Diego B$.($age $42)$ and Isabel S$.($age $41)$ Castillo are married and live at $11426$ W$.$ Antelope Drive, Grapevine, TX $76092.$ Diego is the manager for Escondite, a popular restaurant in Grapevine. Isabel is a self$-$employed architect. They are calendar$-$year, cash$-$basis taxpayers.

Diego$$s annual salary from Escondite is $$98,000.$ He also earns an annual bonus. The amount is determined in late December based on performance during the year and is paid in January of the following year. Diego$$s $2021$ bonus was $$6,000($received in $2022),$ and his $2022$ bonus was $$7,000($received in $2023).$ Diego participates in his employer$$s group health insurance plan to which he contributed $$7,200$ in $2022$ for medical coverage. These contributions are made with after$-$tax dollars. The health plan covers Diego, Isabel, and their two dependent children. Escondite does not provide any retirement benefits, but it has established a $401($k$)$ plan to enable its employees to save for retirement. Diego contributed $$19,000$ to the plan in $2022.$ Diego$$s Form W$2$ from Escondite shows $$15,800$ of Federal income tax was withheld during the year. Diego commutes to and from work six days a week $($a roundtrip of $18$ miles$)$ in the family SUV. During $2022,$ Diego drove the SUV a total of $12,700$ miles ratably throughout the year.

Isabel is a licensed architect who works part time as an architectural consultant. Her professional activity code is $541310.$ Her major clients are real estate developers $($both residential and commercial$)$ for whom she prepares structural designs and construction plans. She also advises on building code requirements regarding the renovation and remodeling of existing structures. Isabel does some of her work at client locations and the remainder in her office at home $($see item $3).$

Isabel collected $$72,000$ in consulting fees during $2022.$ This total includes a $$3,000$ payment for work she performed in $2021$ and does not include $$5,000$ she billed in December for work performed in late $2022.$ In addition, Isabel has a $$6,400$ unpaid invoice for work done in $2020.$ This client was convicted of arson in August $2019$ and is now serving a five$-$year sentence in state prison. Isabel feels certain that she will never collect the $$6,400$ she is owed.

Isabel$$s business expenses for $2022$ are:

Drafting supplies $$4,800$

Reproduction materials $($e$.$g$.,$ molds, models, photos, blueprints, copies$)3,200$

On$-$site work clothing $($e$.$g$.,$ hip boots, safety glasses, safety helmet$)860$

Professional license fee $400$

Subscriptions to professional journals $250$

Dues to professional organizations $240$

In addition, Isabel drove the family Acura $($purchased on June $7,2021)940$ miles on her job assignments. She uses the standard mileage method to deduct business costs related to the Acura. During $2022,$ Isabel drove the car a total of $10,000$ miles. Both business and total mileage occurred ratably throughout the year.

When the Castillos purchased their home on February $2,2020,$ they set aside $300$ square feet $($out of a total of $2,400$ square feet$)$ of living space for Isabel$$s office. The Castillos do not use the simplified method for computing the home office deduction. As of January $1,2022,$ the home had an adjusted basis of $$240,000($$$40,000$ of which is attributable to the land$)$ for purposes of line $37$ of Form $8829.$ The fair market value of the property was $$282,000.$ Relevant information concerning the residence for all of $2022$ appears below.

Homeowner$$s insurance $$3,200$

Repairs and maintenance $1,800$

Utilities $6,200$

Painting $($office area only$)1,250$

The cost of Isabel$$s office furniture and equipment was previously deducted under $179$ in the years these assets were acquired. On June $29,2022,$ she purchased a fireproof file cabinet for $$800$ to safeguard the blueprints of her structural designs and construction plans. Whenever possible, Isabel prefers to avoid depreciating capital expenditures over time.

One of Isabel$$s clients was interested in building a shopping center on a tract of land she owned in Ector County. Isabel inherited the property from her uncle when he died on June $6,1999.$ At that time, the land was valued at $$40,000.$ It has since been rezoned for commercial use and has a current value of $$200,000.$ On February $10,2022,$ Isabel exchanged the Ector parcel for a similar tract in McLennan County worth $$190,000$ plus cash of $$10,000.$

On September $2,2022,$ Isabel sold a tract of land in Hansford County to a farmer who owned the adjoining property. The land was inherited from the same uncle who died in $1999$ and was valued at $$30,000$ on June $6,1999.$ Under the terms of the sale, Isabel received cash of $$20,000$ and a note receivable to be paid in four equal installments at one$-$year intervals from the date of sale. Each note calls for the payment of $$25,000$ plus simple interest of $8\%.$ To the extent allowed by law, Isabel wants to defer recognition of gain for as long as possible.

In early $2021,$ Diego learned that one of the restaurant$$s best servers, Alexis Garcia, was suff

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