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1. For each of the following transactions, identify how much gain the taxpayer will recognize and the taxpayer’s basis in the new property. a. Maude exchanges computer equipment with a basis of $25,000 and a FMV of $45,000, for computer equipment with a FMV of $37,000 and a motorcycle with a FMV of $8,000.
Maude’s Recognized Gain _____$8,000 (motorcycle is boot property)
Maude’s basis in new computer equipment ___$25,000 (25,000 + 8,000 – 8,000) Maude’s basis in motorcycle _______$8,000 (FMV) b.Cane Corporation’s warehouse is destroyed by a hurricane in September, 2009, when its basis is $130,000, and its FMV is $180,000. The insurance company reimburses Cane $180,000. In December, 2009, Cane Corporation purchases a new warehouse for $140,000.
Cane’s Recognized Gain _______$40,000 (the unreinvested proceeds) Cane’s Basis in new warehouse ____$130,000
2. White Corporation’s first disposition of a Section 1231 Asset occurred in 2005. Fill in the table below to indicate the character of White’s Net 1231 Gain/(losses) for the period 2005-2009. Year 2005 2006 2007 2008 2009 Sec 1231 Gains $10,000 $10,000 $6,000 $9,000 $2,000 Sec 1231 Losses $8,000 $15,000 $5,000 $3,000 $8,000 ($5,000) $1,000 $4,000 ($6,000) $2,000 Ordinary Income (loss) Capital Gain (loss) $2,000
000 on apartment building. Inc stock) with an adjusted basis of $9. 5. Therefore.000. to be held for investment. and $70. This year.000. Kevin purchased 5.3. What is the amount and character of the gain recognized by the corporation? Gain = 280.000 Section 1231 gain and a $20. Zero is recognized.52/ share. Basis in rental house = 47000 + 9. At the time.000 gain. 6.000 is Sec 1245 ordinary income and $10. 7.250 shares with a basis = 50. Taxpayer exchanges an apartment building with an adjusted basis of $47. the common stock had a FMV of $12. If he sells 100 shares for $12/share. Max's only Section 1231 item was a $12. The equipment cost $270.500.000 and a FMV of $6. Prior to this year.000 – 3. Two years later he receives a 5% nontaxable common stock dividend. $70. Taxpayer has a realized and recognized a loss on the boot property of $3. What is Joy’s basis for depreciation? Assuming Joy takes $3.000 that it had purchased and placed in service several year ago. he will recognized a LTCG = 1200 – 952 = $248. Joy.000 in a like-kind exchange.500 and a “loss” basis = 8.500 – 3.000 of depreciation and then sells the machine for $4. how much is her recognized gain or loss? Joy’s depreciation basis = Melody’s adjusted basis = $9.500 and an adjusted basis in Melody’s hands of $9. a corporation sells equipment for $280. What is the amount and character of gain recognized by Max this year? $10.000.500 loss on the sale of the machine.000 = $53. (hp of new shares includes hp of old shares). Joy has a “gain” basis = 9.500 – 3. 4. what is the amount and character of his recognized gain or loss? Kevin receives 250 shares.00/share. During the current year.000 – 200. or $9. . So he now has 5.500.000 Net Sec 1231 Gain treated as ordinary income because of the 5-year lookback rule.500.000 loss two years ago.000 and a FMV of $55.50/share. Joy can recognize a $1.000. a machine to be used in her business with a FMV of $8. and boot (Green.000 = 6. Max recognizes a $30. What is the per/share basis of the Purple Corporation stock? If two months after receiving the stock dividend.000 of depreciation deductions were taken.000 shares of Purple Corporation stock at $10/share.000 is Sec 1231 gain. Kevin sells 100 of the new shares he receives for $12. What is the recognized gain or loss and what is the taxpayer’s basis in the rental house? Taxpayer has a realized gain of $8.000.000 = $80.000.000 for a rental house with a FMV of $61.000 = 5. Melody gives her niece.000 Section 1231 loss.
