The chapters in this document are displayed in reversed order, with the last chapter
appearing first. This change ensures all chapters are included in the Solutions
Complete Chapters Included
Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
Solution and Answer Guide
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
9 9 9
PROBLEMS
YOUNG, NELLEN, PERSELLIN, LASSAR, CUCCIA, CRIPE, SWFT INDIVIDUAL INCOME TAXES 2026,
T7ABLE OF CONTENTS
8214043 06; APPENDIX F: PRACTICE SET ASSIGNMENTS —COMPREHENSIVE TAX RETURN
Problem 1 Solutions ............................................................................................................... 1
Problem 2 Solutions ............................................................................................................. 7
PROBLEM 1 SOLUTIONS
1. Michael is self-employed and reports his business income on Schedule C. Both his
consulting fees and his expense reimbursements are reported on Line 1.
Line 1: Gross receipts [$92,800 consulting fees + $17,820 expense
reimbursements + $7,000 Stewart Mining fee (see item 2)] $117,620
The travel expenses of $16,070 are deducted as follows:
Line 24a: Travel (airfare $8,200 + lodging $5,200 + transportation $920) $14,320
Line 24b: Meals [$3,500 – disallowed portion (50% $3,500)] 1,750
2. Because Michael is a cash basis taxpayer, the $7,000 received from Stewart Mining in
2024 is included in gross receipts on Schedule C. The Granger Mining transaction has
no effect on the 2024 tax return. There is no income because no payment is received,
and there is no bad debt deduction because Michael has no basis in the receivable.
The $5,100 received from Holliday will be taxable in 2025.
3. The $9,000 contribution to the H.R.10 Keogh retirement plan and the $3,800 of
premiums on health insurance are not reported on Schedule C but are deducted on
Schedule 1, Lines 16 and 17, respectively. The remaining expense are deducted on
Schedule C as follows:
Line 8: Advertising $2,400
Line 18: Office expenses 1,200
Line 22: Supplies 3,200
Line 23: State occupation license 300
Line 27a (also listed separately on page 2, Part V):
Business phone and Internet service $860
Subscriptions to trade journals 240
Membership dues to trade associations 180 1,280
© 2026 1
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
4. The home office deduction is computed on Form 8829. The portion of the home used
for business is computed in Part I to be 20%, which is the square footage of the home
office relative to the area of the entire home. Part II of the form tallies the expenses
related to the home office. The direct expense of $1,200 spent to paint the home
office is reported on Line 20a. The remaining expenses are considered indirect because
they relate to the entire home and must be apportioned to the office.
Line 11b: Real estate taxes (see item 15) $ 5,800
Line 18b: Insurance 2,300
Line 20b: Repairs and maintenance 2,900
Line 21b: Utilities 4,800
Total indirect expenses $15,800
× Business percentage 20%
Business portion $ 3,160
Depreciation is computed in Part II to be $1,846 ($360,000 × 20% × 2.564%). The
depreciable basis of the home is the lesser of current fair market value of the home
(the land is disregarded) or Michael’s inherited basis (fair market value on the father’s
date of death). The 20% represents the portion of the home used for business
purposes, and the depreciation rate of 2.564% is the applicable percentage for 39-year
nonresidential real property for the 8th recovery period.
The Stovers deduct the $4,800 cost of the file cabinet by claiming the § 179 expense.
This election is made by completing Part I of Form 4562 to claim a deduction on Line 12.
5. MACRS depreciation on the SUV, reported on Part V of Form 4562, is computed using
the half-year convention because the SUV was acquired and placed in service in
February 2023. The depreciation deduction is computed as follows:
Cost $41,000
× Business use 90%
= Basis for depreciation $36,900
× Second year percentage for 5-year property × 32%
= Tentative depreciation deduction $ 1 1 ,808
SUVs that weigh less than 6,000 pounds are considered passenger automobiles.
Because the 2024 limit on depreciation for passenger automobiles placed in service in
2023 is $19,500 (see Table 2 in the instructions to Form 4562), the computed
deduction of $11,808 for depreciation is not limited. This depreciation is combined with
the deduction for the file cabinet (see item 4), and the $16,608 total ($4,800 + $11,808)
is reported on Line 13 of Schedule C.
