Homework Chapter 8

Homework Chapter 8 - However, he does have basis in the...

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Homework Chapter 8 Problem 3a: Businessman will have $40,000 of taxable income under §§108(a) and 61(a)(12). He is solvent and thus not eligible for a §108 exclusion under (a)(1)(B). Nor does he meet the purchase money obligation rules under §108(e)(5). Problem 3b: As he now meets the section 108(e)(5) rules, Businessman can exclude the debt reduction up to the amount of remaining basis in the assets. Thus, he has $35,000 of excludible debt forgiveness income, $5,000 or ordinary income for the excess; and takes a zero basis in the ambulances going forward.
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Homework Chapter 8 Problem 3c: Businessman is clearly insolvent to the extent that the FMV of the ambulances ($100,000) is less than his overall debt ($225,000), or $125,000 of insolvency. The debt reduction is only $40,000 so the entire amount is excludible from his income. Further, since he has no tax attributes, there are no reductions to those.
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Unformatted text preview: However, he does have basis in the ambulances that may need to be reduced under section 1017. However, 1017(b)(2) limits the basis reduction the basis is not to be reduced below the amount of the liabilities. Since the liabilities here, even after the discharge, still exceed the basis, no basis reduction is required. Homework Chapter 8 Problem 3d: Same answer as 3c except that the NOL carryover will be reduced to zero. Additionally, no basis reduction to the assets; however Businessman, under section 108(b)(5) could elect to reduce the basis in the assets instead of reducing the NOL. Could be favorable depending upon timing of next expected taxable income and the lives of the depreciable assets. Problem 3e: Debt discharge can be excluded only up to the amount of the insolvency, or $25,000. The remaining $15,000 will be includible in gross income....
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Homework Chapter 8 - However, he does have basis in the...

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