Ch. 14 Answers

Ch. 14 Answers - Property Transactions: Determination of...

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Unformatted text preview: Property Transactions: Determination of Gain or Lo s & Basis Considerations 14-11 32. a. (iayla must report on her income tax return the greater of the depreciation allowed of $20,000 ($24,000 X 1002) or allowable of $24,000. The depreciatiOn allowed is the amount actually deducted, whereas the depreciation allowable is the amount that should have been deducted under the depreciation convention. Gayla should amend her 2007" income tax return and deduct the correct amount of depreciation ($24,000). b. Adjusted basis on January 1, 2007 . v - $325,000 Less: Depreciation allowable Easel-Vijmatggfi {24,0001 Adjusted basis on December 3 i , 200? “bran!” 39 y S 351,000 2 A ........ ._. pp. 14-4 and 14-5 33. a. Amount realized ‘Bv-nussawe A“? 35?— $32,500 Less: Adjusted basis 145,000) Realized loss 1 5.0.0 Recognized loss _$ :0: Realized losses on the sale or exchange of personal use assets are not deductible. p. 14-7 b. Same result as in part a. above. c. Mclanie’s realized loss is $0. Since the form of the transaction is a theft, the realized loss is the lesser of the adjusted basis or the fair market value of the asset, reduced by the insurance proceeds that she received (see Chapter '1'). Therefore, the opportunity for the theft loss deduction on personal use property is not present in this case because the insurance proceeds received of $32,500 equal the fair market value of $32,500. 13. l4-5 34. a. The $65,000 distribution, is labeled a return of capital because Dove has no earnings and profits. Alton reduces the basis of his stock by $65,000 to $20,000 ($85,000 adjusted basis — $65,000 return of capital distribution). b. As in 21., the $100,000 distribution is treated as a return of capital because Dove has no earnings and profits. Alton has a capital gain calculated as follows: Amount realized $100,000 Less: Adjusted basis 185,000! Realized gain §A_15__M__. Recognized gain §__]__§,00_0__ The basis for his stock is reduced to $0. c. Since the $65,000 distribution is a taxable dividend, Alton’s adjusted basis for his Dove stock remains at $85,000. p. 14-5 35. a. Chee’s interest income for 2008 is calculated as follows: $100,000 X 8% = $8,000 14-12 36. 37. . 14-5 f. 2009 Individual VolumeISolutions Manual Sinco Chee is not required to amortize the bond premium and does not elect to do so, his adjusted basis for the bond is $1 10,000. Amount realized $109,000 Less: Adjusted basis 1 1 10,000) Realized and recognized loss 1 $____1=,fl1 Gain of $50,000 ($150,000 — $100,000) on the sale of a personal use asset is recognized. ' Loss of $50,000 ($100,000 — $150,000) on the sale of a personal residence is not deductible. Condemnation loss of $10,000 ($55,000 -— $65,000) on a personal residence is not recognized. No gain is recognized, since neither a sale nor other disposition of the land has occurred. Amount realized $23,000 Less: Adjusted basis (22,0001 Realized and recognized gain _$_l__l,000 The loss of $450 ($50 ~ $500) on the sale of personal use assets is not recognized. pp. 143, 14-5, 14-7, and Examples 6, 8, and 9 a. p. 14—? Amount realized $300,000 Less: Adjusted basis 1325,0001 Realized loss 5. 000 Recognized loss M A realized loss on the condemnation of a personal use asset is not recognized. Amount realized $355,000 Less: Adjusted basis 1325,0001 Realized gain Recognized gain 3 30 0_ A realized gain on the condemnation of a personal use asset is recognized if similar property is not acquired. However, as discussed in Chapter 15 under “Sale of a Residence—§ 121,” the recognized gain of $30,000 can be avoided if the § 121 requirements are satisfied. 1f the house were income-producing property, the realized loss of $25,000 would be recognized. 38. 