Under the actual cost method of computing automobile expenses, $5,390 ($4,950 +
$440) is deducted as car and truck expenses on Line 9 of Schedule C. The $4,950 is
the sum of prorated expenses related to the 90% business use of the vehicle [gasoline
($3,300), auto insurance ($1,600), repairs ($240), auto club dues ($180), oil changes and
lubrication ($120), and license and registration ($60)]. The $440 is the total of the toll
and parking charges paid by Michael in the conduct of his business. Note that traffic
fines for moving violations are not deductible.
© 2026 2
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
6. As an employee, Emily will report her wages on Form 1040, Line 1. Unfortunately,
Emily’s unreimbursed employee business expenses for subscriptions, dues, continuing
education, and license fee are not deductible because individuals are not permitted to
deduct miscellaneous itemized deductions in 2024. Commuting expenses are never tax
deductible. No deduction is allowed for the LSAT preparation course because the
pursuit of a law degree would qualify Emily for a new trade or business. The $6,000
contribution to a traditional IRA is deducted on Line 20 of Schedule 1.
7. Transactions relating to the rental house are reported on Schedule E, summarized as
follows:
Line 3: Rents received $ 28,600
Line 20: Total expenses (25,704)
Lines 21, 24, and 26: Profit (also reported on Schedule 1, Line 5) $ 2,896
Although the $28,600 of rent receipts represents 13 months of rent, the prepaid rent
for January 2025 is taxed to the Stovers in the year received (i.e., 2024) because they
are cash basis taxpayers. The operating expenses in connection with the property are
reported as follows:
Line 7: Yard maintenance $ 1,200
Line 9: Insurance 3,100
Line 14: Repairs 800
Line 16: Property taxes 2,400
Line 17: Depreciation 18,204
Deductible property taxes do not include the $1,300 special street paving assessment.
Instead, this amount must be capitalized to the basis of the land.
Form 4562 is not required to be filed in support of Schedule E (see p. 8 of the
Schedule E instructions) because the Stovers did not place any rental property assets
in service during 2024. Depreciation of $18,204 is computed as follows:
Realty:
Basis [$220,000 (cost) + $80,000 (renovation)] $300,000
× Applicable MACRS depreciation rate 3.636%
= Depreciation allowed for 2024 $ 10,908
Personalty—half-year convention because placed in service in May 2022:
Basis: Cost (purchase price) $38,000
× Applicable MACRS depreciation rate 19.2%
= Depreciation allowed for 2024 $ 7,296
Rental appliances, furniture, carpets, etc., are 5-year cost recovery MACRS personalty.
© 2026 3
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
8. Although it is often difficult to determine the year in which a corporate stock becomes
entirely worthless, the Stovers are justified in picking 2024 for the write-off of this
security given the bankruptcy judge’s announcement that creditors will receive a
fraction of what they are owed. The taxpayers will recover nothing in Granger’s
bankruptcy because shareholders are only paid after creditors are made whole. The
loss of ($3,900) equals the $3,900 basis of the stock—its value when Michael received
it as payment for services provided and recognized it as income. Worthless securities
are deemed sold on the last day of the taxpayer’s tax year. Because the Stovers did
not receive a Form 1099–B for this worthless security, the Granger stock loss is
reported as a Box F transaction on Form 8949.
9. The basis for computing gain on property acquired by gift is generally the donor’s basis
plus an appropriate portion of any gift tax paid on the transfer. Because no gift tax
was paid by Michael’s father, the Stovers have an income tax basis in the Big Horn plot
of $50,000 (i.e., the father’s basis). The disposition of the property results in a realized
gain of $750,000 [$800,000 (value received) – $50,000 (basis of property transferred)].
