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.

2017 2018 2019 2020 2021

Ordinary taxable income $ 4,420 $ 2,210 $ 98,935 $ 178,925 $ 263,125

Other items not included in ordinary taxable income:

Net gain (loss) on disposition of §1231 assets $ 3,630 11,050 $ (7,260)

Net long-term capital gain (loss) on disposition of capital assets $ (16,575) $ 1,210 $ (21,200) $ (9,100)

In 2022, Mr. Woods had taxable income in the amount of $522,000 before considering the following events and transactions that transpired in 2022:

On January 1, 2022, WAR purchased a plot of land for $110,500 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 $44,200.

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 $26,200 on February 5, 2018. At the time of sale, "Iron Byron" had an adjusted tax basis of $8,200. WAR sold "Iron Byron" for $35,500.

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 invention—the three-dimple golf ball. Data on these assets are provided below:

Asset Placed in Service (or purchased) Sold Initial Basis Accumulated Depreciation Selling Price

Someday's black leather sofa (used in office) 4/4/21 10/16/22 $ 3,840 $ 750 $ 3,530

Someday's office chair 3/1/20 11/8/22 9,680 3,420 5,050

Marketable securities 2/1/19 12/1/22 14,520 0 22,100

Land held for investment 7/1/21 11/29/22 55,500 0 57,450

Other investment property 11/30/20 10/15/22 20,500 0 16,400

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 $242,500 ($212,000 for the building, $30,500 for the land). At the time of the sale, the accumulated depreciation on the building was $60,500. WAR sold the building (with the land) for $363,000. The fair market value of the land at the time of sale was $55,500.
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.

Transcribed Image Text:10 Part 1 of 3 Required information $363,000. The fair market value of the land at the time of sale was $55,500. 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. 5 points Compute Mr. Woods's taxable income after taking into account the transactions described above. Description eBook a. Land b. Iron Byron Print Gain or (Loss) Depreciation Recapture §1231 Ordinary income or (Loss) Short Term Long Term Long term Long term Total 28% 25% Long term 0/15/20% References c1. Sofa c2. Chair c3. Marketable securities c4. Land - for investment c5. Investment property d1. Building d2. Land §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 Taxable Income: Before transactions Ordinary income/loss LTCG @ 25% LTCG @ 0/15/20% Taxable income $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Transcribed Image Text:5 10 ! Part 1 of 3 points eBook Print 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. 2017 2018 2019 2020 2021 $ 4,420 $ 2,210 $ 98,935 $ 178,925 $ 263,125 References Ordinary taxable income Other items not included in ordinary taxable income: Net gain (loss) on disposition of $1231 assets $ 3,630 11,050 Net long-term capital gain (loss) on disposition of capital assets (16,575) $ 1,210 $ (7,260) (21,200) $ (9,100) In 2022, Mr. Woods had taxable income in the amount of $522,000 before considering the following events and transactions that transpired in 2022: a. On January 1, 2022, WAR purchased a plot of land for $110,500 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 $44,200. 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 $26,200 on February 5, 2018. At the time of sale, "Iron Byron" had an adjusted tax basis of $8,200. WAR sold "Iron Byron" for $35,500. 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 invention—the three-dimple golf ball. Data on these assets are provided below: Asset Placed in Service (or purchased) Sold Initial Accumulated Basis Depreciation Selling Price Someday's black leather sofa (used in office) 4/4/21 Someday's office chair 3/1/20 Marketable securities 2/1/19 10/16/22 11/8/22 12/1/22 $ 3,840 9,680 $ 750 $ 3,530 3,420 5,050 14,520 0 22,100 Land held for 7/1/21 11/29/22 55,500 0 investment 57,450 Other investment property 11/30/20 10/15/22 20,500 0 16,400 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 $242,500 ($212,000 for the building, $30,500 for the land). At the time of the sale, the accumulated depreciation on the building was $60,500. WAR sold the building (with the land) for $363,000. The fair market value of the land at the time of sale was $55,500. 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.

Question

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.