39. Property Transactions: Determination of Gain or Loss & Basis Considerations 14-13 Will must treat the purchase of the land at a $45,000 ($350,000 — $305,000) discount as a bargain purchase, since it represents compensation for services. Thus, he must include the $45,000 in his gross income. Will’s adjusted basis for the land is the fair market value of $350,000 ($305,000 cost + $45,000 increase in gross income). Hoffman, Smith, and Willis, CPAs 5191 Natorp Boulevard Mason, OH 45040 June 27, 2008 Mr. Will Morris 100 Tower Road San Diego, CA 92182 Dear Mr. Morris: You requested advice on the tax consequences of the purchase of a lot from your employer. Presidential Estates. Based on an outstanding sales performance, you were permitted to purchase a lot for $305,000 that normally would sell for $350,000. You were the only real estate agent permitted to do so. The $45,000 discount represents compensation for services and, therefore, must be included in gross income. Your adjusted basis for the lot is $350,000 ($305,000 cost + $45,000 amount included in gross income). If 1 can be of timber assistance, please contact me. Sincerely, .1 anc Reeves, CPA Tax Partner Example 10 a. b. Zero. No sales have occurred. MDG stock basis (180 >< $?5) = $13,500; [$12,600 (amount realized) -— $13,500 (basis)] = $900 realized 1055 on MDG stock. GRU stock basis (90 X $300) = $27,000; [$29,300 (amount realized) — $27,000 (basis)] = $2,700 realized gain on GRU stock. Second MDG sale: $13,500 (amount realized) ~ $1 1,100 (basis) "'~ $2,400 realized gain on MDG stock. (120 >< $75) $ 9,000 (30 x $70) 2,100 Basis Second GRU sale: $37,500 (amount realized) — $23,625 (basis) = $13,875 realized gain on GRU stock. 14-14 2009 Individual Volume/Solutions Manual (60 X $300) $18,000 (15 >< $3375) 5,625 Basis Example 11 40. a. Kevin's adjusted basis for Bluebird Corporation stock on December 31, 2008, is $312,500 ($200,000 + $112,500). b. Amount realized $100,000 Less: Adjusted basis (400 shares >< $225 per share) {90,0002 Realized gain §=10,000 Recognized gain e. If Kevin cannot adequately identify the shares sold, a FIFO presumption is made. Thus, the 400 shares sold are presumed to come from the 1,000 shares purchased on October 3, 2008, for $200,000 (i.e., $200 per share). Therefore, Kevin has a recognized gain of $20,000 as calculated below. Amount realized $100,000 Less: Adjusted basis (400 shares @ $200 per share) £80,000: Realized gain _$__p_20 99:0: Recognized gain $_2.0_.000 Example 1 1 41. a. Marco's recognized gain on the sale ofhis business is calculated as follows: Amount realized ($650,000 — $30,000) $620,000 Less: Adjusted basis 1427,0001 Realized gain $19,§,_l___l0_0__ Recognized gain . $193,000 b. The $25,000 excess of the purchase price of $650,000 over the fair market value ofthe listed assets of $625,000 is assigned to goodwill. Thus, the adjusted basis for each of the assets for Stella is as follows: Production equipment $ 93,250 Packaging equipment 156,250 Distribution equipment 187,500 Building and land 125,000 Goodwill 87,500 men Property Transactions: Determination of Gain or Loss & Basis Considerations 14-15 c. Hoffman, Smith, and Willis, CPAS 5191 Natorp Boulevard Mason, OH 45040 June 3, 2008 Ms. Steila Simson 300 Woodland Drive Cincinnati. OH 4520? Dear Ms. Simson: I am responding to your inquiry regarding the purchase of the assets of Marco’s sole pmprietorship. The $650,000 purchase price is allocated among the aSsets to produce the following basis: Production equipment 93 93,? 50 Packaging equipment 156,250 Distribution equipment 187,500 Building and land 125.000 Goodwill 87,500 The goodwill of 881500 represents the difference between the $650,000 purchase price and. the total fair market value of the other assets. Since the building is depreciable and the land is not, the $125,000 basis for the building and land must be allocated between these two assets. if you have not already done so, 1 suggest that an appraisal be obtained for this purpose. If I can be of further assistance, please let me know. Steve Wills, CPA Tax Partner pp. 14—9, 14-10, and Example 13 a. Diane must include the $3,000 cash dividend in her gross income. The distribution has no effect on Diane’s adjusted basis for her Robin stock. Both the 2% preferred stock dividend and the 5% common stock dividend are nontaxable. b. Diane must allocate the S]. 