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Han and Leia acquired a $1,758,000 lakefront home from Boba Fett Realty (BFR) in 2020. They exchanged their principal residence, a townhouse in Coruscant, for

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Han and Leia acquired a $1,758,000 lakefront home from Boba Fett Realty (BFR) in 2020. They exchanged their principal residence, a townhouse in Coruscant, for the Lake Tatooine home. They paid $700,000 in cash for the townhouse in 2015 and it was recently appraised for $1,472,000. They lived in the townhouse since they purchased it in 2015. The gorgeous 30-acre lakefront home on Lake Tatooine has incredible views and vistas of the Dune Sea and the Greedo Mountains. In October 2020 the Village of Mos Eisley valued the property at $2,150,000 and assessed real property taxes on the both the home and the out-parcels of property. Jobba the Assessor determined that the home represented 30% of the value and the out-parcels represented the remaining 70% of the value for the property. The Solos paid $21,500 in real property taxes in 2020 on the Lake Tatooine property The Solos hired Storm and Trooper Construction Company (S&TCC) to repair and remodel the existing home. Force Architectural and Engineering was retained to perform feasibility and design for the renovation. However, their investigation revealed that the vermin infested and termite eaten home on the lakefront property had been built a long, long time ago. Force's lead architect Yoda warned the Solos that the home was too old to be rehabbed and that the cost is prohibitive. It seems that the old lakefront home never really fit the Solos' entertaining and galaxy trotting lifestyle. So, they decided to demolish the home and built their dream stone and log cabin. In addition, they needed a hanger and landing strip for the Millennium Falcon and Millennium Falcon II. S&TCC estimated that it would cost $25,000 to $50,000 to demolish the home. All the necessary permits to demolish the home were obtained from the Village of Mos Eisley but Han balked at the cost of demolition. Han and Leia donated the home to the Mos Eisley Rebellion Fire Departments (MORFED) for a training exercise. On April 1, 2020, as part of Tatooine's fire prevention month, MORFED burned down the structure and then put out the fire. MORFED charged Han and burned down the structure and then put out the fire. MORFED charged Han and Leia $2,000 to haul away the burned out remains of the old home. A construction contract to build the home, a hanger with offices and a landing strip was signed with S&TCC on March 15, 2020. The cost of building the home is $2,250,000. They paid 20% of the cost in cash and borrowed the balance from the Next Empire and Republic Bank (NERB) with a construction bridge loan at 6.25% per annum secured by the property. Construction on the home was completed on September 20, 2020 and the Solos executed a 30-year home mortgage loan secured by the principal residence at 4.35% per annum with NERB on September 22, 2020 Separately, Han entered into a construction contract with S&TCC to build the hanger with offices and the airstrip on March 17, 2020. The hanger with offices and the airstrip houses Galactic Shipping LLC (GSLLC). The cost of the hanger with offices is $1,600,000. GSLLC will borrow 90% of the construction cost of the hanger with offices from NERB on a ten year note at a below market rate of interest of 0.125%. Han and Leia are personally guaranteeing the loan from NERB to GSLLC. The landing strip will cost another $1,245,000 to build. Han and Leia have decided to subdivide some of the 30-acre property to finance the building of the landing strip. They anticipate that they can sell six (6) two-acre lots for $389.000 apiece through BFR that is charging a 5% commission. BFR sold all six lots for the Solos in 2020 for a total of $2.334 million. GSLLC is owned by Han and Leia 50-50. Han owns 1% managing membership and 49% limited membership while Leia owns 50% limited membership. Han actively manages the shipping business. Due to increased insurance and energy costs GSLLC lost $39,000 in 2020. Han purchased a used spaceship that he named the Millennium Falcon it in the third quarter of 2020 from Vader's Spaceships for $3.75 million. The hyper-drive and the navigation system were replaced in the fourth quarter of 2020 in the and the navigation system were replaced in the fourth quarter of 2020 in the Millennium Falcon Il at a cost of $1.92 million. Leia complained to Han that the Millennium Falcon Il's interior was old and tired looking and in need of upgrading. Han agreed that it could use some