WAR (We Are Rich) has been in business since 1985. WAR is an accrual method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAs have 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-Mt. Someday Woods (single). However, in early 2018, 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 2018 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. Wood'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 2013-2017 numbers do not reflect capital loss carryovers. 2014 $2,000 2015 $94,000 2016 $170,000 2017 $250,000 Ordinary taxable income Other items not included in ordinary taxable income: Bet gain (loss) on disposition of $1231 assets Het long-term capital gain (Loss) on disposition of capital assets 2013 $ 4,000 $ 3,000 $(15,000) $ 16,000) 10,000 $1,000 $(7,000) S (7,000) In 2018, Mr. Woods had taxable income in the amount of $480,000 before considering the following events and transactions that transpired in 2018: a. On January 1, 2018, 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, 2018, for $40,000. b. On August 17, 2018, 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, 2014. At the time of sale. "Iron Byron had an adjusted tax basis of $4,000. WAR sold "Iron Byron" for $25,000 In the months October through December 2018, WAR sold various assets to come up with the funds necessary to Invest in WAR's latest and greatest invention the three dimple golf ball Data on these assets are provided below: Placed in Service (or purchased) Initial Accumulated selling Basis Depreciation Price Sold Asset Someday's black leather sofa used in office) Someday's office chair Marketable securities Land hold for investment Other investment property 4/4/17 3/1/16 2/1/15 7/1/17 11/30/16 10/16/18 11/8/18 12/1/19 11/29/18 10/15/18 $ 3,000 $ 8,000 $12.000 $45.000 $ 20,000 $ 540 $3,000 $ 0 $ 0 $ 0 $ 2,900 $4,000 $20,000 $48.000 $ 8,000 d. Finally, on May 7, 2018, WAR decided to sell the building where they tested their plutonium shaft, lignite head drivers. WAR purchased the building on January 5, 2005, 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.) Compute Mr. Woods's taxable income after taking into account the transactions described above. Gain Los Depreciation Recapture $1231 Ordinary Income Loss) (50,000) Short Term Long Term Total Description Land Iron Byron - 150.000) 21,000 440440 Required information (1,000) 03 4 Chalt Marketable securities Land - for investment Investment property Building Land (1,000)| 8.000 3,000 2,000) 135,000 25.000 129 440 8,000 3,000 (2.000) 3,000 2,000) / at 02 135,000 25,000 440 159.000 (50,000) o 9.000 0 0 9,000 51231 netting Step1 - depreciation recapture - ordinary income Step 2 - 51231 G/L netting -gainstones exclusive of 51250 - Unrecap $1250 Step 3 - lookback rule - apply to unrecap 51250first Ordinary income Remaining unrecap 51250 Remaining gain - 6/15/20 440 159.000 60,000) 0 9.0000 09.00 Required information Capital gain netting Step 1 Step 2 Step 3 Step 4 Subtotal Step 5 Step 6 Step 7 Step B Total osos Taxable income: $ 480,000 Taxable Income: Before transactions Ordinary income LTCG @ 25% LTCG @ 0/15/20% Taxable income $ 480,000 Placed in Service (or purchased) Initial Accumulated selling Basis Depreciation Price Sold Asset Someday's black leather sofa used in office) Someday's office chair Marketable securities Land hold for investment Other investment property 4/4/17 3/1/16 2/1/15 7/1/17 11/30/16 10/16/18 11/8/18 12/1/19 11/29/18 10/15/18 $ 3,000 $ 8,000 $12.000 $45.000 $ 20,000 $ 540 $3,000 $ 0 $ 0 $ 0 $ 2,900 $4,000 $20,000 $48.000 $ 8,000 d. Finally, on May 7, 2018, WAR decided to sell the building where they tested their plutonium shaft, lignite head drivers. WAR purchased the building on January 5, 2005, 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.) Compute Mr. Woods's taxable income after taking into account the transactions described above. Gain Los Depreciation Recapture $1231 Ordinary Income Loss) (50,000) Short Term Long Term Total Description Land Iron Byron - 150.000) 21,000 440440 Required information (1,000) 03 4 Chalt Marketable securities Land - for investment Investment property Building Land (1,000)| 8.000 3,000 2,000) 135,000 25.000 129 440 8,000 3,000 (2.000) 3,000 2,000) / at 02 135,000 25,000 440 159.000 (50,000) o 9.000 0 0 9,000 51231 netting Step1 - depreciation recapture - ordinary income Step 2 - 51231 G/L netting -gainstones exclusive of 51250 - Unrecap $1250 Step 3 - lookback rule - apply to unrecap 51250first Ordinary income Remaining unrecap 51250 Remaining gain - 6/15/20 440 159.000 60,000) 0 9.0000 09.00 Required information Capital gain netting Step 1 Step 2 Step 3 Step 4 Subtotal Step 5 Step 6 Step 7 Step B Total osos Taxable income: $ 480,000 Taxable Income: Before transactions Ordinary income LTCG @ 25% LTCG @ 0/15/20% Taxable income $ 480,000