00,000 basis for her Robin common stock between the 1,000 shares of common stock and the 20 shares of preferred stock as follows: Common stock. $110,000 _| $2,000 >< $100,000 $98,214 basrs 111 common Preferred Stock. $10,000 + $2900 >< $100,000 — $1386 basis to preferred Example 15 14-16 43. 44. 45. 2009 Individual Volume/Solutions Manual Sherry’s basis for the stock rights can be either $1,364 or $0 depending on whether or not she elects to allocate a portion of the basis of the stock to the rights. Under § 307(b), Sherry is not required to make the allocation because the fair market value of the stock rights ($2,000) is less than 15% of the fair market value of the stock ($20,000). If the election is made, the amount allocated to the stock rights is calculated as follows: - PM of stock ri hts . _ ‘FMV of stock + FMV of stock rights X Stock 130515 glfqfi, >< $15,000 a $1,364 The basis of the stock is $15,000 ifthe allooation is not made or $13,636 ($15,000 — $1,364) ifthe allocation is made. The holding period for the stock rights includes the holding period of the stock on which the rights were distributed. However, if the rights are exercised, the holding period of the newly acquired stock begins with the date of exercise. The recognized gain on the sale of the stock rights will be either $636 ($2,000 amount realized — $1,364 adjusted basis) or $2,000 ($2,000 amount realized — SO adjusted basis) depending on whether the election to allocate is made. If Sherry intends to retain the original stock, the motivation to make the election increases as it minimizes the gain on the sale of the rights. No gain or loss is recognized on the lapse of the stock rights. The amount of basis, if any, that has been allocated to the rights is restored to the basis of the stock (i.e., the basis of the stock after the lapse is $15,000). Examples 16 and 1? a. Basis for gain = $40,000: $92,000 (amount realized) — $40,000 (adjusted basis) = $52,000 (recognized gain). Basis for gain = $22,000; $40,000 (amount realized) w $22,000 (adjusted basis) = $18,000 (recognized gain). Basis for loss = $15,000; $9,000 (amount realized) — $15,000 (adjusted basis) = $6,000 (recognized 1055). $0. The prOCCeds of $35,000 are between the gain basis of $42,000 and the loss basis of $30,000. Therefore, neither gain nor loss is recognized. Examples 18 to 20 a. The basis for depreciation is the donee’s gain basis of $14,000 ($26,000 cost — $12,000 accumulated depreciation). $7,000 ($14,000 basisf2 years). Loss basis = $9,000 (fair market value) — $7,000 (depreciation allowed) = $2,000; $1,500 (selling price) — $2,000 (adjusted basis) = $500 (recognized loss). Property Transactions: Determination of Gain or Loss & Basis Considerations 14—17 0. Gain basis = $14,000 (Beth’s original gain basis) — $7,000 (depreciation for one year) = $7,000; $8,800 (selling price) — $7,000 (adjusted basis) = $1,800 (recognized gain). pp. 14-12 to 14-14 and Example 24 46. a. Fair market value $1 1 1,000 Less: Donor’s adjusted basis (40,0001 'N et appreciation $_7 l ,0_00 Fair market value $111,000 Less: Annual exclusion ; 12,000! Net FMV on which gift tax is paid L29,00_0 Gift tax paid $ 30,000 Extent of net appreciation ($71,0001$99,000) X.?2 Gift tax attributable to net appreciation 3 21,600 Donor’s adjusted basis 40,000 Felix’s basis for gain, loss, and depreciation $41,600 Example 21 b. Donor’s adjusted basis 33 40,000 Gift tax paid 30 000 F elix’s basis for gain, loss, and depreciation L10 000 Since the gift is made before 192?, all of the gift tax paid is added to the donor’s adjusted basis. The fair market value ceiling of $1 I 1,000 has no effect because it exceeds the result of $10,000. pp. 14-12 and 14-13 47. a. Natalie’s adjusted basis for the painting is calculated as follows: Aunt’s adjusted basis $825,000 Gift tax paid on appreciation: $1,125,000 900i 2,000 X $391000 2 M Natalie’s adjusted basis $2M b. Since the painting has declined in value, none of the gift tax paid by Natalie’s aunt is considered in calculating Natalic’s adjusted basis for gain of $825,000. Natalie’s basis for loss is the lower of her aunt’s adjusted basis of $825,000 or the .FMV at the date of the gift of $824,000. pp. 14-12 and 14-13 