Questions and Answers of Concepts In Federal Taxation

Kerri and John are married. On May 12, 2021, they sell their home for $190,000 and purchase another residence costing $225,000. What is Kerri and John’s realized and recognized gain in each of the
On March 1, 2021, Babar Inc., pays $1,200,000 for a store building, moves into the building and begins business on April 1. Babar properly allocates $1,000,000 of its cost to the building and
On June 1, 2021, Kirsten buys an automobile for $60,000. Her mileage log for the year reveals the following: 20,000 miles for business purposes; 7,000 miles for personal reasons; and 3,000 miles
On June 2, 2021, Lokar Corporation purchases a patent for $68,000 from the inventor of a new extrusion process. The patent has 12 years remaining on its legal life. Also, Lokar purchases
On May 15, 2021, Lurlene buys a used automobile for $20,000. She drives it, 9,000 miles for business and 3,000 miles for personal trips during the year. What is Lurlene’s maximum cost recovery for
Joy opened a shop to sell concrete yard ornaments in 2017. She converted a building in front of her residence into a store. The fair market value of the building when she opened the store was
Bailey Construction Company purchases a bulldozer on December 20, 2021. An ice storm delays delivery until December 24. Because of the holidays, the equipment is not used until January 2.
During 2021, Schottenheim Corporation buys laptop computers and desktop computers to use in its general sales offices. Schottenheim buys laptops for $42,000 on March 29, additional laptops for
Joan is interested in buying a special diagnostic machine for use in her medical practice. The machine will cost her $16,000 and will have a $2,000 salvage value at the end of its 8-year life. Joan
Mort begins investing in stocks in 2020. Listed here are his stock transactions for 2020 and 2021. Determine Mort's gain or loss on his stock transactions for 2020 and 2021. In addition, for each
Spencer purchases 100 shares of Reality Virtual Corporation common stock for $1,200 on July 30, 2021. He sells 75 shares of this stock for $525 on December 27, 2021. On January 12, 2022,
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss and whether that gain or loss is short-term or long-term:a. Larry's aunt June dies on
Rudy has the following capital gains and losses from sales of capital assets during the current year. Assume that Judith is a corporation. What is the effect of the capital asset transactions on
Marnie buys 500 shares of qualified small business stock in H.R. Pizza, Inc., on September 10, 2008 for $20,000. She sells the 500 shares for $120,000 on October 2, 2021. Marnie's other capital asset
Yorgi purchases qualified small business stock in Gnu Company, Inc., on September 15, 2008, for $50,000. She sells the shares for $400,000 on December 30, 2021. The stock retains its
During August 2016, Madeline invests $400,000 in Qual Company, Inc., buying 100,000 shares of stock. Her broker tells her this will be an excellent investment because the securities are qualified
Ansel sells 400 shares of Sharpe, Inc., common stock on October 12, 2021 for $11,800 and pays $600 in commissions on the sale. He acquired the stock for $18,400 plus $800 in commissions on July 8,
Fred's Foam Foundations (FFF) is a sole proprietorship that Fred started in 2016. Before the current year, FFF had not disposed of any property it owned. During the current year, FFF has the
Dawn started her own rock band on January 2, 2019. She acquired all her equipment on January 2, 2019, and did not dispose of any of it before 2021. On April 15, 2021, the band’s amplifier,
Opal's neighbor, Jillian, persuades her to invest in Schaake Corporation, a new venture, on March 4, 2020. Opal pays $15,000 for 3,000 shares of common stock. On February 6, 2021, Schaake Corporation
In 2021, Sondra Corporation recognizes $18,000 in Section 1231 gains and $10,000 in Section 1231 losses. In 2016, Sondra reported $12,000 in Section 1231 losses and no Section 1231 gains. No other
The Gladys Corporation buys equipment (7-year MACRS property) costing $1,114,000(Typo-Should be $1,124,000 to match the amount in problem 48 of chapter 10) on May 12, 2021. In 2024, new and improved
Assume that the building in problem 68 is an apartment building held for investment. In addition to the sale of the building, Anton has the following capital gains and losses during 2021:Anton is
Rhinelander Corporation has the following net Section 1231 gains and losses for 2016 through 2020:a. What is the proper characterization of the net Section 1231 gains and losses for 2016 - 2020 for
Thuy buys a rental house in 2013 for $75,000. In 2021, she sells it for $86,000. Thuy properly deducted $22,000 in depreciation on the house before its sale.a. What is the amount and character of the
Marino inherits antique pottery from the estate of his grandmother on March 10, 2021. He immediately sells the pottery for $15,000 to a collector who had made the offer to the executor of the estate
Carter owns 1,200 shares of Echo Corporation stock. He purchased 400 shares of the stock on December 23, 2019 for $48,000, and the other 800 shares on October 31, 2020, for $84,000. On August 14,
On April 3, 2020, Arlene sells land that she holds as an investment to a construction company. The deed conveying the land to the construction company contains a covenant restricting construction on
At the beginning of 2021, Heather owns the following stocks:In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2020.
