ch 5 solutions. - CHAPTER 5 GROSS INCOME: EXCLUSIONS 28....

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CHAPTER 5 GROSS INCOME: EXCLUSIONS 28. Wilbur must include in gross income the $7,500 of compensation for serving as executor of his father’s estate and $5,000 from each of the 4 installment payments of the insurance proceeds. Each installment consists of $25,000 of recovery of capital. exclusion $25,000 $30,000 of Payment $120,000 of return Expected $100,000 of proceeds Policy = × Installment payment $ 30,000 Exclusion (25,000) Include in gross income $ 5,000 pp. 5-4 to 5-7 and Chapter 13 29. a. The $4,000 in accrued salary and the $2,500 of vacation pay earned by Jose but received by his daughter must be included in her gross income in the tax year she receives it. Such income that has been earned, but not received, at the time of the decedent’s death is income in respect of a decedent. b. Although the employer may have altruistic motives, because Josh is an employee, the payments cannot be treated as gifts for income tax purposes. Therefore, Josh must include the $1,500 in his gross income. However, if the employer expected to be repaid when Josh is able to work, the payments could be treated as a loan. c.Jay’s wife does not recognize income from the receipt of $10,000, since the proceeds are from life insurance and are payable to her as the result of Jay’s death. The mortgage holder received the proceeds from a policy as a result of a transaction for consideration. The mortgage holder must recognize gain if its basis (unrecovered amount of the loan) in the mortgage is less than $40,000. d. Lavender, Inc. is the beneficiary of a life insurance policy it purchased and whose proceeds were paid upon the death of the insured. Therefore, the proceeds are excluded from its gross income. e. When Rex dies, Jackson will receive the life insurance proceeds of $75,000. Normally the $75,000 would be excludible from Jackson’s gross income because the life insurance proceeds are payable as the result of death. However, since Jackson acquired the life insurance policy in exchange for valuable consideration, the exclusion treatment does not apply. So Jackson must include in his gross income the $75,000 life insurance proceeds reduced by the sum of $45,000 and the life insurance premiums that he pays. pp. 5-4 to 5-7
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30. a. Because Laura is terminally ill, she is not required to recognize gain of $20,000 ($35,000 – $15,000) from assigning the life insurance proceeds to Viatical in exchange for $35,000. b. Laura is ‘‘chronically ill.” The life insurance proceeds can be received without recognition of gain provided all of the proceeds are used for the care and assistance necessitated by her illness or disease. p. 5-7 31. a. The $36,000 of tips are included in Jim’s gross income. The tips are not gifts because the payments were in return for services, and thus were not made out of detached and disinterested generosity. b.
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ch 5 solutions. - CHAPTER 5 GROSS INCOME: EXCLUSIONS 28....

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