48. a. Ira should not follow the friend’s advice. The sale of the stock by Ira would produce a realized and recognized gain 0f$5,000. If the stock is contributed to the Boy Scouts, no such recognition occurs for regular income tax purposes. The value of the stock, for purposes of calculating the amount of the charitable 14-18 2009 Individual VolumclSOIIltions Manual contribution deduction, will be $20,000 if its holding period is long term. If the holding period is short-term, the reductiou in the value of the charitable contribution required by § 170(c) from $20,000 to $15,000 [$20,000 (fair market value) — $5,000 (short—term capital gain that would result if the stock had been sold)] would produce a similar negative tax effect as the $5,000 realized and recognized gain that would result from the actual sale of the stock by Ira. Brokerage commissions and taxes would bias the form of the contribution even more in the direction of contributing the stock. ira should follow the friend’s advice in order to recognize a loss of $2,000 ($13,000 - $15,000). The charitable contribution in either case would be $13,000. The choice in a. probably would be the same and the choice in b. would be the same. In making the decision in a., the critical variable is the marginal tax rate of Ira versus that of the niece (i.e., the sale should be made by the one with the lowest marginal tax rate). Normally, the niece would be expected to have the lower marginal tax rate. In b., the sale of the stock by Ira for $13,000 would result in a realized and recognized loss of $2,000, whereas the sale by the niece for $13,000 would not result in a realized loss (i.e., the niece’s loss basis for the property received by gift would be $13,000). Any gilt tax that Ira would be required to pay would not be influenced by whether he gave the stock or the cash (i.e., the gift tax is based on the fair market value ol'the gift). Hoffman, Smith, and Willis, CPAs 5191 Natorp Boulevard Mason, OH 45040 December 3, 2008 Mr. Ira Cook 500 lreland Avenue DeKalb, IL 60115 Dear Mr. Cook: I am responding to your request concerning whether you should (I) contribute Crystal stock to the Boy Scouts, or (2) sell the stock and contribute the cash instead. Based on our telephone conversation, the following data are applicable: Stock purchased 6 years ago Adjusted basis is $15,000 Fair market value is $20,000 More beneficial tax consequences result under the first option (i.e., contribute the stock to the Boy Scouts). Under this Option, you will be entitled to a charitable contribution dedUction of $20,000 (i.e., the fair market value of the stock at the date of the contribution). Under the second option, a charitable deduction of $20,000 also is available as cash is being contributed to the Boy Scouts. However, the sale of the stock would be a taxable event which would result in a recognized gain 0135.000 ($20,000 amount realized — $15,000 adjusted basis). I recommend that you contribute the stock to the Boy Scouts. Should you need additional advice, please contact me. 49. 50. Property Transactions: Determination of Gain or Loss & Basis Considerations 14-19 S incerel y, Pat Campbell, CPA Tax Partner p. 1425 and Chapter 10 a. Preperty inherited from a decedent normally acquires a basis equal to the fair market value at the date of the decedent's death ($3,825,000). Because the fair market value of the real estate declined during the six-month period after Catherine’s death, the executor of the estate may elect the alternate valuation date. Under the alternate valuation provision, Amanda’s basis for the property is $3,815,000. The November 2008 fair market value of $3,813,000 is not relevant because the distribution date occurs after the alternate valuation date. The alternate valuation date permits a reduction in the overall estate tax liability when the fair market value of the estate declines during the six-month period after death. However, the lower adjusted basis for the inherited property will produce a larger gain (or smaller less) to the heirs upon disposal of the property. The overall result will be positive, however, if the estate tax rate