Required information Comprehensive Problem 11-73 (LO 11-1, LO 11-2, LO 11-3, LO 11-4, LO 11-5, LO 11-6) [The following information applies to the questions displayed below.] WAR (We Are Rich) has been in business since 1987. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAs has filed accurate tax returns for WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with the owner of WARMr. Someday Woods (single). However, in early 2020, Jack Hack and Someday Woods played a round of golf, and Jack, for the first time ever, actually beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired you to compute his 2020 taxable income. Mr. Woods was able to provide you with the following information from prior tax returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the items separately stated. You will need to consider how to handle the separately stated items for tax purposes. Also, note that the 2015-2019 numbers do not reflect capital loss carryovers. 2015 4,000 $ 2016 2017 $ 2,000 $94,000 2018 2019 $ 170,000 $250,000 Ordinary taxable income Other items not included in ordinary taxable income: Net gain (loss) on disposition of $1231 assets Net long-term capital gain (loss) on disposition of capital assets $ 3,000 10,000 $ (6,000) $(15,000) $1,000 $(7,000) $ (7,000) In 2020, Mr. Woods had taxable income in the amount of $480,000 before considering the following events and transactions that transpired in 2020: a. On January 1, 2020, WAR purchased a plot of land for $100,000 with the intention of creating a driving range where patrons could test their new golf equipment. WAR never got around to building the driving range; instead, WAR sold the land on October 1, 2020, for $40,000. b. On August 17, 2020, WAR sold its golf testing machine, Iron Byron, and replaced it with a new machine, Iron Tiger. "Iron Byron was purchased and installed for a total cost of $22,000 on February 5, 2016. At the time of sale, Iron Byron" had an adjusted tax basis of $4,000. WAR sold "Iron Byron" for $25,000. c. In the months October through December 2020, WAR sold various assets to come up with the funds necessary to invest in WAR's latest and greatest inventionthe three-dimple golf ball. Data on these assets are provided below: Placed in Service (or purchased) Initial Basis Accumulated Selling Depreciation Price Sold Asset Someday's black leather sofa (used in office) Someday's office chair Marketable securities Land held for investment Other investment property 4/4/19 3/1/18 2/1/17 7/1/19 11/30/18 10/16/20 11/8/20 12/1/20 11/29/20 10/15/20 $ 3,000 8,000 12,000 45,000 10,000 $ 540 3,000 0 0 0 $ 2,900 4,000 20,000 48,000 8,000 d. Finally, on May 7, 2020, WAR decided to sell the building where it tested its plutonium shaft, lignite head drivers. WAR purchased the building on January 5, 2008, for $190,000 ($170,000 for the building, $20,000 for the land). At the time of the sale, the accumulated depreciation on the building was $50,000. WAR sold the building (with the land) for $300,000. The fair market value of the land at the time of sale was $45,000. (Do not round intermediate computations. Round your final answers to the nearest whole dollar amount. Loss amounts should be indicated by a minus sign.) Comprehensive Problem 11-73 Part 1 Compute Mr. Woods's taxable income after taking into account the transactions described above. Description Gain/(Loss) Depreciation Recapture $1231 Ordinary income!(Loss) Short Term Long Term Total LT 28% LT 25% LT 0/15/20% b Land Iron Byron Sofa c1 c2 Chair c3 c4 c5 Marketable securities Land - for investment Investment property Building Land d1 d2 0 0 0 0 0 0 0 0 0 $1231 netting Step1 - depreciation recapture - ordinary income Step 2 - $1231 G/L netting gains/losses exclusive of $1250 - Unrecap $1250 Step 3 - lookback rule - apply to unrecap $1250 first Ordinary income Remaining unrecap $1250 Remaining gain - 0/15/20 0 0 0 0 0 0 0 0 Capital gain netting: Long term capital loss carryover Reclassified 0 0 0 0 $ 480,000 Taxable Income: Before transactions Ordinary income/loss LTCG @ 25% LTCG @ 0/15/20% Taxable income $ 480,000 Comprehensive Problem 11-73 Part 2 Compute Mr. Woods's tax liability for the year. (Ignore any net investment income tax for the year and assume the 20 percent qualified business income deduction is included in taxable income before these transactions.) Use Tax rate schedules Tax Liability: Tax on ordinary income Tax on 25% Gain Tax on 0/15/20% Gain (taxed at 20%) Total tax liability