Question: Robert Lento, the sole proprietor of a

> Betty is a real estate dealer and has numerous properties for sale, many of which she owns. Her son is finishing his education and plans to go into the consulting business. Betty has committed at least $25,000 to help him out until the business becomes s

> Joy purchased a home in Maine on December 15, 1999 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2012 for $380,000. In 2012 and 2013 she continued to have her primary residence in Maine. On October 1, 2

> Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she plans to replace as part of the expansion. To finance this expansion she will have to sell some o

> Wilma had a number of stock transactions during the year that resulted in an $18,000 capital loss. She has one stock remaining in her portfolio and would realize a $16,000 capital gain if she sold it now. She believes this stock is going to continue to i

> Bing Corporation can buy a new car for business use for $40,000 (including tax, license, and title fees) or it can lease an identical car for $450 per month, paying $2,100 up front for tax, license, and title fees. The corporation normally keeps its cars

> Herald Corporation, a calendar-year taxpayer, purchased and placed the following business assets in service during 2017: Herald Corporation plans to purchase $460,000 of new office furniture. It could wait until January to make the purchase, or it could

> What is the potential advantage to having a substantial investment in stock in a qualified small business corporation rather than an equal investment in other corporate stock not meeting their provisions?

> Roman Corporation (a calendar-year corporation) purchased and placed in service the following assets in 2017: $60,000 of the cost of the warehouse property is for the land. a. Roman Corporation wants to maximize its depreciation deduction. Which asset(

> Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January of this year). The new equipment is 7-year class property, but Arco expects to use the equipment for 8 years. It could purchase the e

> Cornelia transfers property valued at $500 (basis = $350) to Wayside Corporation in exchange for 50 percent of its stock. Ferdinand transfers property valued at $450 (basis = $260) in exchange for 40 percent of Wayside’s stock and $50 cash. Cheryl transf

> Carol decides to transfer her rental apartment building to a wholly owned corporation to insulate herself from tenant liabilities. The apartment building is valued at $1,250,000 and has a basis of $1,350,000 due to $400,000 of recent improvements made to

> Arleta transfers property valued at $210,000 (basis = $190,000) to BCD Corporation in exchange for 70 percent of its stock. Georgia transfers property valued at $85,000 (basis = $75,000) and performs $5,000 in accounting services in exchange for the othe

> Wilbur transfers property valued at $100,000 (basis = $70,000) to the Debold Corporation in exchange for 100 percent of its stock. What is Wilbur’s realized gain or loss on the transfer and his recognized gain or loss? What is his basis in the stock rece

> Jim and Cindy form JC Corporation, with each receiving 50 percent of the shares issued. Jim transfers land valued at $50,000 with a $40,000 basis for his stock, and Cindy transfers property valued at $45,000 with a basis of $50,000 for her stock. In addi

> Conroy Corporation agrees to sell some of its excess machinery for $190,000 consisting of a $70,000 down payment in year of sale and additional payments of $60,000 in each of the next two years, plus interest. Conroy purchased this machinery several year

> On January 2, year 1, Randy sold a parcel of land held as an investment. Randy’s basis in the land was $8,500. The buyer made a $6,000 down payment on the date of sale and $7,000 payments on January 2 in both year 2 and year 3. In addition, the buyer pai

> Kelly was active in the market, buying and selling stocks for her own account. Below are a series of transactions Kelly initiated during the last quarter of 2017: The XYZ stock sold on 11/01 had been purchased two years earlier for $18 per share. What i

> What is the significance of having stock qualify as Section 1244 stock?

> If the generation-skipping transfer tax did not exist, what type of planning would maximize the preservation of a family’s wealth?