is higher than the applicable income tax rate. Due to the appreciation of the real estate during the six~month period following the date of death (i.e., from $3,825,000 to $3,860,000), the election of the alternate valuation date might not be available. If so, Amanda's basis for the inherited real estate is the fair market value at the date of Catherine’s death ($3,825,000). p. 14-14 a. If the primary valuation date applies, Robert’s basis for the assets would be the fair market value at the date ofEarl’s death. Cash S 10,000 Stock 125,000 Apartment building 300,000 Land 100,000 The election of the alternate valuation date will produce the following basis for each asset distributed to Robert. Cash 55 10,000 Stock 85,000 Apartment building 325,000 Land 1 10 000 flailfllfl Since the stock was disposed of prior to the alternate valuation date, Robert’s basis will be its the fair market value on the date of distribution to him. pp. 14-14, 14-15, and Examples 2? to 29 14—20 51. 52. 53. a. 2009 Individual VolumeISolutions Manual The inherited stock is subject to the deathbed gift rule in that the period between the date of the gift and the date of the donee’s death (i.e., Uncle George) is not greater than one year. The basis per share is $30 ($3,150f105 shares) as a result of the 5% stock dividend. Therefore, Emily’s basis for the 100 shares she inherited is $3,000 ($30 X 100 shares). Since the deathbed gift rule would not be applicable, Emily’s basis for the inherited stock would be $5,500 ($55 X 100 shares). Examples 14, 25, and 30 a. Larry’s basis for the land is $200,000, the fair market value of the land at the date of Grace’s death. Since the land is community property, both the decedent’s share and the survivor’s share have a basis equal to the fair market value on the date of the decedent‘s death. In this case, Larry’s basis is stepped-up only for Grace’s share and is calculated as follows: Larry’s one-halfof the jointly held property (carryover basis of $?5,000) $ 75,000 Grace’s one-half of the jointly held property (stepped up from $75,000 to $100,000 due to inclusion in her gross estate) 100,000 Larry’s new basis $115,000 Examples 31 and 32 a. Because Jessie and Amy are related parties, the realized loss is disallowed. Amount realized $3,000 Less: Adjusted basis 1 "3.0001 Realized loss ( $4,000) Disallowed loss 4,000 Recognized loss Amy’s basis for the car of $3,000 is increased by her out-of-pocket costs of $2,000. Amy can use as much of Jessie’s disallowed loss as is necessary (i.e., $500) to reduce her recognized gain. Amount realized $5,500 Less: Adjusted basis ($3,000 + $2,000) {5,0001 Realized gain $ 500 Portion of Jessie‘s disallowed loss needed 1- 001 Recognized gain Lari}; Amount realized $5,500 Less: Adjusted basis £5,000) Realized gain §_§_ .0. Recognized gain $__500_ Ted‘s adjusted basis is a carryover basis (i.e., the same as Amy’s adjusted basis). Ted is not eligible to use any of Jessie‘s disallowed loss of $4,000 since he is not the original transferee (i.e., Amy is). pp. 14-16, 14—1i', and Example 33 55. Property Transactions: Determination of Gain or Loss & Basis Considerations 14-21 3. b. e. Amount realized $165,000 Less: Adjusted basis £200,000) RealiZed loss {S 35,000) Less: Disallowed loss under § 70701) I 35 000 Recognized loss §_ -0— The loss is disallowed under § 207(b) since Thad owns greater than a 50% capital or profits interest in the partnership. Thad’s basis is $165,000, the amount he paid for the property. Amount realized $187,000 Less: Adjusted basis M54100) Realized gain $ 22,000 Less: Amount ot‘previously disallowed loss used to eliminate realized gain (22.0001 Recognized gain 5; . _—0-__. The remainder of the disallowed loss of $13,000 ($35,000 — $22,000) can never be deducted either by Thad or the partnership. Amount realized $187,000 Lees: Adjusted basis £165,000) Realized gain L2_2_,0_0_0__, Recognized gain 55. 22. 