Required information [The following information applies to the questions displayed below.] WAR (We Are Rich) has been in business since 1989. 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 WAR-Mr. Someday Woods (single). However, in early 2022, Jack Hack and Someday Woods played a round of golf, and Jack, for the first time ever, beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired you to compute his 2022 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 2017- 2021 numbers do not reflect capital loss carryovers. 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 2017 $ 4,220 2018 $ 2,110 2019 2020 $ 96,585 $ 174,675 2021 $ 256,875 $ 3,330 10,550 $ (6,660) $ $ (15,825) $ 1,110 (14,200) $ (8,100) In 2022, Mr. Woods had taxable income in the amount of $502,000 before considering the following events and transactions that transpired in 2022: a. On January 1, 2022, WAR purchased a plot of land for $105,500 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, 2022, for $42,200. b. On August 17, 2022, 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 $24,200 on February 5, 2018. At the time of sale, "Iron Byron" had an adjusted tax basis of $6,200. WAR sold "Iron Byron" for $30,500. c. In the months October through December 2022, 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: Asset Someday's black Placed in Service (or purchased) Sold Initial Basis Accumulated Depreciation Selling Price leather sofa (used in office) 4/4/21 Someday's office 3/1/20 10/16/22 11/8/22 $ 3,440 $ 650 $ 3,230 8,880 3,220 4,550 chair Marketable securities 2/1/19 12/1/22 13,320 0 21,100 Land held for 7/1/21 11/29/22 50,500 0 52,950 investment Other investment property 11/30/20 10/15/22 15,500 12,400 d. Finally, on May 7, 2022, WAR decided to sell the building where it tested its plutonium shaft, lignite head drivers. WAR purchased the building on January 5, 2010, for $217,500 ($192,000 for the building, $25,500 for the land). At the time of the sale, the accumulated depreciation on the building was $55,500. WAR sold the building (with the land) for $333,000. The fair market value of the land at the time of sale was $50,500. Note: Do not round intermediate computations. Round your final answers to the nearest whole dollar amount. Loss amounts should be indicated by a minus sign. Compute Mr. Woods's taxable income after taking into account the transactions described above. Description Gain or (Loss) Depreciation Recapture 1231 Ordinary income or Short Term Long Term Total Long term 28% Long term 25% Long term 0/15/20% (Loss) a. Land (63,300) (63,300) b. Iron Byron 25,300 18,000 c1. Sofa 110 110 c2. Chair (1,110) (1,110) c3. Marketable securities 7,780 c4. Land - for investment 2,450 c5. Investment property (3,100) d1. Building 146,000 55,500 90,500 d2. Land 25,000 25,000 139,130 55,500 115,500 (46,300) 0 0 0 0 1231 netting Step1 depreciation recapture - ordinary income Step 2 - 1231 Gain or Loss netting - gains or losses exclusive of $1250 - Unrecapture $1250 Step 3 - lookback rule - apply to unrecapture $1250 first Ordinary income Remaining unrecapture $1250 Remaining gain - 0/15/20 Capital gain netting: Long term capital loss carryover Reclassified 120,690 55,500 18,000 110 73,500 115,500 (46,190) 0 0 0 0 0 0 0 0 Taxable Income: Before transactions Ordinary income/loss LTCG @ 25% LTCG @ 0/15/20% Taxable income $ 0 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, dividends and capital gains tax rates for reference. Tax Liability: Tax on ordinary income Tax on 25% Gain Tax on 0/15/20% Gain (taxed at 20%) Total tax liability $ 0