Duke Plumbing and Wallpaper Company is a corporation that has been in business since 2021 (Typo-Should be 2000). During the current year, it has the following property transactions:a. A warehouse
Martina purchases 10,000 shares of Monrovia Corporation stock for $90,000 on November 14, 2020. On June 18, 2021, Monrovia declares bankruptcy. Because the corporation’s assets are less than its
Barney is a farmer who has the following transactions during 2021:a. A barn that had cost $36,000 in 2013 with an adjusted basis of $16,000 is destroyed by a tornado. Barney's insurance pays him
Tawana purchased real property in 2019 at a cost of $200,000. In 2021, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is $185,000.
In 2020, Nuts & Seeds Inc., purchased a new “high-tech” shelling machine from Soft-Core Corporation. Nuts & Seeds paid $1,000 in cash and gave Soft-Core a $29,000 note. The note is
Jeremiah owns farm land that he paid $20,000 for in 2009. In 2020, he planted a winter wheat crop on the land, incurring $35,000 of expenses. Jeremiah deducted the $20,000 of planting expenses that
Aretha sells her house on June 9, 2021, for $220,000 and pays commissions of $10,000 on the sale. She had purchased the house for $60,000 and made capital improvements costing $15,000. What are
On July 8, 2021, Cynthia and her daughter Constance agree to exchange land they held for investment. Both tracts are worth $18,000. Cynthia acquired her land 4 years earlier for $9,000. Constance
Gary and Gertrude are married on April 8, 2020. They use Gertrude’s home as their residence. Gertrude purchased the home on November 14, 2018, for $60,000. On February 19, 2021, Gertrude is killed
Bonnie wants to trade her Snow Bird, Utah, condominium, which she has held for investment, for investment property in Steamboat Springs or Crested Butte, Colo. On April 20, 2021, she transfers title
Inez is a freelance artist. She purchased 10 acres of land in 2016 for $5,000. On July 15, 2021, the land is condemned by the county government to build a new courthouse and jail facility. The county
Laurie bought a home in 2018 for $65,000. On November 2, 2021, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her
Harvey sells his personal residence on March 18, 2021, for $78,000. He paid $86,000 for it on April 22, 2019.
