review_ex_1_spring_2010_solution

review_ex_1_spring_2010_solution - TAX 5015 (Spring 2010)...

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TAX 5015 (Spring 2010) – Chapter review exercise #1 Topic review: Property transactions & individual taxation Due date: January 20/21, 2010 Name(s): SOLUTION Part 1: Cost recovery and Sec. 1245 recapture. The RedSox Corporation purchased new equipment (7-year MACRS property, ½ year convention) on January 3, 2010 for $580,000. In order to lower their current period taxes they elected to expense the maximum amount allowed in 2010. The equipment was sold on December 7, 2012. Required : What is the amount and character of the gain/loss in each of the following independent situations? (a) Selling price = $190,000 (b) Selling price = $285,000 (c) Selling price = $600,000 Cost: 580,000 Sec. 179: 134,000 Ceiling: (530,000) Phase-out: (50,000) Excess: 50,000 Deduction: 84,000 MACRS Sec 179 Bonus rate MACRS 2010 84,000 0 14.29% 70,878 Note: MACRS is based on $496,000 basis after deducting Sec. 179. 2011 24.49% 121,470 1/2 year in 2012 17.49% 43,375 84,000 0.00 235,724 319,724 total cost recovery (a) (b) (c) Selling price 190,000 285,000 600,000 Adjusted basis (260,276) (260,276) (260,276) Gain (loss) (70,276) 24,724 339,724 Character Ordinary loss (70,276) Sec. 1245 ordinary income 24,724 319,724 Sec. 1231 gain 20,000
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Part 2: Sec. 1231 netting and deprecation recapture (Secs 1245, 1250, and 291).
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review_ex_1_spring_2010_solution - TAX 5015 (Spring 2010)...

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