. Paula is a single (unmarried) taxpayer. She is a calendar-year, cash-basis taxpayers and the tax year is 2020. Assume that she is taxed as a sole proprietor. The following information is available concerning her property transactions during the 2020 tax year. The first several questions will only use the information in the following chart. Property sales during 2020 (all stock ticker symbols given - assume 100 shares sold): Asset IBM MRK KO BUD PEP GM BA APPL Machine 4 Land 2 Sales Date 03-13-20 04-28-20 08-01-20 08-01-20 08-01-20 09-30-20 10-03-20 12-04-20 9-03-20 12-2-20 Acquisition Date 02-15-20 02-21-20 04-01-20 03-15-13 03-15-13 04-13-14 01-03-20 06-14-20 4-19-19 02-09-19 Sales Price * $42,000 (1) $32,000 (1) $7,400 (1) $2,300 (1) $6,200 (1) $1,800 (1) $4,400 (1) $12,200 (1) $450,000 (5) (7) Basis (2) (3) $3,400 (4) $4,700 (4) $5,100 (4) $2,300 (4) $10,600 (4) $10,100 (4) (6) (7) NOTE REGARDING PROPERTY SALES: (1) Assume no commission is charged on these sales. (2) Assume that Paula inherited these shares from her Father. At the time of his death, the following applied to the fathers ownership of these shares: -Fathers basis in shares = $10,000 -FMV of shares = $32,000 -Fathers acquisition date = 11-1-19 (3) Assume that Paula was given these shares by her grandmother. On the date of the gift, the following applied to the shares: -Grandmothers basis in shares = $50,000 -FMV of shares = $35,000 -Grandmothers acquisition date of shares = 3-13-19 Continued on next page 2 of 6

(4) Assume that the brokers commission, if any, is already included in the listed cost (5) Assume that commissions of $10,000 were paid, and advertising costs of $5,000 were also paid. (6) Assume that the original cost of this asset was $460,000. Assume that it was capitalized and depreciated using MACRS (Section 179 was not used for personalty in the year this asset was placed in service). Finally, assume that the mid-quarter convention was used for personalty in the year it was placed in service. (7) Assume that Land 2 was bought for a price of $200,000. In addition to the agreed upon price, a 10% realtors commission was paid. The land was to be used in Paulas business, but was instead sold for an agreed upon price of $300,000. Once again, a realtors commission of 10% was paid. Assume that both commissions were entirely paid by Paula (both buying and selling she is not a very good negotiator).

QUESTION 1

What if Paulas fathers basis had been $30,000? Now her result from the sale of the IBM stock would have been the same ($10,000 LTCG).