mort’s realized loss o
> Marilyn owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Amos, for its fair market value of $180,000. Amos sells the land two years l
> Thelma inherited land from Sadie on June 7, 2017. 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 owned it, and she expects it to continue to do so in the
> Five years ago Bridget decided to purchase a limited partnership interest in a fast-food restaurant conveniently located near the campus of Southeast State University. The general partner of the restaurant venture promised her that the investment would p
> In two unrelated transactions, Laura exchanges property that qualifies for like-kind exchange treatment. In the first exchange, Laura gives up office equipment purchased in May 2015 (adjusted basis of $20,000; fair market value of $17,000) in exchange fo
> Derek, a cash basis, unmarried taxpayer, had $610 of state income tax withheld during 2017. Also in 2017, Derek paid $50 that was due when he filed his 2016 state income tax return and made estimated payments of $100 toward his 2017 state income tax liab
> Robin inherits 1,000 shares of Wal-Mart stock from her aunt in 2017. According to the information received from the executor of her aunt’s estate, Robin’s adjusted basis for the stock is $55,000. Albert, Robin’s fiance, receives 1,000 shares of Wal-Mart
> 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 sell it to obtain the proceeds. Simon is in the 15% tax
> Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1112. Devon does not want $3 to go to the Presidential Election Campaign Fund. Devon’s wife, Ariane, passed away in 2012. Devon’s son
> Rennie owns a video game arcade. He buys vintage video games from estates, often at much less than the retail value of the property. He usually installs the vintage video games in a special section of his video game arcade that appeals to players of “cla
> Tom and Alice Honeycutt, ages 35 and 36, respectively, live at 101 Glass Road, Delton, MI 49046. Tom is a county employee, and Alice is a self-employed accountant. Tom’s Social Security number is 111-11-1111; Alice’s Social Security number is 123-45-6789
> Melba purchases land from Adrian. Melba gives Adrian $225,000 in cash and agrees to pay Adrian an additional $400,000 one year later plus interest at 5%. a. What is Melba’s adjusted basis for the land at the acquisition date? b. What is Melba’s adjusted
> Camilo’s property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken. a. What is Camilo’s realized and recognized gain? b. What is the basis
> Andrew owns a lathe (adjusted basis of $40,000) that he uses in his business. He exchanges the lathe and $20,000 in cash for a new lathe worth $50,000. May Andrew avoid like-kind exchange treatment to recognize his realized loss of $10,000? Explain.
> Juliana purchased land three years ago for $50,000. She gave the land to Tom, her brother, in the current year, when the fair market value was $70,000. No gift tax is paid on the transfer. Tom subsequently sells the property for $63,000. a. What is Tom’s
> Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian’s basis in these
> Sarah exchanges a yellow bus (used in her business) for Tyler’s gray bus and some garage equipment (used in his business). The assets have the following characteristics: a. What are Sarah’s recognized gain or loss an
> Mike, an attorney, earns $200,000 from his law practice and receives $45,000 in dividends and interest during the year. In addition, he incurs a loss of $50,000 from an investment in a passive activity acquired three years ago. What is Mike’s net income
> Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana’s basis in the condominium and the amount of any income as a result of this purchase?
> Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2017. Also in 2017, Pierre paid $455 that was due when he filed his 2016 state income tax return and made estimated payments of $975 toward his 2017 state income tax
> During the year, Eugene had the four property transactions summarized below. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are the amount and nature of the gain or loss from each of these tran
> On July 1, 2017, 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 much interest income and/or interest expense must Katri
> Sally owns real property for which the annual property taxes are $9,000. She sells the property to Kate on March 9, 2017, for $550,000. Kate pays the real property taxes for the entire year on October 1, 2017. a. How much of the property taxes can be ded
> On August 31, 2016, 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 gain of $292,000 was excluded under § 121. They purchase
> Gary, who is single, sells his principal residence (owned and occupied by him for seven years) in November 2017 for a realized gain of $148,000. He had purchased a more expensive new residence eight months prior to the sale. He anticipates that he will o
> On February 24, 2017, 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, 2017, she receives an insurance reimbursement of $1.65 million for the loss. Allison invests $1.55 mi
> On June 5, 2017, 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 $750,000). a. What must Brown do to qualify for § 1033 post
> Emily has $100,000 that she wants to invest and is considering the following two options: • Option A: Investment in Redbird Mutual Fund, which is expected to produce interest income of $8,000 per year. • Option B: Investment in Cardinal Limited Partnersh
> Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2017, she exchanges it with Lisa Martin (an unrelated party) for undeveloped land on the West Coast and $3,000 cash. Lisa h
> 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 2016 is $40,000. Kay’s share of the partnership loss is $35,000 in 2016, while her sh
> Dorothy acquired a 100% interest in two passive activities: Activity A in January 2012 and Activity B in 2013. Through 2015, Activity A was profitable, but it produced losses of $200,000 in 2016 and $100,000 in 2017. Dorothy has passive activity income f
> Jay sold three items of business equipment for a total of $300,000. None of the equipment was appraised to determine its value. Jay’s cost and adjusted basis for the assets are shown below. Jay has been unable to establish the fair ma
> Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $85,000) is worth $100,000 and Johnathan’s land has a fair market value of $80,000, Johnathan also gives Logan cash of $20,00
> Heather wants to invest $40,000 in a relatively safe venture and has discovered two alternatives that would produce the following reportable ordinary income and loss over the next three years: She is interested in the after-tax effects of these alterna
> In the current year, Abe gives an interest in a passive activity to his daughter, Andrea. The value of the interest at the date of the gift is $25,000, and its adjusted basis to Abe is $13,000. During the time that Abe owned the investment, losses of $3,
> At death, Francine owns an interest in a passive activity property (adjusted basis of $160,000, suspended losses of $16,000, and fair market value of $170,000). What is deductible on Francine’s final income tax return?
> Ella has $105,000 of losses from a real estate rental activity in which she actively participates. She has other rental income of $25,000 and other passive activity income of $32,000. Her AGI before considering these items of income and loss is $95,000.
> Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% tax bracket. She has $12,000 of losses from Activity A, $18,000 of losses from Activity B, and income of $10,000
> During the current year, Gene, a CPA, performs services as follows: 1,800 hours in his tax practice and 50 hours in an apartment leasing operation in which he has a 15% interest. Because of his oversight duties, Gene is considered to be an active partici
> Mary and Charles have owned a beach cottage on the New Jersey shore for several years and have always used it as a family retreat. When they acquired the property, they had no intentions of renting it. Because family circumstances have changed, they are
> Santiago and Amy are married and file a joint tax return, claiming as dependents their three children, ages 12, 14, and 18. Their AGI is $140,000. Determine the amount of the couple’s child tax credit.
> 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 about filing separately to save taxes. Their income and exp
> Tim and Sarah Lawrence are married and file a joint return. Tim’s Social Security number is 123-45-6789, and Sarah’s Social Security number is 111-11-1112. They reside at 100 Olive Lane, Covington, LA 70434. They have two dependent children, Sean and Deb
> This year Maria works 1,200 hours as a computer consultant, 320 hours in a real estate development business, and 400 hours in real estate rental activities. Juan, her husband, works 250 hours in the real estate development business and 180 hours in the r
> Several years ago Benny Jackson (125 Hill Street, Charleston, WV 25311) acquired an apartment building that currently generates a loss of $60,000. Benny’s AGI is $130,000 before considering the loss. The apartment building is in an exclusive part of the
> 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 for business use. Sue believes that her basis for the truck is $17,500
> Ray acquired an activity several years ago, and in the current year, it generates a loss of $50,000. Ray has AGI of $140,000 before considering the loss from the activity. If the activity is a bakery and Ray is not a material participant, what is his AGI
> Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2016, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows: Year………….…………Income (Loss) 2016………………………