99.0.. Since the property Was received by gift, "Donna’s carryover basis is $165,000. However, Donna is not permitted to use any of the partnership’s disallowed loss since she is not the original transferee (i.e., the related—party buyer is Thad). The results will be the same. The shareholder and the corporation are related parties under §26T(b)(2) since the shareholder owns greater than 50% of the corporation’s outstanding stock. pp. 14—12, 14-16, and 14—1? a. b. C. To the extent of the substantially identical shares purchased during the 60~day period (beginning 30 days before April 2? and ending 30 days after April 2?), the transaction is a wash sale. The realized loss on the April 2? sale is $800 ($4,000 amount realized —- $4,800 adjusted basis of 400 shares). Because Justin acquired Fewer shares than he sold, only a portion of the reaiized loss is disallowed. The disallowed loss is $600 [(300 shares acquircdf400 shares sold) X $800] and the recognized loss is $200 ($800 — $600). Justin’s adjusted basis for the stock acquired on May 5 is $3,900 ($3,300 purchase price + $600 disallowed loss). The tax consequences would have been the same. Justin has a wash sale to the extent of the 300 shares purchased. The fact that the transactions are in different tax years is of' no relevance to the wash sale rule. To avoid the limitations of the wash sale, Justin should not purchase substantially identical stock within the 60- day window (30 days before and 30 days after the sale date). pp. 14—1":' and 14—18 14-22 56. 5?. a. b. C. 2009 Individual VolumeiSolutions Manual Amount realized $3,600 Less: Adjusted basis ($10,000 X 40%) (4,0001 Realized loss Recognized loss (LJQJ The sale of 300 of the 400 shares is a wash sale, as their repurchase is within 30 days of the sale. Consequently, $300 of the realized loss of S400 is disallowed [$400 X (300 sharesr’400 shares')]. Purchase price $2,850 Plus: Disallowed loss on wash sale 300 Adjusted basis 33 +11% Note that the disallowed loss of $300 On the wash sale is added to the purchase price of $2,850 to arrive at the new basis. The wash sale provision will prevent Frank from recognizing $300 of the realized loss of $400 ($3,600 amount realized — $4,000 adjusted basis). Frank can avoid the wash sale provision by not acquiring substantially identical stock within 30 days before or after the date of the sale. He could purchase Amber stock outside this 60~day window or purchase the stock of another corporation during the 60- day window. pp. 14-1? and 14-18 a. (?5%) (25%) Personal Use Office. Amount realized $210,000 $70,000 Less: Adjusted basis (date of sale) (225,000) 63 600 * Realized gain (loss) (ngilflllt $____,-£1._0.0_ Recognized gain (loss) _$ :0; 6 400 *$63,600 = $75,000 basis at conversion — $11,400 cost recovery. The realized loss on the personal use portion is not recognized. Personal Use Office. Amount realized S3 00,000 $100,000 Less: Adjusted basis (date of sale) (225,0001 (63,600? Realized gain $_____75,000 Recognized gain _ ____ __ 011EE* _$_ 36,4LQE“ *363,600 = $75,000 basis at conversion — $1 1,400 cost recovery. “Unless excluded under § 121 (see Chapter 15). ***lf§ 121 applies, part of the realized gain can be excluded (see Chapter 15). The 375,000 gain relating to the personal use of the residence may be excluded under § 121. If§ I21 applies, only $11,400 (equal to the depreciation deducted) of the $36,400 gain from the rental portion is recognized. See the discussion of § 121 in Chapter 15. Example 36 Property Transactions: Determination of Gain or Loss & Basis Considerations 14-23 58. a. Surendras basis for loss is $320,000, the lower of the adjusted basis of $340,000 or the fair market value at the date of the conversion of $3 20,000. b. Surendra’s basis for depreciation is $320,000, the same as the basis for loss. c. Surendra’s basis for gain is the adjusted basis 013,340,000. d. No. The realized loss of $20,000 ($320,000 — $340,000) on the sale of his personal residence would be disallowed. p. 14-19 59. The Emerald Corporation stock should not be transferred to Koji as a gift. Letting Koji inherit the Emerald Corporation stock would enable the $300,000 appreciation [$500,000 (fair market value) — $200,000 (adjusted basis)] to escape Federal income taxation (i.e., Koji would have a stepped-up basis rather than a carryover basis). The same argument could be made for the