> William bought 1,000 shares of Bevo stock three years ago for $100 per share. This year he has a $20,000 short-term capital gain from the sale of his shares of an initial public offering of GBD Company stock. To offset the gain, William sells his shares

> Marilyn owned 500 shares of Ibis stock that she purchased several years ago for $25,000. This year, she sold 200 of the shares to her brother for $7,000, its fair market value, when she wanted money for some plastic surgery. Determine Marilyn’s realized

> Monroe Corporation’s chief financial officer sold 2,000 shares of TNC stock the corporation was holding as a temporary investment on July 3 at a $4,000 loss. On July 30, the controller of Monroe purchased 1,000 shares of TNC for the corporation at $8 per

> Moore bought 2,000 shares of VBT stock over the Internet on January 2 of year 4 for $50,000. On December 28 of year 3, his broker sold 3,000 shares of VBT for $85,000 that she had been holding in Moore’s account. This stock had been purchased in year 1 f

> Xenon Corporation can sell an auto used for business for $4,000 and purchase a new auto for $20,000. Alternatively, it can trade in the auto on a new one from a different dealer. Xenon will have to pay $17,000 after the $4,000 trade-in allowance for the

> Late in the current year, Bradley Corporation’s factory was destroyed by a tornado. Bradley determined that its unreimbursed loss on their building built ten years ago was $200,000. They also had a $75,000 gain on the sale of a ten-year-old machine (cost

> Performance Industries, Inc. sold three pieces of equipment and a small building on March 1, year 6. Data on these disposals are as follows: a. Determine the amount and character of the gain or loss on each of these assets. b. Determine the sum of eac

> Coronado Corporation owns business realty that was destroyed by fire on March 15, year 1. Its insurance company pays Coronado $325,000 for the property, which has an allocated basis of $275,000. a. What are Coronado’s realized and recognized gains, assu

> Clayton Corporation owns business realty that the county condemns on July 15, year 1. The county pays Clayton $400,000 for the property that has an allocated basis of $235,000. a. What are Clayton’s realized and recognized gains, assuming it does not re

> Danny’s living room furniture and his flat screen television were damaged in a fire in his home in January 2017. In March 2017, his golf cart was damaged in a flood. He was able to establish the following information to determine his lo

> How are net capital losses of individuals treated for tax purposes? How are net capital losses of corporations treated for tax purposes?

> Jewel’s home was completely destroyed by fire in 2017. The building had an appraised value of $185,000 before the fire. Four years ago Jewel paid $160,000 for the house and the land, with $25,000 of the price allocated to the land. a. What is Jewel’s lo

> A tornado destroyed part of the offices of Heywood Corporation. The building had a fair market value of $500,000 before and $200,000 after the tornado. The basis of the building is $320,000. a. What is Heywood’s casualty loss from the tornado? b. What

> Bently Corporation wants to dispose of a warehouse valued at $800,000 but with a basis of only $300,000. It has two replacement alternatives. Bently can purchase a replacement warehouse for $800,000 or it can make a direct exchange for another suitable w

> The Clover Corporation wants to exchange land held for expansion for a building that will provide additional office space to avoid gain recognition. The land has a value of $1,200,000 and a basis of $800,000. What alternative can you suggest to Clover to

> DDD Corporation agrees to exchange $50,000 and some raw land for a building owned by Jason Briggs. DDD Corporation’s land has a value of $600,000, a basis of $200,000 and is encumbered by a $200,000 mortgage that Briggs agrees to assume. Briggs’s buildin

> Lab Kennels, Inc. and Wolman Developers agree to exchange two parcels of land and each assume the other’s mortgage on the parcel acquired. Lab owns 500 acres within city limits that has a value of $750,000 and a basis of $300,000. It is encumbered by a $

> Delta Airlines trades two of its short-range jets to one of its regional commuter partners for a newer medium-range jet. Delta’s jets have a fair market value of $4,000,000 and a basis of $2,250,000. The newer jet has a fair market value of $3,750,000, s

> Whipple Corporation exchanges several pieces of office furniture for 10 file cabinets that the Go-Along Corporation no longer needs. Go-Along also gives Whipple a pair of season tickets for the local hockey team. The file cabinets have a value of $2,500

> The Taylor Corporation acquires a large boring machine in exchange for two of its smaller boring machines. The large machine has a fair market value of $108,000. The smaller machines are valued at $92,000, so Taylor pays an additional $16,000 on the exch

> Wilma trades a fully depreciated computer used in her business for a new computer with a selling price of $3,200. Wilma pays only $2,500 for the computer because she receives a $200 discount as a favored customer and a $500 allowance for trading in the o

> How are net losses treated in the Section 1231 netting process? How is a net Section 1231 gain taxed?

