Question: In 2021, Gail changed from the lower

> For 2021, Wilma has properly determined taxable income of $36,000, including $3,000 of unrecaptured § 1250 gain and $8,200 of 0%/15%/20% gain. Wilma qualifies for head-of-household filing status. Compute Wilma’s tax liability and the tax savings from the

> Jane and Blair are married taxpayers filing jointly and have 2021 taxable income of $107,000. The taxable income includes $5,000 of gain from a capital asset held five years, $2,100 of gain from a capital asset held seven months, and $13,000 of gain from

> Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2021, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on August 16, 2021, he and the purchaser signed a contrac

> Several years ago Nicolas, a timber dealer, purchased a tract of land with a substantial stand of trees on it. The land cost $8,000, and the timber cost $250,000. On the first day of 2021, the timber was appraised at $325,000. In August 2021, Nicolas cut

> Taylor has owned and occupied her personal residence (adjusted basis of $190,000) for four years. In April 2021, she sells the residence for $300,000 (selling expenses are $20,000). On the same day as the sale, Taylor purchases another house for $350,000

> Karl purchased his residence on January 2, 2020, for $260,000, after having lived in it during 2019 as a tenant under a lease with an option to buy clause. On August 1, 2021, Karl sells the residence for $315,000. On June 13, 2021, Karl purchases a new r

> 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 2021. She receives insurance proceeds of $290,000 for the building the following March. Wanda is consider

> Fred is an investor in vacant land. When he thinks he has identified property that would be a good investment, he approaches the landowner, pays the landowner for a “right of first refusal” to purchase the land, records this right in the property records

> Cabel’s warehouse, which has an adjusted basis of $380,000 and a fair market value of $490,000, is condemned by an agency of the Federal government to make way for a highway interchange. The initial condemnation offer is $425,000. After substantial negot

> Emily’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2021. Emily, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2022. Calculate Emily’s realized gain or loss, recognized gain or loss, and ba

> 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, 2021, state authorities notify Mitchell that his property is going to be condemned so

> For each of the following involuntary conversions, indicate whether the property acquired qualifies as replacement property, any resulting recognized gain, and the basis for the property acquired. a. Krystal owns a warehouse that is destroyed by a tornad

> Roger inherited 100 shares of Periwinkle stock when his mother, Emily, died. Emily had acquired the stock for a total of $60,000 on November 15, 2017. She died on August 10, 2021, and the shares were worth a total of $55,000 at that time. Roger sold the

> Aliya held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2017. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on January 22, 2021. Aliya was going to hold the house for

> The AGI of the Newtons, a married couple, is $201,000 this year. They would like to contribute to a Roth IRA. a. What is the maximum amount this couple can contribute to a Roth IRA? Show your calculations using Microsoft Excel. b. Now suppose that the Ne

> Determine the realized, recognized, and postponed gain or loss and the new basis for each of the following like-kind exchanges. g. Create a Microsoft Excel spreadsheet that—by entering the fair market value and basis of property given u

> Tom Howard and Frank Pérez 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

> Benny purchased $400,000 of Peach Corporation face value bonds for $320,000 on November 13, 2020. The bonds had been issued with $80,000 of original issue discount because Peach was in financial difficulty in 2020. On December 3, 2021, Benny sold the bon

> Melaney has had a bad year with her investments. She lent a friend $8,000; the friend did not repay the loan when it was due and then declared bankruptcy. The loan is totally uncollectible. Melaney also was notified by her broker that the Oak corporate b

> Hilde purchased all of the rights to a patent on a new garden tool developed by a friend of hers who was an amateur inventor. The inventor had obtained the patent rights, set up a manufacturing company to produce and sell the garden tool, and produced su

> Suni owns land (adjusted basis of $90,000; fair market value of $125,000) that she uses in her business. She exchanges it for another parcel of land (worth $100,000) and stock (worth $25,000). Determine Suni’s: a. Realized and recognized gain or loss on