Silver Corporation stock although the appreciation is a much smaller amount ($ 1,000). The Red Corporation stock should not be transferred to Koji as a bequest because the value decline of $200,000 [$200,000 (fair market value) —- $900,000 (adjusted basis)] would be permanently lost. If the Red Corporation stock is transferred to Koji as a gift, Koji’s gain basis will be $900,000 and his loss basis will be $200,000. Therefore, depending on the amount Koji ultimately realizes for the Red Corporation stock, some or all of the value decline may be lost. Perhaps Hun should be encouraged to sell the Red Corporation stock and give the proceeds to Koji. A recognized capital loss of $200,000 ($700,000 — $900,000) would result. However, whether this strategy should be followed is dependent on whether Hun has other capital gains against which he can offset the capital loss, since only $3,000 of the capital 1085 could be offset against ordinary income each year. Hun may want to consider selling enough gain stock to offset the sale of the loss stock and transfer the cash proceeds to Koji. p. 14—25 CUMULATIVE PROBLEMS 60. Albert’s retirement income (Note 1) $ 5,484 Carol‘s retirement income (Note 2') 7,3 80 Albert’s bonus (Note 3) 1.000 Gambling income (Note 4) 25,500 Social Security benefits (Note 5) Gross income 544.3 64 Less: Net long-term capital loss (Notes 6, 7, 8. and 9) ($235 — $1,600) M Adjusted gross income $42,999 Less: Standard deductions (Note 11) (12,800) Personal exemptions (1 each for Albert and Carol) m Taxable inocme Tax on $23,399 from 2007 Tax Table (Note 12) $ 2,734 Less: Prepayments and credits Estimated tax. paid $3,100 Tax credit for the elderly (Note 13) i M Income tax payable (or refund due) for 200? (SA) See the tax return solution beginning on page 14-31 of the Solutions Manual. 14-24 Notes (I) (2) (3) (4) (5) (6) (7) (8) 2009 individual VolumeISolutions Manual Since Albert's distribution is from a qualified retirement plan, the simplified method is used. Albert’s investment in the plan $70,000 _ $34, 1 . h Number of anticipated payments 210 m " 3 me us‘on per mom Annual payments ($800 X 12) 559.600 Exclusion (5343 X 12) [4,1161 Inclusion in gross income fi,4_8_fl_ Since Carol’s distribution is from a qualified pension plan, the simplified method is used. Carol’s investment in the plan $74,000 = $285 1 . th Number of anticipated payments 260 cxc usmn per mm Annual payments ($900 X 12) $10,800 Exclusion ($285 >< I2) (3,4201 inclusion in gross income ' .180 Albert is a cash-basis taxpayer. Therefore, he includes the $l.000 bonus in his gross income in 200?. Carol’s net winnings of $5,500 from the casino are included in gross income. Likewise, Albert’s winnings from the lottery of $20,000 are included in gross income. Note that the cost of the lottery ticket of $1 and Carol’s casino losses of $2,100 would be itemized deductions if they itemized deductions. The amount of Social Security benefits that is includible in gross income is calculated as follows: Lesser of: .50($ 10,000) = $5,000 or .50[$3?,999* + .50($10,000) * $32,000] = $5,500 ="AGI excluding Social Security. The sale of the sleek that Albert and Carol had received as a stock dividend is treated as follows: Amount realized from the sale (6 shares >< $50) $300 Less: Basis of stock sold [$720 (original cost)i66 (number of shares held) X 6 (number of shares 501(1)] 5651 Long—term capital gain (holding period “tacks”) The loss of$l7,000 ($12,000 — $29,000) on the sale of Carol’s personal use car is not deductible. The sale ofstock that Albert and Carol had received as a gift is treated as follows: Amount realized from the sale (800 K $23) $18,400 Less: Basis for loss (the fair market value of the stock on the date ofthc gift, 800 K $25 per share) 520.000: Long-term capital loss firifl ...
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This note was uploaded on 12/03/2008 for the course ACG 352 taught by Professor B during the Fall '08 term at Bryant.

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Ch. 14 Answers - Property Transactions: Determination of...

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