Question

9) Year of filing is 2017

1. Cindy, a real estate broker, had the following income and expenses in her business:

Commissions income $180,000

And she also incurred the following expenses during the tax year:

Referral fees paid to non-brokers for referrals (illegal under state law and subject to criminal penalties) 40,000

Property tax on the office 5,500

Office supplies 3,000

Alimony paid to her ex-husband 7,200

Mortgage interest paid on her residence 6,500

Office rental expenses 20,000

Office staff salaries 40,000

Medical insurance premium paid for herself and her dependents 5,000

Fees paid to Broker Association 7,000

Political contribution to support her party 3,000

Parking tickets 500

Medical expenses 2,000

How much net income will be reported from this business (on Schedule C)?

How much is the total itemized deduction after AGI limitation?

What much deduction for AGI will be reported on the first page of Form 1040?  

What is her AGI?

2. In 2017, Jordan has some damages on his business property and her personal property when tornado hit his area. Her truck was used 100 percent for business use in her sole proprietorship. The car had originally cost $35,000 and she had taken $5,000 depreciation. At the time of the disaster, it was worth $25,000. After the accident, it was $0. She received insurance company’s payment of $20,000. How much is her deducible casualty loss?

What is her deductible casualty loss if the property’s residual value was $5,000?

3. Answer questions on the following like-kind exchanges

Adjusted basis of old asset Boot given

FMV of new asset Boot received Realized

Gain/(loss) Postponed

Gain/loss New basis of received property

a. 17000 0 14000 0

b. 15000 0 29000 0

c. 4000 6000 8000 500

d. 16000 0 28000 0

e. 7000 0 12000 4000

4. John is in the 35% tax rate bracket and has sold the following stocks in 2017:

Date purchased Basis Date Sold Amount Realized

Stock A 1/23/2012 5,250 7/22/2016 3,500

Stock B 4/10/2016 14,000 9/13/2016 16,500

Stock C 8/23/2013 10,750 10/12/2016 15,300

Stock D 5/19/2013 4,230 10/12/2016 10,400

Stock E 8/20/2016 8,300 11/14/2016 3,500

Please answer the following questions based on the above information:

a) What is George’s net short-term capital gain or loss from these transactions?

b) What is George’s net long-term capital gain or loss from these transactions?

c) What is George’s overall net capital gain or loss from these transactions?

d) What amount of the gain, if any, is subject to the preferential rate for certain capital gain?

5. Mary owns an apartment building that has an adjusted basis of $1,080,000 but subject to a mortgage of $320,000. Mary transfers the apartment building to Gary, and receives from Gary $230,000 in cash and an office building with a fair market value of $880,000 at the time of the exchange. Gary assumes the $320,000 mortgage on the apartment. The transfer is a like-kind exchange.

a) what is Mary’s realized gain/ loss?

b) what is Mary’ recognized gain/loss?

c) what is Mary’s basis of the newly acquired office building?

6. Cindy sold her GE stock to her brother Jeff for $1,200. She bought the stocks for $1,500.

a. How much is Cindy’s deductible loss?

b. later, Jeff sold the stock to the third unrelated party for $1,500. What is Jeff’s gain or loss?

c. If Jeff sold the stock to the third unrelated party for $1,000, what is Jeff’s gain or loss?

7. Rhianna and Jay are married filing jointly. They have six children for whom they may claim the child tax credit. Their AGI was $123,440. What amount of child tax credit may they claim on their tax return?

8. During the year, Trudy paid $4,000 to care for her 4-year-old son. What is the amount of Trudy’s child and dependent care credit if her AGI for the year was $30,000?

9. Carolyn has an AGI of $38,000 (all from earned income), two qualifying children, and is filing as a head of household. What amount of earned income credit is she entitled to?

Answer 1

(1)

How much net income will be reported from this business (on Schedule C)?

Commission income - property tax-office supplies-office rental expenses-office salary expenses-brokerage fee

180,000 - 5500 - 3000 - 20000 - 40000 - 7000 = $104,500

  

(4)

				Amount Realised	Gain/Loss
StockA	1/23/2012	5250	7/22/2016	3500	(1750)LT
Stock B	4/10/2016	14000	9/13/2016	16500	2500 ST
StockC	8/23/2013	10750	10/12/2016	15300	4550 LT
stock D	5/19/2013	4230	10/12/2016	10400	6170 LT
stock E	8/20/2016	8300	11/14/2016	3500	(4800) ST

(a) What is George’s net short-term capital gain or loss from these transactions?

George's net short term capital loss is $2300, which is the net of the short term gain and losses for the year.

This $2300 loss is the short term capital gain of $2500 from stock B (16500-14000) less the short term capital loss of $4800 from stock E (3500-8300).

(b) What is George’s net long-term capital gain or loss from these transactions?

George’s net long-term capital gain is $8970, which is the net long term gain less long term losses for the year.

Long term capital gain Stock C 4500 (10750-15300)

Stock D 6170 (4230-10400)

10720

Long term capital loss Stock A 1750 (5250-3500)

$8970 LT

(c) What is George’s overall net capital gain or loss from these transactions?

George’s net capital gain is $6670, which is the net short term capital loss offset against net long term capital gain for the year.

Net long term capital gain $8970

Less: net short term capital loss $2300

George’s net capital gain $6670

(d) What amount of the gain, if any, is subject to the preferential rate for certain capital gain?

  George’s capital gain of $6670 will be taxed at prefential rate.

(5)

(a) what is Mary’s realized gain/ loss?

Realized gain = Amount realized - Adjusted basis

= (230,000+880,000+320,000) - 1080,000

= $350,000

(7)

What amount of child tax credit may they claim on their tax return?

$5300