> Bill had the following gains and losses on asset sales: $500 gain on stock held 11 months; a $2,300 gain on land held two years; $1,900 loss on gold coins held two years; $1,200 gain on antique toys held three years; and a $1,300 loss on investment land

> Al Shalou, a single individual, had only $14,000 of salary income in 2017, but he had a number of taxable gains and losses on his property transactions during the year with the following results: a. $26,000 Section 1202 gain on ABC stock b. $5,000 shor

> Clarice became very ill in February of 2017 and was unable to work the rest of the year. She had only $12,000 of income from her sole proprietorship for the time she worked and was forced to sell the following investments to pay for her living expenses.

> George bought 6,000 shares of Section 1244 stock from Dorado Corporation six years ago for $160,000. The company has not done well so this year George sold all of his stock for $45,000. a. Determine the amount and type of George’s loss if he is single.

> Taylor bought 10,000 shares of qualifying Section 1202 stock from a start-up company A on May 1, 2013 for $1,000,000 and 5,000 shares of Section 1202 stock from start-up company B on June 1, 2014 for $200,000. In February 2017, she sold 1,000 shares of A

> Vanessa bought 2,000 shares of Barbco stock when the company was formed for $107,000. The company had $900,000 of total capital upon formation; thus, it qualified as Section 1244 stock. Vanessa sold the stock three years later for $3,000. If Vanessa is s

> Wilma does secretarial work out of her home. She purchased her own computer and used it 2,250 hours for her work during the year; her children, however, also use the computer for 250 hours to do their homework. She paid $4,000 for the computer and had cl

> Sam Johnson started a small machine shop, Machines, Inc., in his garage and incorporated it in March of 2014 as a calendar-year corporation. At that time, he began using his personal computer and tools solely for the business as part of his contribution

> A single taxpayer has $15,000 of ordinary taxable income in 2017 (after his exemption and standard deduction but before consideration of the following recognized gains), a $9,000 long-term capital gain on the sale of an antique painting, a $10,000 unreca

> What activities are deductible as research and experimentation expenditures? How are they usually treated for tax purposes?

> What are the maximum tax rates that apply to a single individual’s $20,000 long-term capital gain on corporate stocks if total taxable income is a. $35,000? b. $230,000? c. $430,000? d. How would your answers change for (a), (b), and (c), if the $20,

> Geraldine’s ordinary income places her in the 28 percent income tax bracket after a number of transactions involving taxable gains and losses on several types of capital assets held more than one year, including several collectibles: a $10,200 gain on a

> Striker Corporation bought a mine in year 1 for $100,000 and estimated that there were 100,000 tons of extractable ore. In year 1, it mined 10,000 tons and sold 8,000 tons. In year 2, it mined 9,000 and sold the remaining 2,000 tons from year 1 and 6,000

> Goldrush Corporation bought a mine in year 1 for $90,000 and estimated there were 100,000 tons of extractable ore. In year 1, it mined 8,000 tons and sold 7,000 tons. In year 2, it mined 7,000 and sold the remaining 1,000 tons from year 1 and 6,500 of th

> Barbara sold three assets during 2017. How much and what kind of gain or loss does she recognize from each sale? What tax rate applies to the net gain if Barbara’s ordinary income is taxed at 25 percent? a. On February 25 she sold 200 shares of XYZ stoc

> Carlotta moved into a smaller home ten months ago, after her husband died. She sold the home that they had lived in together for fifteen years and elected Section 121 so she would not have to recognize the $150,000 of gain on that home. She then purchase

> Jonas, an individual, acquired a building nine years ago for $650,000. He sold it in the current year for $680,000 when its adjusted basis was $500,000. Determine the amount and type of gain or loss recognized on the sale a. if the building is a factory

> On June 26, 2015, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2015 and 2016 and Elaine claimed only regular MACRS depreciation

> Karen is an employee of KF Corporation (a calendar-year taxpayer). In February 2017, KF purchased a new $40,000 car for Karen’s use. During 2017, 2018, and 2019, 60 percent of Karen’s mileage on the car was business related and 40 percent was for her per

