Chapter 3 homework

Chapter 3 homework - Chapter 3 Taxable Entities; Tax...

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Chapter 3 Taxable Entities; Tax Formula; Introduction to Property Transactions Solutions to Problem Materials 3-13 H and W are entitled to their basic standard deduction of $11,600 (2011) and two extra deduction amounts of $1,150 (2011) each for being at least 65 years of age. As a result, their standard deduction for 2011 is $13,900. In addition, they are entitled to two exemption deductions or $7,400 ($3,700 in 2011 × 2). As a result, their taxable income would be $18,700 ($40,000 – $13,900 – $7,400). (See Example 12 and p. 3-21.) 3-39 Fred and Susan have A.G.I. of $56,000 ($57,200 – $1,200) and taxable income of $29,600, determined as follows: Gross Income $57,200 Less: Deductions for AGI (1,200) Adjusted gross income $ 56,000 Less the larger of Itemized deductions$ 8,900 Standard deduction (2011) $11,600 (11,600) Less personal and dependency exemptions (4 × $3,700) (14,800) Taxable income $ 29,600 (See Exhibit 3.3 and pp. 3-15 through 3-23.) 3-42 a. The income is included in T's taxable income. T is able to reduce the U.S. tax by $2,000 in the form of a foreign tax credit for the tax paid to the foreign government. b. The foreign tax credit is limited to the U.S. tax on the foreign source income. As a result, T may only claim a credit of $1,800. c. Under the foreign earned income provisions, T may elect to exclude up to $92,900 (2011) from gross income the income from personal services
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performed while a resident of a foreign country. As a result, there is no U.S. tax and no foreign tax credit. (See Example 2 and p. 3-4.) 3-44 a. C. However, this asset falls into a special class because it is also personal use property. The treatment of such properties will be developed in subsequent chapters. (See p. 3-31.) b. C. Passive investments are generally capital assets. (See p. 3-31.) c. C. See answer (a). d. O. Inventory does not qualify as a capital asset. (See No. 1 on p. 3-31). e. C. See answer (b). f. T. This is § 1231 property. (See p. 3-34.) g. O. Trade accounts and notes receivable do not qualify as capital assets or § 1231 assets. (See No. 3 on p. 3-31.) h. C. See answer (b). 3-45 The following calculations apply to W's sale: Amount realized Amount of money received $12,000 Fair market value of other property received 0 Liabilities discharged in the transaction 32,000 $ 44,000 Less adjusted basis (23,000) Gain realized $ 21,000 (See Exhibits 3.10 through 3-12 and pp. 3-28 through 3-39.) 3-47 Each of the requested amounts for S is shown in the following computation:
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Amount realized Amount of money received $ 6,000 Fair market value of other property received 30,000 Liabilities discharged in the transaction 36,000 $ 72,000 Less adjusted basis ($52,000 – $12,000) (40,000) Gain realized $ 32,000 (See Exhibit 3.10 and pp. 3-28 through 3-29.) 3-48 First segregate the gains and losses into the four groups as follows: Long-term capital gains ($1,000 + $6,000) $ 7,000 Long-term capital losses (2,000) Short-term capital gains 0 Short-term capital losses
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Chapter 3 homework - Chapter 3 Taxable Entities; Tax...

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