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
(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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