THE-WFT08-06-1001-ch_08_V4-SM

THE-WFT08-06-1001-ch_08_V4-SM - CHAPTER 8 PROPERTY...

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CHAPTER 8 PROPERTY TRANSACTIONS: CAPITAL GAINS AND LOSSES, SECTION 1231, AND RECAPTURE PROVISIONS SOLUTIONS TO PROBLEM MATERIALS Status: Q/P in Question/ Present Prior Problem Topic Edition Edition 1 Capital assets Unchanged 1 2 Capital assets: dealers and inventory New 3 Capital assets: investment assets New 4 Capital assets Unchanged 3 5 Section 1237 treatment Unchanged 4 6 Bonds with OID New 7 Options Unchanged 6 8 Franchise Unchanged 8 9 Definition of capital assets Unchanged 9 10 Holding period Unchanged 10 11 Definition of a capital asset Unchanged 11 12 Net capital gain and alternative tax Unchanged 12 13 Collectibles Unchanged 13 14 Corporate capital losses Unchanged 14 15 Ethics problem Unchanged 15 16 Capital asset, holding period, and basis Unchanged 16 17 Capital assets Modified 17 18 Patents Unchanged 18 19 Section 1231 nonpersonal use property casualty Modified 19 20 Issue recognition Unchanged 20 21 Ethics problem Unchanged 21 22 Section 1231 lookback Unchanged 22 23 Section 1231 gain and loss planning Modified 23 24 Section 1245 recapture Unchanged 24 25 Section 197 amortization and § 1245 recapture Unchanged 25 26 Comprehensive §§ 1231, 1245, and 1250 Unchanged 26 27 Section 1250 and installment sales New 28 Depreciation recapture for inherited property Unchanged 28 29 Covenant not to compete Unchanged 29 30 Section 1231: timber Modified 30 31 Short sale Unchanged 31 8-1
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8-2 2008 Entities Volume/Solutions Manual Bridge Status: Q/P in Discipline Present Prior Problem Topic Edition Edition 1 Financial accounting and tax differences Unchanged 1 Research Problem 1 Legislative history of capital asset definition New 2 Stock sale Unchanged 2 3 Stock trading as a business Unchanged 3 4 Definition of capital assets Unchanged 4 5 Character of gains and losses Unchanged 5 6 Section 1245 recapture and § 197 intangibles New 7 Internet activity Unchanged 7 8 Internet activity Modified 8 9 Internet activity Unchanged 9 10 Internet activity Unchanged 10 11 Internet activity Unchanged 11
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Property Transactions: Capital Gains and Losses 8-3 PROBLEMS 1. The vacation home is a personal use asset and is, therefore, a capital asset. The $35,000 loss is nondeductible because it arose from the disposition of a personal use asset. The antique clock is a capital asset held for personal use. The basis of the clock is $12,000—its value in Mariah’s grandmother’s estate. The clock is sold at a $1,500 LTCG gain. The $50,000 song payment is ordinary income because Mariah was in the business of being a songwriter. Song payment $50,000 Clock 1,500 Gross income $51,500 pp. 8-3 to 8-5 2. Since Revez is a dealer in antiques, the clock is presumed to be an item of inventory and, therefore, an ordinary asset. The $2,750 gain [$6,000 (amount realized) – $3,250 (basis)] would be an ordinary gain. If Revez wants the $2,750 gain to be a long-term capital gain, he would have to show objective evidence that he held the clock as an investment and, therefore, a capital
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THE-WFT08-06-1001-ch_08_V4-SM - CHAPTER 8 PROPERTY...

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