review_ex_1_fall_2011 - TAX 5015(Fall 2011 Chapter review...

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TAX 5015 (Fall 2011) – Chapter review exercise #1 Topic review: Property transactions & individual taxation Due date: September 1, 2011 Name(s): Part 1: Cost recovery and Sec. 1245 recapture. The RedSox Corporation purchased used equipment (7-year MACRS property, ½ year convention) on March 3, 2010 for $2,150,000. 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 = $910,000 (b) Selling price = $1,000,000 (c) Selling price = $2,200,000 Part 2: Sec. 1231 netting and deprecation recapture (Secs 1245, 1250, and 291). Lowell Corporation, a C-corporation, disposed of the following assets (all Sec. 1231 property) during 2010: Asset Depreciation Method Cost MACRS depreciation Selling Price Equipment Machinery Building Land MACRS – DDB MACRS – DDB MACRS – SL --- $50,000 $60,000 $100,000 $50,000 $35,000 $40,000 $15,000 - 0 - $19,000 $11,000 $120,000 $90,000 Required : (a) How much is Lowell Corporation's Sec. 1245 ordinary income?
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