new seats, bathrooms and sleeping quarters. The new interior cost $300,000. Han financed the purchase and upgrades by borrowing the money from Nabu National Guild Bank at 3%. The Millennium Falcon Il was used 60% for business and 40% for personal purposes. Leia is uninterested in the business and is more interest in saving the planet from destruction. Unknown to Han, Leia donated his antiques blasters to stop the Sith Foundation. (StSF) Han paid $160,000 for the prized pieces and they are conservatively valued at ten (10) time the purchase price. She also made a pledge to StSF in the amount of $200,000. She gave them a check in the amount of $35,000 on December 31, 2020. Han purchased new droids to replace the two old droids he purchased for $10,0000 apiece from Jawa Equipment Distributing Inc. (JEDI) in 2013. JEDI will give Han $200 apiece for a trade-in on the purchase of two new droids. The new droids costs $20,000 apiece and are used 100% for business. The old droids have always been used for personal purposes and not business. Han placed them in service on December 31, 2020. Han and Leia also have a small get-away place in Endor Estates that they rent out occasionally (13 days in 2020) for $1,000 per day. They lived there the entire time that their new home on Lake Tatooine was being built. BFR approached them about renting the vacation home for 100 days during 2020 and 2021. There would be a management charge of 18.5% of rental income by BFR. The management charge would cover advertising for guests, routine maintenance and housekeeping Han's old buddy Lando has been promoting oil and gas mining ventures and has asked Han to invest in Bespin LLC which currently is operating at a loss. Han invested $10,000 in the mining interest on July 3, 2020 and it threw-off a $1,000 passive loss to him in 2020. Heeding Leia's advice, Han instructed his broker to sell the Bespin LLC shares on November 28, 2020. The broker did not get the trade order into the system so that the shares were not actually sold until December 2, 2020. The selling price was $16,300. The broker charged Han a 3% commission to sell the shares in Bespin LLC. Leia purchased 1000 shares of stock in Wookie World for $22 per share on June 14, 2016. Slowly but surely the fair market value of the stock rose over the next couple of years. On June 7, 2020 Leia sold fifty percent (50%) of her shares in Wookie World for $57 per share. On July 12. 2020 Leia bought 200 shares of Light Sabers Enterprises Inc. (LSEI) for $19 per share but sold them on July 24, 2020 for $18 per share. By August 1, 2020 when Leia repurchased 200 shares of LSEl the share price had dropped to $14 per share. She was sure that the price would turn around and by December 18, 2020 LSEI was trading at $34 per share. Afraid that another correction would take place Leia sold all of her LSEl holding on December 27, 2020 for $36 per share. After years of volunteering as a contributing editor, Leia was approached by the Palpantine Press to become their managing editor. Leia agreed to take the job since she was tiring of the constant travel trying to save the galaxy. The compensation package included a salary of $250,000 per year, health insurance worth $19,000 in premiums paid by Palpantine Press, a luxury landspeeder (a car) that has a monthly fair market value of $1000, membership at the Dune Sea Country Club paid by Palpantine Press valued at $35,000 per year, membership in the health club located in the Palpantine Press building open to all employees valued at $1225 per month. Palpantine Press has a 401(k) that it matches employee contributions $1 for $1 up to 5% of salary. Han and Leia have been regular contributors to IRAs. Han and Leia have come to you for tax help for their 2020 tax year. What issues does their set of facts present to you as their tax advisor? What advice do you have for them? Please make any assumptions that you need in order to address and respond to the issues presented by the fact pattern. Clearly state the assumptions that you make. It is advisable to utilize a memorandum style in which you address the facts, issues, analysis and conclusions. Support your answers with cites to code, regulations, cases, rulings, IRS publications or other research data. Unsupported conclusions without proper analysis will not win you points with the firm's senior partner (me). Good luck. There are ten (10) tax issues that you should be able to identify and explain. Some of the issues may have calculations attached to the answers whereas others may just require a substantive explanation. Hint: one of the issues comes directly from a court case. Using cites to