> 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 2019 (adjusted basis of $20,000; fair market value of $17,000) in exchange for a differen

> Del Mar Corporation (EIN 33-1234567) was formed and began operations on January 1, 2021. The corporate address is 463 E. Pershing Blvd. Cheyenne, WY 82001. Del Mar uses the accrual basis of accounting. The corporation’s 12/31/2021 tria

> As of January 1, 2021, Norman has a basis of $85,000 in his 30% capital interest in the Plata Partnership. He and the partnership use the calendar year for tax purposes. The partnership incurs an operating loss of $440,000 for 2021 and a profit of $285,0

> Aiden has a 35% capital interest in the Oro Partnership and is entitled to a yearly guaranteed payment of $40,000. As of January 1, 2021, Aiden’s basis in the partnership interest is $87,000. During tax year 2021, Oro recorded the following transactions.

> Refer to Form 4797 near the end of this chapter. Where would a $1231 gain on the disposition of business land be entered on the form?

> Jenna owns 30% of the stock in Mockingbird, a calendar year S corporation. Her basis in the stock as of January 1, 2021, is $130,000. Mockingbird has an operating loss of $500,000 in 2021 and an operating profit of $600,000 in 2022. Jenna withdraws $70,0

> Jim Oza owns all of the stock in Drake, a calendar year S corporation. For calendar year 2021, Drake anticipates an operating loss of $160,000 and could, if deemed worthwhile, sell a stock investment that would generate a $10,000 long-term capital loss.

> Assume the same facts as in Problem 50. Kirby Turner is a 20% shareholder in Thrasher Corporation. She is aware of the tax consequences of the various items listed on the Schedule K–1 (Form 1120S) she received but does not understand their effect on basi

> Ling is the sole shareholder of Crimson Corporation (a C corporation). At a time when Crimson has a deficit in accumulated E & P of $90,000 and current E & P of $65,000, it distributes a cash dividend of $85,000. If Ling’s basis in her stock is $15,000,

> Deena, Walt, and Pat form Swan Corporation with the following investments. In addition to the 500 shares of stock, Pat receives $100,000 in cash from Swan Corporation. Assume that each share of Swan stock is worth $1,000. a. How much loss does Walt reali

> During 2022, Siskin Corporation (a C corporation) entered into the following transactions. Income from operations……………………………………………………………………………… $500,000 Expenses from operations ………………………………………………………………………………425,000 Dividends from domestic corporations (

> On December 6, 2021, Kestrel Company (a calendar year taxpayer) authorizes a cash donation of $50,000 to the Memphis Public Library. The pledge is carried out as follows: $15,000 on December 12, 2021; $25,000 on February 13, 2022; and $10,000 on May 10,

> Robin incurred the following capital transactions in 2021. LTCG …………………………………………$10,000 LTCL ……………………………………………..8,000 STCG ……………………………………………..2,000 STCL ………………………………………………..–0– Robin also reported a net long-term capital loss in 2020 of $2,000, which it

> Citron, a calendar year taxpayer, began business in January 2020. It had a long-term capital gain of $5,000 in 2020 and a long-term capital loss of $10,000 in 2021. For both years, Citron had an operating profit in excess of $100,000. How are these capit

> Garnet incurs the following capital asset transactions during the year. Long-term capital gain ……………………………………………..$8,000 Short-term capital gain ……………………………………………….3,000 Further, Garnet has an excess capital loss carryforward of $6,000 from last year. a.

> Refer to Form 4797 near the end of this chapter. Where would a $1231 loss be entered on the form?