	2017	2018	2019	2020	2021
Ordinary taxable income	$ 4,420	$ 2,210	$ 98,935	$ 178,925	$ 263,125
Other items not included in ordinary taxable income:
Net gain (loss) on disposition of §1231 assets	$ 3,630	11,050		$ (7,260)
Net long-term capital gain (loss) on disposition of capital assets	$ (16,575)	$ 1,210	$ (21,200)		$ (9,100)

In 2022, Mr. Woods had taxable income in the amount of $522,000 before considering the following events and transactions that transpired in 2022:

On January 1, 2022, WAR purchased a plot of land for $110,500 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 $44,200.
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 $26,200 on February 5, 2018. At the time of sale, "Iron Byron" had an adjusted tax basis of $8,200. WAR sold "Iron Byron" for $35,500.

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 invention—the three-dimple golf ball. Data on these assets are provided below:

Asset	Placed in Service (or purchased)	Sold	Initial Basis	Accumulated Depreciation	Selling Price
Someday's black leather sofa (used in office)	4/4/21	10/16/22	$ 3,840	$ 750	$ 3,530
Someday's office chair	3/1/20	11/8/22	9,680	3,420	5,050
Marketable securities	2/1/19	12/1/22	14,520	0	22,100
Land held for investment	7/1/21	11/29/22	55,500	0	57,450
Other investment property	11/30/20	10/15/22	20,500	0	16,400

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 $242,500 ($212,000 for the building, $30,500 for the land). At the time of the sale, the accumulated depreciation on the building was $60,500. WAR sold the building (with the land) for $363,000. The fair market value of the land at the time of sale was $55,500.
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.

10
Part 1 of 3
Required information
$363,000. The fair market value of the land at the time of sale was $55,500.
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.
5
points
Compute Mr. Woods's taxable income after taking into account the transactions described above.
Description
eBook
a. Land
b. Iron Byron
Print
Gain or
(Loss)
Depreciation
Recapture
§1231
Ordinary
income or
(Loss)
Short
Term
Long Term Long term Long term
Total
28%
25%
Long term
0/15/20%
References
c1. Sofa
c2. Chair
c3. Marketable securities
c4. Land - for investment
c5. Investment property
d1. Building
d2. Land
§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
Taxable Income:
Before transactions
Ordinary income/loss
LTCG @ 25%
LTCG @ 0/15/20%
Taxable income
$
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

5
10
!
Part 1 of 3
points
eBook
Print
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.
2017
2018
2019
2020
2021
$ 4,420
$ 2,210
$ 98,935
$ 178,925
$ 263,125
References
Ordinary taxable income
Other items not included in
ordinary taxable income:
Net gain (loss) on disposition
of $1231 assets
$ 3,630
11,050
Net long-term capital gain
(loss) on disposition of
capital assets
(16,575)
$ 1,210
$ (7,260)
(21,200)
$ (9,100)
In 2022, Mr. Woods had taxable income in the amount of $522,000 before considering the following events and
transactions that transpired in 2022:
a. On January 1, 2022, WAR purchased a plot of land for $110,500 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 $44,200.
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 $26,200 on February 5, 2018. At the time of sale, "Iron
Byron" had an adjusted tax basis of $8,200. WAR sold "Iron Byron" for $35,500.
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 invention—the three-dimple golf ball. Data on these assets are provided below:
Asset
Placed in
Service (or
purchased)
Sold
Initial Accumulated
Basis Depreciation
Selling
Price
Someday's black
leather sofa (used
in office)
4/4/21
Someday's office
chair
3/1/20
Marketable securities
2/1/19
10/16/22
11/8/22
12/1/22
$ 3,840
9,680
$ 750
$ 3,530
3,420
5,050
14,520
0
22,100
Land held for
7/1/21
11/29/22
55,500
0
investment
57,450
Other investment
property
11/30/20
10/15/22
20,500
0
16,400
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 $242,500 ($212,000 for the building, $30,500 for the land). At the time
of the sale, the accumulated depreciation on the building was $60,500. WAR sold the building (with the land) for
$363,000. The fair market value of the land at the time of sale was $55,500.
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.

Accepted Answer

To compute Mr. Woods's taxable income after taking into account the transactions described above, we…