Homework Set 6 solution

Homework Set 6 solution - Tax 4001 Fall 2010 Homework Set...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Tax 4001 Fall 2010 Homework Set #6 Solution PAGE 1 1) a. Capital b. 1231 c. Ordinary (inventory) 2) §1231 Gains --------> $ 20,000.00 $ (43,000.00) $ 23,000.00 LTCG LTCL LTCL $ 44,000.00 $ (36,000.00) $ 8,000.00 STCG STCL STCG 15000 LTCL which become a (15,000) carryover (Back 3, forward 5) Taxable Income = $235,000 3) Antique Truck Blue Growth Orange Bonds Green Stock $ (13,000.00) $ 15,000.00 $ 7,250.00 $ (4,000.00) LTCL LTCG LTCG STCL $ 22,250.00 $ (13,000.00) $ 9,250.00 $ (4,000.00) $ 5,250.00 Tax @ 15% rate rate Tax also $750 interest income from Orange bonds 4) 2002 2003 2004 2005 2006 $ (18,000.00) $ (35,000.00) $ (27,000.00) $ 45,000.00 $ 35,000.00 $ 1,000.00 2007 $ 37,000.00 5) Rack Forklift Bin ORD LOSS ORD LOSS ORD LOSS ORD INCOME ORD INCOME LTCG LTCG Basis Gain/Loss $ 50,000.00 $ 33,000.00 $ 13,000.00 $ (9,200.00) $ 59,500.00 $ 9,000.00 $ 32,800.00 ORD INCOME § 1231 Loss ORD INCOME ORD INCOME 6) $173000 = Robert's Basis considered LT, depreciation recapture potiental goes away Tax 4001 Fall 2010 Homework Set #6 Solution PAGE 2 7) $ $ $ $ $ $ $ 80,000.00 5,000.00 4,000.00 89,000.00 (3,650.00) (5,700.00) 79,650.00 $ 15,700.00 AGI TI Tax = 8) (4000*0.15)+((79650-4000)-33950)*0.25+4675= $ $ $ $ $ $ $ 80,000.00 5,000.00 (3,000.00) 82,000.00 (3,650.00) (5,700.00) 72,650.00 $ 14,350.00 AGI TI Tax = 9) (72650-33950)*.25+4675= $ 7,000.00 LTCG $ 18,000.00 $ (10,000.00) $ 2,000.00 STCG 2,000.00 STCG 25% 28% Nets to an $8,000 25% gain (7000*.15)+((18000-10000)*.25)+(2000*.35) = 10) (7000*0)+((18000-10000)*.15)+ (2000*.15) = $ 3,750.00 $ 1,500.00 Tax 4001 Fall 2010 Homework Set #6 Solution PAGE 3 29. 29. a. Land: Condemnation proceeds Allocable basis Realized and recognized § 1231 loss Truck: Depreciation taken: $3,491 ($6,000 – $2,509). Adjusted basis: $2,509. Realized gain: $3,500 – $2,509 = $991. Recognized gain: $991 ordinary income under § 1245. $25,000 (40,000) ($15,000) Rowing machine: Realized and recognized gain = Amount realized – Adjusted basis of machine on date of sale = $3,900 – $0 = $3,900. Section 1245 recapture = Amount of depreciation claimed ($5,200) or gain recognized ($3,900), whichever is less = $3,900. Apartment building: Realized gain = Amount realized – Adjusted basis = $200,000 – $124,783 = $75,217. Section 1231 gain recognized = $75,217. No § 1250 recapture is recognized because the taxpayer used the straight-line method of depreciation. Of the $75,217 § 1231 gain, $25,217 is unrecaptured § 1250 gain because the depreciation taken of $25,217 ($150,000 cost – $124,783 basis) is less than the $75,217 recognized gain. Yacht: Personal casualty loss (without regard to the 10% of AGI limitation) = Fair market value at date of theft – Insurance proceeds – Floor = $20,000 – $12,500 – $100 = $7,400. Auto: Realized loss = Amount realized – Adjusted basis = $9,600 – $20,800 = $11,200. The loss relates to a personal use asset. Therefore, it is not recognized. Trampoline: $6,000 business casualty loss is deductible for AGI. The casualty loss is measured by the adjusted basis of the property at the time of the theft. There is no $100 or 10% of AGI floor for a business casualty. Tax 4001 Fall 2010 Homework Set #6 Solution PAGE 4 b. b. Item Land Truck Rowing machine Building Yacht Auto Trampoline Recognized Gain/Loss ($15,000) 991 3,900 75,217 (7,400) –0– (6,000) Section 1245 Recapture $ 991 3,900 Casualty and Theft Loss Section 1231 Gain ($15,000) 75,217 ($7,400) (6,000) $ 4,891 Ordinary $6,000 Net income $ 60,217 Gain: business loss Adjusted gross income computation: Other sources Ordinary income from depreciation recapture, as above Long-term capital gain, as above Business casualty loss, as above Adjusted gross income $402,000 4,891 60,217 (6,000) $461,108 *None of the personal use activity property casualty loss is deductible from AGI because 10% of the $461,108 AGI is greater than the casualty loss of $7,400. **Of the $60,217 § 1231 gain, $25,217 is unrecaptured § 1250 gain because if the net § 1231 gain is greater than the potential unrecaptured § 1250 gain, all of the unrecaptured § 1250 gain is in the § 1231 gain that is carried from Form 4797 to Form 1040 Schedule D. Thus, the $60,217 § 1231 gain is comprised of $25,217 of unrecaptured § 1250 gain and $35,000 of 5%/15% gain. Tax 4001 Fall 2010 Homework Set #6 Solution PAGE 5 30. A business building on which straight-line depreciation was taken is not subject to depreciation recapture. Therefore, there will be no unusual gain recognition required at the time of the sale. (If the depreciation was subject to § 1245 depreciation recapture, all the depreciation would be recognized in the year of the sale.) The gain of $13,000 recognized as each payment is received will be § 1231 gain. Since there was $13,000 of depreciation taken on the building, there will be $13,000 of 25% gain (unrecaptured § 1250 gain) included in the total § 1231 gain. Total gain = $65,000 therefore each payment represents 13,000 gain and 7,000 recovery of capital. Of the gain recognized: $2,600 25% gain and 10,400 is LTCG ...
View Full Document

Ask a homework question - tutors are online