> On November 19, 2019, Rex is granted a nonqualified stock option to purchase 100 shares of Tan Company. On that date, the stock is selling for $8 per share, and the option price is $9 per share. Rex exercises the option on August 21, 2020, when the stock

> Rosa exercises ISOs for 100 shares of Copper Corporation common stock at the option price of $100 per share on May 21, 2021, when the fair market value is $120 per share. She sells the 100 shares of common stock three and one-half years later for $140. a

> Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination, he receives a distribution of the balance in his § 401(k) account of $20,000 ($25,000 2 $5,000 Federal income tax withholding) on May 1, 2021. Samuel’s marginal tax

> Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer qualified retirement plans. Their total AGI in 2021 is $201,000, and they earn salaries of $89,000 and $95,000, respectively. What

> Answer the following independent questions with respect to traditional IRA contributions for 2021. a. Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified plan. His wife, Agnes, has no earned income. What is the

> Answer the following independent questions with respect to a deductible IRA and § 401(k) contributions for 2021. a. Govind, age 31, earns a salary of $26,000 and is not an active participant in any other qualified plan. His wife Olga reports $600 of comp

> Jong, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $68,000 in 2021. a. Calculate the amount Jong can contribute to a traditional IRA and the amount she can deduct. b. Assume instead that Jong is a

> In 2021, Megan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax). a. Calculate the maximum amount that Megan can deduct for contributions to a defined contribution Keogh plan. b.

> Amber’s employer, Lavender, Inc., has a § 401(k) plan that permits salary deferral elections by its employees. Amber’s salary is $99,000, her marginal tax rate is 24%, and she is 42 years old. a. What is the maximum amount Amber can elect for salary defe

> Ven Company is a retailer. In 2021, its before-tax net income for financial reporting purposes was $600,000. This included a $150,000 gain from the sale of land held for several years as a possible plant site. The cost of the land was $100,000, the contr

> In December 2021, Soraya Corporation sold land it held as an investment. The corporation received $50,000 in 2021 and a note payable (with adequate interest) for $150,000 to be paid in 2023. Soraya Corporation’s cost of the land was $80,000. The corporat

> Your client, Bob Garcia, is negotiating a sale of investment real estate for $12,000,000. Bob believes that the buyer would pay cash of $8,000,000 and a note for $4,000,000 or $3,000,000 cash and a note for $9,000,000. The notes will pay interest at slig

> Grouse Company is a furniture retailer whose average annual gross receipts for the three preceding years exceeded $26,000,000. In the current tax year, the company purchased merchandise with an invoice price of $15,000,000, less a 2% discount for early p

> Swallow Company is a large real estate construction company that has made an S election. The company reports its income using the percentage of completion method. In 2022, the company completed a contract at a total cost of $4,800,000. The contract price

> On March 31, 2019, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship to be completed within three years. Big Boats estimated the total cost of building the ship at $300,000,000. The contract pric

> Rust Company is a real estate construction company. Rust uses the completed contract method, and the contracts require 18 months to complete. a. Which of the following costs would be allocated to construction in progress by Rust? 1. The payroll taxes on

> The Wren Construction Company reports its income by the completed contract method. At the end of 2021, the company completed a contract to construct a building at a total cost of $800,000. The contract price was $1,200,000, and the customer paid Wren $90

> George sold land to an unrelated party in 2020. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2021, 2022, and 2023. What would be the tax consequences of th

> On December 30, 2020, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2022, after Charles had paid $60,000 on the principal of the note,

> On June 30, 2021, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2022. The note pays 6% interest, which is higher than the Federal rate. Kelly’s cost of the property was $400,000. She is concerned that Congress may increas

> Meredith, who is single, would like to contribute $6,000 annually to her Roth IRA. Her AGI is $126,000. a. What is the maximum amount that Meredith can contribute? Show your calculations using Microsoft Excel. b. Assume that Meredith’s AGI is $100,000. S

> Kay, who is not a real estate dealer, sold an apartment house to Polly during the current year (2021). The closing statement for the sale is as follows. During 2021, Kay collected $9,000 in principal on the installment note and $2,000 of interest. Kay&ac

> Jamal purchased equipment and used materials to develop a patent. The development costs were deducted on prior returns. The bases and fair market values of the assets are presented below. Sarah has made an offer to purchase the assets. Under one plan, sh