Eva and Mario are married on June 14, 2020. They use Eva’s home as their principal residence. Eva purchased the home for $97,000 in 2017. On January 13, 2021, Eva and Mario are divorced. As part of
The Viking Corporation has the following items of income for 2021:a. Calculate the corporation's 2021 taxable income and its tax liability.b. Assume that Viking is, and always has been, an S
In October 2021, fire completely destroys the principal residence of Olaf, who is 63 and single, and lives in Bemidji, Minnesota. He owned the home for 16 years; his adjusted basis is $58,000. Olaf
Lacy Corporation sells equipment and a building during the current year. The equipment, which cost $14,000 in 2018, is sold for $9,000. The equipment was expensed using the Section 179 election in
Powell owns a 20 percent interest in Cooke Partnership. At the beginning of 2020, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2020, and Powell withdraws $10,000 from the
In October 2019, the Clark Corporation decides to establish a SIMPLE-401(k) retirement plan for its employees. Clark meets all requirements for establishing a SIMPLE. The company has notified its
Ghon is a married taxpayer who retired from his job at Smithfield Printing in 2021. During 2022, he turns 72 and begins withdrawing the $215,000 (balance December 31, 2021) in assets in his pension
Ross is single and maintains an IRA. During a trip to Las Vegas in 2021, he wins $15,000 at the roulette wheel. He decides to put half his earnings in his IRA account and spend the other half on a
On September 1, 2021, Beaconsfield Corporation grants Albert a nonqualified stock option to acquire 500 shares of the company’s stock for $8 per share. The fair market value of the stock on the
On July 1, 2021, Howard is granted the right to acquire 500 shares of the Matoney Corporation for $15 per share. The option qualifies under the company’s incentive stock option plan. The current
On May 10, 2021, Somerton Inc., grants Louise a nonqualified stock option to acquire 700 shares of the company’s stock for $11 per share. The fair market value of the stock on the date of grant is
Lavinia owns an advertising agency. In February 2021, Lavinia purchases a building for $125,000. Lavinia spends $275,000 rehabilitating the building for use as her advertising agency office. The
Nina is the auditor for Geiger Construction, a local builder. Geiger recently renovated a historic building in downtown Kingston. The building, which consists of 5 shops, is owned by the Restoring
Refer to problem 52. Guadalupe sells the building on October 26, 2021. What is her 2021 depreciation deduction if she purchased the building ona. June 30, 1992?b. June 30, 1994?Data From Problem 52
Martina is single and has two children in college. Matthew is a sophomore and Christine is in her fifth year of college. Martina pays $3,600 in tuition and fees for Matthew, $700 for textbooks, and
Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2020 and $22,000 in 2021 and income of $9,000 in 2022. Her adjusted gross income, before considering the rental
Mason owns a passive activity that generates a loss of $14,000 in 2020, $12,000 in 2021, and income of $4,000 in 2022. In 2021, Mason purchases a second passive activity that has passive income of
Return to the facts of problem 36. At the end of 2022, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity
During 2021, Yoko has total capital gains of $8,000 and total capital losses of $16,000.a. What is the effect of the capital gains and losses on Yoko's 2021 taxable income? Explain.b. Assume that in
Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2021. She paid $27,000 for the stock in February 2018.a. Assuming that Goldie has no other capital asset transactions in
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2021. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's 2021
Bongo Corporation is incorporated in 2019. It has no capital asset transactions in 2019. From 2020 through 2023, Bongo has the following capital gains and losses:Assuming that Bongo's marginal tax
Newcastle Corporation was incorporated in 2020. For the years 2020 through 2022, Newcastle has the following net capital gain or loss.If Newcastle is in the 21% marginal tax bracket for each of these
Katelyn purchased 300 shares of Condine, Inc., stock in 2019 for $9,000. During 2021, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated
Faith, who is single, sells the following assets during 2021:20,000 shares of qualified small business stock at a loss of $62,000. Faith bought the stock in 2016. 1,200 shares of Geelong
The Readyhough Corporation was incorporated in 2013. During 2020, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of
Zoriana sells stock that she acquired in 2017 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2020.