the Internal Revenue Code, Treasury Regs. Rulings, Cases or IRS publications will lend credence to your answer. Han and Leia acquired a $1,758,000 lakefront home from Boba Fett Realty (BFR) in 2020. They exchanged their principal residence, a townhouse in Coruscant, for the Lake Tatooine home. They paid $700,000 in cash for the townhouse in 2015 and it was recently appraised for $1,472,000. They lived in the townhouse since they purchased it in 2015. The gorgeous 30-acre lakefront home on Lake Tatooine has incredible views and vistas of the Dune Sea and the Greedo Mountains. In October 2020 the Village of Mos Eisley valued the property at $2,150,000 and assessed real property taxes on the both the home and the out-parcels of property. Jobba the Assessor determined that the home represented 30% of the value and the out-parcels represented the remaining 70% of the value for the property. The Solos paid $21,500 in real property taxes in 2020 on the Lake Tatooine property The Solos hired Storm and Trooper Construction Company (S&TCC) to repair and remodel the existing home. Force Architectural and Engineering was retained to perform feasibility and design for the renovation. However, their investigation revealed that the vermin infested and termite eaten home on the lakefront property had been built a long, long time ago. Force's lead architect Yoda warned the Solos that the home was too old to be rehabbed and that the cost is prohibitive. It seems that the old lakefront home never really fit the Solos' entertaining and galaxy trotting lifestyle. So, they decided to demolish the home and built their dream stone and log cabin. In addition, they needed a hanger and landing strip for the Millennium Falcon and Millennium Falcon II. S&TCC estimated that it would cost $25,000 to $50,000 to demolish the home. All the necessary permits to demolish the home were obtained from the Village of Mos Eisley but Han balked at the cost of demolition. Han and Leia donated the home to the Mos Eisley Rebellion Fire Departments (MORFED) for a training exercise. On April 1, 2020, as part of Tatooine's fire prevention month, MORFED burned down the structure and then put out the fire. MORFED charged Han and burned down the structure and then put out the fire. MORFED charged Han and Leia $2,000 to haul away the burned out remains of the old home. A construction contract to build the home, a hanger with offices and a landing strip was signed with S&TCC on March 15, 2020. The cost of building the home is $2,250,000. They paid 20% of the cost in cash and borrowed the balance from the Next Empire and Republic Bank (NERB) with a construction bridge loan at 6.25% per annum secured by the property. Construction on the home was completed on September 20, 2020 and the Solos executed a 30-year home mortgage loan secured by the principal residence at 4.35% per annum with NERB on September 22, 2020 Separately, Han entered into a construction contract with S&TCC to build the hanger with offices and the airstrip on March 17, 2020. The hanger with offices and the airstrip houses Galactic Shipping LLC (GSLLC). The cost of the hanger with offices is $1,600,000. GSLLC will borrow 90% of the construction cost of the hanger with offices from NERB on a ten year note at a below market rate of interest of 0.125%. Han and Leia are personally guaranteeing the loan from NERB to GSLLC. The landing strip will cost another $1,245,000 to build. Han and Leia have decided to subdivide some of the 30-acre property to finance the building of the landing strip. They anticipate that they can sell six (6) two-acre lots for $389.000 apiece through BFR that is charging a 5% commission. BFR sold all six lots for the Solos in 2020 for a total of $2.334 million. GSLLC is owned by Han and Leia 50-50. Han owns 1% managing membership and 49% limited membership while Leia owns 50% limited membership. Han actively manages the shipping business. Due to increased insurance and energy costs GSLLC lost $39,000 in 2020. Han purchased a used spaceship that he named the Millennium Falcon it in the third quarter of 2020 from Vader's Spaceships for $3.75 million. The hyper-drive and the navigation system were replaced in the fourth quarter of 2020 in the and the navigation system were replaced in the fourth quarter of 2020 in the Millennium Falcon Il at a cost of $1.92 million. Leia complained to Han that the Millennium Falcon Il's interior was old and tired looking and in need of upgrading. Han agreed that it could use some new seats, bathrooms and sleeping quarters. The new interior cost $300,000. Han financed the purchase and upgrades by borrowing the money from Nabu National