> McDowell Corporation (a calendar-year corporation) purchased and placed in service in 2017 a $25,000 new automobile on August 15, $300,000 of new furniture on September 1, and a $680,000 warehouse (of which $100,000 was for the land) on November 8. Compu

> RCL Corporation is negotiating with Royal Corporation to acquire a patent that has nine years remaining on its legal life. RCL can either purchase the patent for $50,000 or purchase all of the assets for Royal Corporation for $500,000, including the pate

> Eight years ago, Daniel bought some qualified small business stock for $2,000,000. In the current year, he sells that stock for $13,000,000. How much and what kind of gain or loss does he have? How would your answer change if Daniel sold the stock for $2

> In August, 2017 Jimbo Corporation (a calendar-year corporation) purchased used computer equipment for $665,000, the only assets Jimbo purchased this year. Jimbo Corporation is in the 34 percent marginal tax bracket and uses a discount rate of 6 percent f

> Juno Corporation had ordinary taxable income of $127,000 in the current year before consideration of any of the following property transactions. It sold two blocks of stock held for investment. One yielded a short-term capital gain of $8,000 and the othe

> An individual taxpayer has the following gains and losses from property transactions. What is the effect on the taxpayer’s taxable income? $ 4,000……………………Long-term capital gain 7,000…………………Long-term capital loss 10,000…………………………..Section 1231 gain 6,000…

> The Angel Corporation purchased an office building for $600,000 12 years ago. The corporation claimed $80,000 of cost recovery deductions before it sold the building for $700,000. a. Determine the amount and type of gain or loss that Angel Corporation r

> Barbara had the following Section 1231 gains and losses in the previous four years. a. How will Barbara treat a $25,000 gain in year 5? b. Is there any unrecaptured Section 1231 loss remaining? Year Section 1231 gain (loss)

> In July 2017, Lenux Corporation (a calendar-year taxpayer) purchased $2,140,000 of new office furniture. Lenux claimed the maximum allowable Section 179 expensing and regular MACRS depreciation (but no bonus depreciation). Calculate Lenux’s total depreci

> The Grid Corporation owns a bank of boring machines. They regularly replace two machines each year. In the current year, the company sold Machine 8 for $12,000. It was purchased six years earlier for $40,000, and its adjusted basis was $14,000. Machine 6

> Craig Corporation (a calendar-year corporation) purchased $3,000,000 of used office furniture in April. It would like to know what is its reduction in depreciation expense for the first three years if it elects to use ADS to compute its depreciation inst

> DDF Corporation sold land it had used for parking and storage for 20 years for $575,000. Its basis in the land was $68,000. It also sold some manufacturing equipment for $125,000 that it replaced with more modern equipment. The equipment sold had a basis

> Why do taxpayers have to recapture depreciation on depreciable assets sold at a gain? To which assets do the Section 1245 and 1250 recapture provisions apply?

> Bernadette sold her home. She received cash of $40,000, the buyer assumed her mortgage of $180,000, and she paid closing costs of $2,300 and a broker’s commission of $7,000. a. What is the amount realized on the sale? b. If she has a basis in the home

> Kensington Corporation, Inc. (an October 31 fiscal year-end corporation) plans to purchase $2,700,000 of used office fixtures (7-year property), its only personalty acquired during the year. Kensington’s management is willing to purchase and place the pr

> Azona Corporation (a calendar-year taxpayer) purchased only one business asset during the year, 7-year used property that cost $2,600,000. Compute Azona’s depreciation for current year assuming that a. the asset was purchased and placed in service on Se

> On April 1, Radcliff Corporation, a calendar year taxpayer, purchased land, a warehouse, and used equipment (7-year property) for a total price of $500,000. An appraiser determined that the land has a value of $220,000, the warehouse a value of $264,000,

> Shawn exchanges a factory building for an apartment building in a qualifying like-kind exchange. The factory has a basis of $350,000 and the apartment building has a fair market value of $320,000. a. What is Shawn’s realized gain or loss and the basis o

> Blanco Corporation (a calendar-year taxpayer) purchased $2,200,000 of used manufacturing equipment in July, $400,000 of used computer equipment in August, and an office building for $850,000 (of which $170,000 was for the land) in November. Compute Blanc

> Gisela gave Ellen stock worth $50,000 this year. Gisela purchased the stock for $60,000 four years ago. Calculate Ellen’s basis for the stock if she sells it a. for $65,000. b. for $45,000. c. for $55,000.

