Homework Problems 8-8, 8-14, 8-15

Homework Problems 8-8, 8-14, 8-15 - Solution to Problem 8-8...

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Solution to Problem 8-8 Facts : Winding Inc owned a Class 1 building with an original cost of $750,000, which sat on land valued at $150,000 (Total cost $900,000). The current UCC of the building is $425,000. On July 10, the building was destroyed in an earthquake Insurance paid $1,000,000 for the building on November 1 st and the land was sold at the same day for $200,000. In February of the following year, Winding acquired a new replacement land and building for $1,400,000, of which $300,000 was allocated to the land Winding Inc. will make the appropriate tax elections to reduce the tax effects of the replacement Explain the tax effects: At the time of the involuntary disposition In the following year when the property is replaced
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Solution In the Year of Loss: (1) Calculate Capital Gains: Land : Proceeds of Disposition (POD) $200,000 Adjusted Cost Base (ACB) (150,000 ) Capital Gain $ 50,000 Taxable Capital Gains $ 25,000 Building : Insurance Received $1,000,000 Adjusted Cost Base ( 750,000 ) Capital Gains $ 250,000 Taxable Capital Gains $ 125,000 (2 ) Check for potential CCA Recapture on Depreciable Assets: Capital Cost $750,000 UCC ( 425,000 ) Recapture of CCA $ 325,000 Impact on Winding Inc’s Tax Return: Taxable Capital Gain on Land $ 25,000 Taxable Capital Gain on Building $ 125,000 Recaptured CCA $ 325,000 Total to Include on Tax Return $ 475,000
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(1) Because the asset was replaced before the end of the second taxation year following the disposition, both the capital gains
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Homework Problems 8-8, 8-14, 8-15 - Solution to Problem 8-8...

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