Because the disposition qualifies as a like-kind exchange, the Stovers only recognize
gain of $8,000 on the receipt of cash boot. The exchange is reported on Parts I and III
of Form 8824. The recognized gain of $8,000 on Line 22 of Form 8824 is then entered
on Line 11 of Schedule D (this gain is combined with the installment sale gain, see item
11). The remaining $742,000 of realized gain is deferred when the Stovers take a total
basis of $50,000 in the Cheyenne city lots received in exchange for the Big Horn plot
as reported on Line 25 of Form 8824.
10. Michael’s basis in the antique gun collection is $22,000, the fair market value on the
date of his father’s death. The sale of the collection for $29,000 yields a capital gain of
$7,000 ($29,000 – $22,000). Because the property is a collectible, the gain requires
special tax treatment. The maximum tax rate that can be applied cannot exceed 28%,
and net short-term capital losses are first applied against collectible gains. The
computation of the tax liability can become complex and is facilitated by use of the
IRS 28% Rate Gain Worksheet (see item 12).
11. Emily’s use of the installment method to report the gain on the Platte County land
sale is assumed because the facts do not indicate she made an election to opt out of
installment sale treatment. The gross profit percentage on the sale is 33⅓% ($25,000 ÷
$75,000), so one-third of every dollar received is taxable gain and two-thirds is a tax-
free recovery of basis. Because Emily owned the land for more than one year and she
held the land for investment purposes, any gain is a long-term capital gain. Of the
$10,800 Emily receives in 2024, $4,800 is interest, $2,000 is long-term capital gain
($6,000 33⅓%), and $4,000 is nontaxable.
The interest of $4,800 is listed in Part I of Schedule B. The $2,000 gain from this past
sale is reported on Form 6252. Because this is not the year of sale, complete only
Lines 1 through 4 and Part II. Code 4 should be entered with the property description
on Line 1 (see p. 3 of the Form 6252 instructions). The long-term gain is reported on
Line 26 of Form 6252 and is also reported on Schedule D, Part II, Line 11 (this gain is
combined with the like-kind exchange gain, see item 9).
© 2026 4
appearing first. This change ensures all chapters are included in the Solutions
Complete Chapters Included
Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
Solution and Answer Guide
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
9 9 9
PROBLEMS
YOUNG, NELLEN, PERSELLIN, LASSAR, CUCCIA, CRIPE, SWFT INDIVIDUAL INCOME TAXES 2026,
T7ABLE OF CONTENTS
8214043 06; APPENDIX F: PRACTICE SET ASSIGNMENTS —COMPREHENSIVE TAX RETURN
Problem 1 Solutions ............................................................................................................... 1
Problem 2 Solutions ............................................................................................................. 7
PROBLEM 1 SOLUTIONS
1. Michael is self-employed and reports his business income on Schedule C. Both his
consulting fees and his expense reimbursements are reported on Line 1.
Line 1: Gross receipts [$92,800 consulting fees + $17,820 expense
reimbursements + $7,000 Stewart Mining fee (see item 2)] $117,620
The travel expenses of $16,070 are deducted as follows:
Line 24a: Travel (airfare $8,200 + lodging $5,200 + transportation $920) $14,320
Line 24b: Meals [$3,500 – disallowed portion (50% $3,500)] 1,750
2. Because Michael is a cash basis taxpayer, the $7,000 received from Stewart Mining in
2024 is included in gross receipts on Schedule C. The Granger Mining transaction has
no effect on the 2024 tax return. There is no income because no payment is received,
and there is no bad debt deduction because Michael has no basis in the receivable.
The $5,100 received from Holliday will be taxable in 2025.
3. The $9,000 contribution to the H.R.10 Keogh retirement plan and the $3,800 of
premiums on health insurance are not reported on Schedule C but are deducted on
Schedule 1, Lines 16 and 17, respectively. The remaining expense are deducted on
Schedule C as follows:
Line 8: Advertising $2,400
Line 18: Office expenses 1,200
Line 22: Supplies 3,200
Line 23: State occupation license 300
Line 27a (also listed separately on page 2, Part V):
Business phone and Internet service $860
Subscriptions to trade journals 240
Membership dues to trade associations 180 1,280
© 2026 1
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
4. The home office deduction is computed on Form 8829. The portion of the home used
for business is computed in Part I to be 20%, which is the square footage of the home
office relative to the area of the entire home. Part II of the form tallies the expenses
related to the home office. The direct expense of $1,200 spent to paint the home
office is reported on Line 20a. The remaining expenses are considered indirect because
they relate to the entire home and must be apportioned to the office.