Determine the 2021 filing status in each of the following situationsa. Michaela and Harrison decide to separate on October 12, 2021. Before filing their 2021 tax return on February 18, 2022, Michaela
Determine the maximum deduction from AGI in 2021 for each of the following taxpayers:a. Pedro is single and maintains a household for his father. His father is not a dependent of Pedro’s. Pedro’s
Determine the maximum deduction from AGI in 2021 for each of the following taxpayers:a. Selen is single and has itemized deductions for the year of $12,900. In addition, Selen's mother lives with
Hongtao is single and has a gross income of $89,000. His allowable deductions for adjusted gross income are $4,200 and his itemized deductions are $19,000.a. What is Hongtao’s taxable income and
Jesse is a resident of New Jersey who works in New York City. He also owns rental property in South Carolina. During 2021, he pays the following taxes:During 2021, Jesse’s 2019 New York State and
Simon is single and a stockbroker for a large investment bank. During 2021, he has withheld from his paycheck $2,250 for state taxes and $400 for city taxes. In June 2022, Simon receives a state tax
Frank and Liz are married. During 2021, Frank has $2,800 in state income taxes withheld from his paycheck, and Liz makes estimated tax payments totaling $2,200. In May 2022, they receive a state tax
Rocco owns a piece of land as investment property. He acquired the land in 1995 for $18,000. On June 1, 2021, he sells the land for $80,000. As part of the sale, the buyer agrees to pay all of the
Determine the taxable income of each of the following dependents in 2021:a. Louis is 12 and receives $1,250 in interest income.b. Jackson is 16. He earns $2,050 from his newspaper route and receives
Calculate the 2021 tax liability and the tax or refund due for each situation:a. Mark is single with no dependents and has a taxable income of $60,000. He has $9,200 withheld from his salary for the
Determine the amount of the child-and-dependent care credit to which each of the following taxpayers is entitled:a. Caryle and Philip are married and have a 4-year-old daughter. Their adjusted gross
Darcy borrowed $4,000 in 2018 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6% interest on the unpaid balance in 2018, 2019, and 2020. After closing a big deal in
Partha owns a qualified annuity that cost $52,000. Under the contract, when he reaches age 65, he will receive $500 per month until he dies. Partha turns 65 on June 1, 2021and receives his first
Minnie owns a qualified annuity that cost $78,000. The annuity is to pay Minnie $650 per month for life after she reaches age 65. Minnie turns 65 on September 28, 2021, and receives her first payment
Duc has been employed by Longbow Corporation for 25 years. During that time, he bought an annuity at a cost of $50 per month ($15,000 total cost). The annuity will pay him $200 per month after he
The Rosco Partnership purchases a rental property in 2016 at a cost of $150,000. From 2016through 2021, Rosco deducts $14,000 in depreciation on the rental. The partnership sells the rental property
Ratliff Development Corporation purchases a tract of land in 2020 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2020, Ratliff installs
Pedro purchases 50 shares of Piper Company common stock on February 19, 2018, at a cost of $4,300. He sells the 50 shares on July 2, 2021, for $9,000. On March 14, 2021, Pedro purchases 100 shares of
Erin, a single taxpayer, has a taxable income of $168,000 in the current year before considering the following capital gains and losses:In addition, Erin has an $8,000 long-term capital loss
Jennifer is single and has the following income and expenses:Calculate Jennifer’s taxable income and income tax liability. Salary Interest income Dividend income Long-term capital gain Short-term
Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2021:a. A $10,000, 8.5%, 6-month loan made on October 1, 2021.
In January 2021, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a
How much income would an accrual basis taxpayer report in 2021in each of the following situations?a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a
Daryl purchases land in 2017 at a cost of $65,000. In 2021, he sells the land for $100,000.a. How much gain or loss does Daryl realize on the sale of the land?b. Assume that the sales contract on the
In 2018, Patricia purchases a rental property as an investment at a cost of $60,000. From 2018through 2021, she takes $7,000 in depreciation on the property. In 2021, Patricia sells the rental
WCM Builders enters into a contract to build a shopping mall in 2020 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM
In 2015, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2021, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds.
A stock appreciation right (SAR) entitles the holder of the right to a cash payment equal to the difference between the fair market value of the stock on the date the SAR is exercised and the fair
Throughout the textbook, it has been stated that tax relief can come in several forms. Assuming that the taxpayer in question is in a 24% marginal tax rate bracket and the time-value of money is 6%,
Tia is married and is employed by Carrera Auto Parts. In 2021, Carrera established high-deductible health insurance for all its employees. The plan has a $2,800 deductible for married taxpayers.
Hashem works for Close Corporation for 24 years. Close has a qualified, noncontributory pension plan that pays employees with more than 5 years of service $100 per month per year of service when they

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