> Wilma had a loss of $25,000 on some bearer bonds that were stolen and never recovered. She suffered a $20,000 loss when a piece of land she had held as an investment was condemned to make way for a new city park. She also had a Section 1231 gain of $60,0

> Sondra and Jason, a wealthy married couple, won $96 million in a 2017 Powerball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid $1,800,000 on a new home for Sondra’s parents, titling the

> Steven had a taxable estate of $8,850,000 when he died in 2017. If he had no prior taxable gifts, what is his net estate tax liability?

> What are IDCs and how are they treated for tax purposes?

> Cherry’s widowed mother, Nancy, had to quit working for health reasons and now her only income is $1,100 per month from Social Security. Cherry recently became partner of a law firm and has moved into the 33% marginal tax bracket. Cherry’s mother steadfa

> Jessica owns investment land currently worth $5,000,000. She paid $3,000,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $8,000,000 before she dies. She has not previously given any taxable gifts. a.

> Cindy, an 18-year-old full-time student, has $3,400 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-time job. She lives at home with her parents, who claim her as a dependent, and has no itemized d

> Lenny, age 12, has $3,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for the year. Lenny’s parents are in the 33 percent marginal tax bracket. a. What is Lenny’s taxable income and how much income tax do

> On January 15 of the current year, Eileen, age 24, receives stock worth $28,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $12,000. During the year, Eileen receives $2,100 dividend income on the stock. In Decemb

> In the current year, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives land valued at $120,000 to Jerry. a. What are Marah and Bryan’s taxable gifts if they do not

> Which of the following are completed gifts? Determine the value of each gift before any exclusions? a. In March, Stephanie deposits $30,000 cash into a joint checking account for herself and her boyfriend, Michael, who deposits nothing into the account.

> Determine the taxable gift for each of the following. a. In February, Cynthia transferred $200,000 into a revocable trust. In October, the trustee distributes $18,000 of income to the beneficiary, Eileen. b. Carrie prepared the tax returns at no charge

> Which of the following are completed gifts? How much is the value of each gift before any exclusions? a. Hughlene sold stock worth $90,000 to her son for $30,000. b. Ken deposits $15,000 into a savings account in his name and his daughter’s name as joi

> On March 15, 2015, James Smith formed a business to rent and service vending machines providing healthy snack alternatives and juices to the local middle and high schools. He operates the business as a sole proprietorship from his home, turning the den i

> Explain the difference between cost depletion and percentage depletion.

> Alfred has investments in three passive activities: In year 1, PA-1 had a gain of $3,000, PA-2 had a loss of $10,000, and PA-3 had a loss of $5,000. In year 2, PA-1 has a gain of $12,000, PA-2 has a $1,000 loss, and PA-3 has a loss of $2,000. How should

> PA Corporation, an S corporation, has two equal shareholders, P and A. Prior to the end of the current year, PA decides to liquidate and sell its three remaining assets distributing the cash received to P and A. Asset 1 has a basis of $10,000 and is sold

> The Jane Corporation, an S corporation, makes several property distributions to its two equal shareholders, A and B, during the year. A received $5,000 cash plus land with a basis of $8,000 and fair market value of $10,000. B received $5,000 cash plus eq

> At the beginning of year 1, Lisa and Marie were equal shareholders in LM Corporation, an S corporation. On April 30, year 1, Lisa sold half of her interest to Shelley. On August 8, year 1, Marie sold her entire interest to George. On December 31, year 1,

> Is there any tax advantage to a 100 percent shareholder-employee of an S corporation compared to a shareholder-employee of a C corporation under the following circumstances: shareholder-employee salary is $75,000; the corporate income before the $75,000