Line 11b: Real estate taxes (see item 15) $ 5,800
Line 18b: Insurance 2,300
Line 20b: Repairs and maintenance 2,900
Line 21b: Utilities 4,800
Total indirect expenses $15,800
× Business percentage 20%
Business portion $ 3,160
Depreciation is computed in Part II to be $1,846 ($360,000 × 20% × 2.564%). The
depreciable basis of the home is the lesser of current fair market value of the home
(the land is disregarded) or Michael’s inherited basis (fair market value on the father’s
date of death). The 20% represents the portion of the home used for business
purposes, and the depreciation rate of 2.564% is the applicable percentage for 39-year
nonresidential real property for the 8th recovery period.
The Stovers deduct the $4,800 cost of the file cabinet by claiming the § 179 expense.
This election is made by completing Part I of Form 4562 to claim a deduction on Line 12.
5. MACRS depreciation on the SUV, reported on Part V of Form 4562, is computed using
the half-year convention because the SUV was acquired and placed in service in
February 2023. The depreciation deduction is computed as follows:
Cost $41,000
× Business use 90%
= Basis for depreciation $36,900
× Second year percentage for 5-year property × 32%
= Tentative depreciation deduction $ 1 1 ,808
SUVs that weigh less than 6,000 pounds are considered passenger automobiles.
Because the 2024 limit on depreciation for passenger automobiles placed in service in
2023 is $19,500 (see Table 2 in the instructions to Form 4562), the computed
deduction of $11,808 for depreciation is not limited. This depreciation is combined with
the deduction for the file cabinet (see item 4), and the $16,608 total ($4,800 + $11,808)
is reported on Line 13 of Schedule C.
Under the actual cost method of computing automobile expenses, $5,390 ($4,950 +
$440) is deducted as car and truck expenses on Line 9 of Schedule C. The $4,950 is
the sum of prorated expenses related to the 90% business use of the vehicle [gasoline
($3,300), auto insurance ($1,600), repairs ($240), auto club dues ($180), oil changes and
lubrication ($120), and license and registration ($60)]. The $440 is the total of the toll
and parking charges paid by Michael in the conduct of his business. Note that traffic
fines for moving violations are not deductible.
© 2026 2
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
6. As an employee, Emily will report her wages on Form 1040, Line 1. Unfortunately,
Emily’s unreimbursed employee business expenses for subscriptions, dues, continuing
education, and license fee are not deductible because individuals are not permitted to
deduct miscellaneous itemized deductions in 2024. Commuting expenses are never tax
deductible. No deduction is allowed for the LSAT preparation course because the
pursuit of a law degree would qualify Emily for a new trade or business. The $6,000
contribution to a traditional IRA is deducted on Line 20 of Schedule 1.
7. Transactions relating to the rental house are reported on Schedule E, summarized as
follows:
Line 3: Rents received $ 28,600
Line 20: Total expenses (25,704)
Lines 21, 24, and 26: Profit (also reported on Schedule 1, Line 5) $ 2,896
Although the $28,600 of rent receipts represents 13 months of rent, the prepaid rent
for January 2025 is taxed to the Stovers in the year received (i.e., 2024) because they
are cash basis taxpayers. The operating expenses in connection with the property are
reported as follows:
Line 7: Yard maintenance $ 1,200
Line 9: Insurance 3,100
Line 14: Repairs 800
Line 16: Property taxes 2,400
Line 17: Depreciation 18,204
Deductible property taxes do not include the $1,300 special street paving assessment.
Instead, this amount must be capitalized to the basis of the land.