> Jeffrey Boyd, the president of Eagle Furniture Company (average annual gross receipts of $30,000,000), has prepared the company’s financial statements and income tax returns for the past 15 years. In July 2022, however, he hires you to prepare the 2021 c

> Raven Finance Company experiences bad debts of about 3% of its outstanding loans. At the end of the year, the company had outstanding recei - vables of $18,000,000. This balance included $2,000,000 of accrued interest receivable. Raven’s loan loss reserv

> Ross Company is a C corporation providing property management services. Ross has used the cash method since inception because its gross receipts did not exceed $26,000,000. This year its average annual gross receipts for the prior three years crossed the

> How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer? a. The company guarantees its products for six months. At the end of 2021, customers had made valid claims for $600,000 that wer

> Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2021), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. T

> Which accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of $900,000. b. An accounting partnership with average annual gross receipts of $12,000,000. c. A drywall subcon

> Compute Mary’s income or deductions for 2021 using (1) the cash basis and (2) the accrual basis for each of the following. a. In May 2021, Mary paid a license fee of $1,200 for the period June 1, 2021, through May 31, 2022. b. In December 2021, Mary coll

> Gold, Inc., is an accrual basis taxpayer. In 2021, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000 of damages. In 2021, the owner of the property sued Go

> Shen purchased corporate stock for $20,000 on April 10, 2019. On July 14, 2021, 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, 2021. What is the amount and character of

> In 2020, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be recovered out of future royalties. If the book was not completed by the end of 2021, however, Juan would be required to repay the publisher for th

> The Cardinal Wholesale Company is an S corporation that began business on March 1, 2021. Robert, a calendar year taxpayer, owns 100% of the Cardinal stock. He has $400,000 taxable income from other sources each year. Robert will work approximately 30 hou

> Theresa has a 2020 Form 1040 Schedule D, line 16 gain of $45,000. There is also a $45,000 gain on the form’s line 19. What is the nature of the gain? What alternative tax rate applies to it?

> Adrian has a 2020 Form 4797, line 9 gain of $56,000. He also has one transaction on his 2020 Form 1040 Schedule D, Part I—a loss of $58,000. What is Adrian’s AGI from these events?

> On August 10, 2019, Jasper purchased business equipment for $40,000. On his 2019 tax return, $40,000 of § 179 immediate expense was taken on the equipment. On July 14, 2020, Jasper sold the equipment for $12,000. What is the nature of disposition gain or

> Sasha and Tara are married, filing jointly. Their correctly determined 2021 taxable income is $127,000. This taxable income includes a $5,000 § 1231 gain from the sale of business land that was included in their $22,000 of net longterm capital gain. None

> Jasmine owned rental real estate that she sold to her tenant in an installment sale. Jasmine acquired the property in 2009 for $400,000; took $178,000 of depreciation on it; and sold it for $210,000, receiving $25,000 immediately and the balance (plus in

> Tan Corporation purchased depreciable tangible personal property for $100,000 in 2019 and immediately expensed the entire cost under § 179. In 2021, when the property was worth $80,000, Tan distributed it as a dividend to the corporation’s sole sharehold

> Dedriea contributes to her wholly owned corporation some tangible personal property she had used in her sole proprietorship business and depreciated. She had acquired the property for $566,000 and had taken $431,000 of depreciation on it before contribut

> Miguel receives tangible personal property as an inheritance in 2019. The property was depreciated by the deceased (Miguel’s father), and Miguel will also depreciate it. At the date of the deceased’s death, the property was worth $532,000. The deceased h

> Corporations are subject to a flat income tax rate of 21%; individuals have graduated rates from 10% to 37%. Does this make the corporate entity a better entity choice for tax purposes? Explain.