Guild Bank at 3%. The Millennium Falcon Il was used 60% for business and 40% for personal purposes. Leia is uninterested in the business and is more interest in saving the planet from destruction. Unknown to Han, Leia donated his antiques blasters to stop the Sith Foundation. (StSF) Han paid $160,000 for the prized pieces and they are conservatively valued at ten (10) time the purchase price. She also made a pledge to StSF in the amount of $200,000. She gave them a check in the amount of $35,000 on December 31, 2020. Han purchased new droids to replace the two old droids he purchased for $10,0000 apiece from Jawa Equipment Distributing Inc. (JEDI) in 2013. JEDI will give Han $200 apiece for a trade-in on the purchase of two new droids. The new droids costs $20,000 apiece and are used 100% for business. The old droids have always been used for personal purposes and not business. Han placed them in service on December 31, 2020. Han and Leia also have a small get-away place in Endor Estates that they rent out occasionally (13 days in 2020) for $1,000 per day. They lived there the entire time that their new home on Lake Tatooine was being built. BFR approached them about renting the vacation home for 100 days during 2020 and 2021. There would be a management charge of 18.5% of rental income by BFR. The management charge would cover advertising for guests, routine maintenance and housekeeping Han's old buddy Lando has been promoting oil and gas mining ventures and has asked Han to invest in Bespin LLC which currently is operating at a loss. Han invested $10,000 in the mining interest on July 3, 2020 and it threw-off a $1,000 passive loss to him in 2020. Heeding Leia's advice, Han instructed his broker to sell the Bespin LLC shares on November 28, 2020. The broker did not get the trade order into the system so that the shares were not actually sold until December 2, 2020. The selling price was $16,300. The broker charged Han a 3% commission to sell the shares in Bespin LLC. Leia purchased 1000 shares of stock in Wookie World for $22 per share on June 14, 2016. Slowly but surely the fair market value of the stock rose over the next couple of years. On June 7, 2020 Leia sold fifty percent (50%) of her shares in Wookie World for $57 per share. On July 12. 2020 Leia bought 200 shares of Light Sabers Enterprises Inc. (LSEI) for $19 per share but sold them on July 24, 2020 for $18 per share. By August 1, 2020 when Leia repurchased 200 shares of LSEl the share price had dropped to $14 per share. She was sure that the price would turn around and by December 18, 2020 LSEI was trading at $34 per share. Afraid that another correction would take place Leia sold all of her LSEl holding on December 27, 2020 for $36 per share. After years of volunteering as a contributing editor, Leia was approached by the Palpantine Press to become their managing editor. Leia agreed to take the job since she was tiring of the constant travel trying to save the galaxy. The compensation package included a salary of $250,000 per year, health insurance worth $19,000 in premiums paid by Palpantine Press, a luxury landspeeder (a car) that has a monthly fair market value of $1000, membership at the Dune Sea Country Club paid by Palpantine Press valued at $35,000 per year, membership in the health club located in the Palpantine Press building open to all employees valued at $1225 per month. Palpantine Press has a 401(k) that it matches employee contributions $1 for $1 up to 5% of salary. Han and Leia have been regular contributors to IRAs. Han and Leia have come to you for tax help for their 2020 tax year. What issues does their set of facts present to you as their tax advisor? What advice do you have for them? Please make any assumptions that you need in order to address and respond to the issues presented by the fact pattern. Clearly state the assumptions that you make. It is advisable to utilize a memorandum style in which you address the facts, issues, analysis and conclusions. Support your answers with cites to code, regulations, cases, rulings, IRS publications or other research data. Unsupported conclusions without proper analysis will not win you points with the firm's senior partner (me). Good luck. There are ten (10) tax issues that you should be able to identify and explain. Some of the issues may have calculations attached to the answers whereas others may just require a substantive explanation. Hint: one of the issues comes directly from a court case. Using cites to the Internal Revenue Code, Treasury Regs. Rulings, Cases or IRS publications will lend credence to your

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