Form 4562 is not required to be filed in support of Schedule E (see p. 8 of the
Schedule E instructions) because the Stovers did not place any rental property assets
in service during 2024. Depreciation of $18,204 is computed as follows:
Realty:
Basis [$220,000 (cost) + $80,000 (renovation)] $300,000
× Applicable MACRS depreciation rate 3.636%
= Depreciation allowed for 2024 $ 10,908
Personalty—half-year convention because placed in service in May 2022:
Basis: Cost (purchase price) $38,000
× Applicable MACRS depreciation rate 19.2%
= Depreciation allowed for 2024 $ 7,296
Rental appliances, furniture, carpets, etc., are 5-year cost recovery MACRS personalty.
© 2026 3
, Solution and Answer Guide: Young, Nellen, Persellin, Lassar, Cuccia, Cripe, SWFT Individual Income Taxes
2026, 9798214043906; Appendix F: Practice Set Assignments—Comprehensive Tax Return Problems
8. Although it is often difficult to determine the year in which a corporate stock becomes
entirely worthless, the Stovers are justified in picking 2024 for the write-off of this
security given the bankruptcy judge’s announcement that creditors will receive a
fraction of what they are owed. The taxpayers will recover nothing in Granger’s
bankruptcy because shareholders are only paid after creditors are made whole. The
loss of ($3,900) equals the $3,900 basis of the stock—its value when Michael received
it as payment for services provided and recognized it as income. Worthless securities
are deemed sold on the last day of the taxpayer’s tax year. Because the Stovers did
not receive a Form 1099–B for this worthless security, the Granger stock loss is
reported as a Box F transaction on Form 8949.
9. The basis for computing gain on property acquired by gift is generally the donor’s basis
plus an appropriate portion of any gift tax paid on the transfer. Because no gift tax
was paid by Michael’s father, the Stovers have an income tax basis in the Big Horn plot
of $50,000 (i.e., the father’s basis). The disposition of the property results in a realized
gain of $750,000 [$800,000 (value received) – $50,000 (basis of property transferred)].
Because the disposition qualifies as a like-kind exchange, the Stovers only recognize
gain of $8,000 on the receipt of cash boot. The exchange is reported on Parts I and III
of Form 8824. The recognized gain of $8,000 on Line 22 of Form 8824 is then entered
on Line 11 of Schedule D (this gain is combined with the installment sale gain, see item
11). The remaining $742,000 of realized gain is deferred when the Stovers take a total
basis of $50,000 in the Cheyenne city lots received in exchange for the Big Horn plot
as reported on Line 25 of Form 8824.
10. Michael’s basis in the antique gun collection is $22,000, the fair market value on the
date of his father’s death. The sale of the collection for $29,000 yields a capital gain of
$7,000 ($29,000 – $22,000). Because the property is a collectible, the gain requires
special tax treatment. The maximum tax rate that can be applied cannot exceed 28%,
and net short-term capital losses are first applied against collectible gains. The
computation of the tax liability can become complex and is facilitated by use of the
IRS 28% Rate Gain Worksheet (see item 12).
11. Emily’s use of the installment method to report the gain on the Platte County land
sale is assumed because the facts do not indicate she made an election to opt out of
installment sale treatment. The gross profit percentage on the sale is 33⅓% ($25,000 ÷
$75,000), so one-third of every dollar received is taxable gain and two-thirds is a tax-
free recovery of basis. Because Emily owned the land for more than one year and she
held the land for investment purposes, any gain is a long-term capital gain. Of the
$10,800 Emily receives in 2024, $4,800 is interest, $2,000 is long-term capital gain
($6,000 33⅓%), and $4,000 is nontaxable.
The interest of $4,800 is listed in Part I of Schedule B. The $2,000 gain from this past
sale is reported on Form 6252. Because this is not the year of sale, complete only
Lines 1 through 4 and Part II. Code 4 should be entered with the property description
on Line 1 (see p. 3 of the Form 6252 instructions). The long-term gain is reported on
Line 26 of Form 6252 and is also reported on Schedule D, Part II, Line 11 (this gain is
combined with the like-kind exchange gain, see item 9).
© 2026 4