> Anna received tangible personal property with a fair market value of $65,000 as a gift in 2019. The donor had purchased the property for $77,000 and had taken $77,000 of depreciation. Anna used the property in her business. Anna sells the property for $2

> Hana is in the 24% tax bracket and owns depreciable business equipment that she purchased several years ago for $135,000. She has taken $100,000 of depreciation on the equipment, and it is worth $55,000. Hana’s niece, Michelle, is starting a new business

> On January 1, 2012, Stephanie Bridges acquired depreciable real property for $50,000. She used straight-line depreciation to compute the asset’s cost recovery. The asset was sold for $96,000 on January 3, 2021, when its adjusted basis was $38,000. a. Wha

> Javier is the sole proprietor of a trampoline shop. During 2021, the following transactions occurred: • Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation proceeds were $15,000. The land, acquired in 1988, ha

> On May 2, 1991, Hannah Weather (Social Security number: 111-22-3333) acquired residential rental real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the building. On August 20, 2020, the building, which then had an a

> On June 1, 2017, Skylark Enterprises (a calendar year LLC reporting as a sole prorietorship) acquired a retail store building for $500,000 (with $100,000 being allocated to the land). The store building was 39-year real property, and the straight-line co

> On December 1, 2019, Lavender Manufacturing Company (a corporation) purchased another company’s assets, including a patent. The patent was used in Lavender’s manufacturing operations; $49,500 was allocated to the patent, and it was amortized at the rate

> Copper Industries (a sole proprietorship) sold three § 1231 assets during 2021. Data on these property dispositions are as follows: a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset. b

> Amber Industries (a sole proprietorship) sold three $ 1231 assets during 2021. Data on these property dispositions are as follows: a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset. b. Assuming th

> Siena Industries (a sole proprietorship) sold three § 1231 assets during 2021. Data on these property dispositions are as follows: a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset. b.

> Vijay owns land (adjusted basis of $40,000) that he uses in his business. He exchanges the land and $20,000 in cash for a different parcel of land worth $50,000. May Vijay avoid like-kind exchange treatment to recognize his realized loss of $10,000? Expl

> Keshara has the following net § 1231 results for each of the years shown. What would be the nature of the net gains in 2020 and 2021?

> Jenny purchased timber on a 100-acre tract of land in South Dakota in March 2019 for $100,000. On January 1, 2021, the timber had a fair market value of $145,000. Because of careless cutting in November 2021, when the fair market value was $158,000, the

> Asok’s AGI for 2021 is $133,250. Included in this AGI is a $45,000 25% longterm capital gain and a $13,000 0%/15%/20% long-term capital gain. Asok is single and uses the standard deduction. Compute his taxable income, the tax liability, and the tax savin

> Phil and Susan Hammond are married taxpayers filing a joint return. The couple have two dependent children. Susan has wages of $34,000 in 2020. Phil does not work due to a disability, but he is a buyer and seller of stocks. He generally buys and holds fo

> In 2021, Beth Jarow had a $28,000 loss from the sale of a personal residence. She also purchased a patent on a rubber bonding process from an individual inventor for $7,000 (and resold it in two months for $18,000). The patent had not yet been reduced to

> Liana Amiri (single with no dependents) has the following transactions in 2021: AGI (exclusive of capital gains and losses) ………………………………..$540,000 Long-term capital gain ……………………………………………………………….22,000 Long-term capital loss ……………………………………………………………….(8,0

> Indicate whether each of the following will increase (1), decrease (2), or have no effect (NE) on a partner’s basis in a partnership interest. a. Operating loss of the partnership. b. Capital gains of the partnership. c. Tax-exempt income of the partners

> Nathan uses the percentage of completion method to report income from his real estate construction contracts. A contract was begun in 2021 and completed in 2022. In 2021, Nathan reported gross income from the partial completion of the contract. In 2022,

> In late December 2021, Gray (a calendar year C corporation) pledges a $50,000 donation to a local relief agency formed to fight AIDS in Africa. Although Gray’s board of directors authorized the donation in 2021, the payment is not made until April 2022.