Kimberly’s ordinary income marginal tax rate is 35%. Ryan. all recognized in August. would be: (2000 * . $2.241. a single individual.000 Therefore: Character of $70.400. a single taxpayer.700.8.000. Compute Ryan’s additional tax due as a result of these capital gains and losses. 2007: $3.000 has been taken on the building since its purchase. The building was originally purchased in 1994 for $200.000 28% LTCG. although $50.000 Sec 1250 Recapture = 0 (because in 1990 SL was required for buildings) Sec 291 Recapture = . a C Corp. Her tax would be: (1.000. Wilson Corporation.000 ordinary income and $60.000 in 2009.000 Sec 1250 Recapture = 0 (because in 1990 SL was required for buildings) Therefore: $70. if characterized as LTCG when it “comes out of the 1231 bucket” would be subject to a maximum rate of 25%. She sold a painting held eight years for a gain of $4.000 25% LTCG. which would leave him with a $2. $6. Compute Kimberly’s additional tax due as a result of these capital transactions.000 = $70. the additional tax due as a result of these transactions.20(50. has taxable income of $80.000 is also “unrecaptured Sec 1250 gain” and.000 Sec 1231 gain. sells an office building on September 30 of this year. 9. Ryan’s marginal tax rate is 28%.000 – 0) = $10.900.000 – 150.000 25% gain and a $6.15) = $1.300. 10.000 Regular LTCG gain (taxed at 15%)] 11. and stock held seven months for a gain of $7.000.000 STCL. The building was sold for $220.25) + (6000 * .000 = $70.700 * . [The STCL would offset the $3. and a STCG of $7. Kimberly.900. stock held three years for a loss of $2.35) = $3. before consideration of the following capital gains and losses.000 gain is $10. Therefore. MACRS-SL Depreciation of $50.000 28% LTCG.000 Regular LTCG.000 gain is Sec 1231 gain. Gain = 220.000 – 150. . Answer #8 again assuming Wilson is an individual instead of a Corporation.900 *. Kimberly has a net “collectible” LTCG of $1. $3. sold three capital assets during September 2009.28) + (7. What is the amount and character of gain recognized by Wilson Corp on the sale? Gain = 220.
696. Of this amount. 11000 – 2304 = 8696.1152 * ½ = 576. all sec 1245 ordinary income.400. 2008: 10. and $1000 is Sec 1231 gain. Total Depreciation Expense = 7. 2000 – 2304 = $304 loss. 2009 when she sold it. for $10.000. c) Sold for cash of $11. b) Sold for cash of $2. a) Sold for cash $8.000 * . 2009: 10.000.Fran purchased computer equipment on March 1. $7696 is Sec 1245 ordinary income recapture.32 = 3200.000 – 7696 = 2304. She used the equipment 100% in her small business until November 15. .20 = 2000.000 * . 8400 – 2304 = 6. 2007: 10. 2006. she elected out of bonus depreciation).096 gain. Depreciation expense computed as follows: 2006: 10.12.000 * . Therefore Basis of equipment = 10. all Sec 1231 loss.000. She has been depreciating the equipment as MACRS 5 year property since 2005 (1/2 year convention.000 * .192 = 1920. Identify the amount and character of gain/(loss) that Fran would recognize in each of the following independent situations: First compute basis of asset disposed.
000.SL N/A Cost $40. b) How much is Hero Corporation's Sec 1250 ordinary income recapture? The building is the only Sec 1250 property. all Sec 1231 property this year: Asset Equipment Building Land Deprec Method MACRS .000 Total 47.000 $60.000 $60. Therefore. In this case that is .000 $100.000 will be ordinary income.DDB MACRS .000 $50.000. $8.000 $105. disposed of the following assets.000 Sale Price $22.000 gain on the building will be treated as ordinary income.000 Basis $10.000 Land: 10. . and $41.000 a) How much is Hero Corporation's Sec 1245 ordinary income recapture? Equipment is the only Sec 1245 property.000 of unrecaptured Sec 1231 losses from last year. d) What is Hero's net Sec 1231 gain (loss) for the 2008? Building: 45000 – 8000 = 37.000 (note: all of the gain on the equipment is ordinary income). Hero Corporation.000 of the $45.20(40.000 $50. what is the character of the current year net Sec 1231 gain (loss)? $6. c) How much is Hero Corporation's Sec 291 ordinary income recapture? Sec 291 Recapture applies to Sec 1250 property. It is equal to 20% times (the amount that would have been recaptured under Sec 1245 less the amount that was recaptured under sec 1250). since depreciation taken was $30. e) If Hero has $6.000. a C Corp. Since SL was used.000 will be LTCG.13.000 – 0) = $8. this is ALL Sec 1245 ordinary income. there is NO Sec 1250 recapture. The gain from the equipment is $12.
Considering these activities.000 + 5.000 – 15.000 + 90. K&K borrowed $180. Operating Income Dividend Income Taxable Income b4 DRD DRD Taxable Income $450.000.000 -15. Also.000 16. 15. [note: IF K&K had been an S Corporation.] . compute each partner’s basis in her partnership interest at year-end.000. In addition. During the year.000 = $200. Maize Corporation had net operating income of $450.000 600. b. Maize owns 50% of the stock in Blue Corporation and Blue Corporation paid Maize a dividend of $150. Kristy and Karla are equal partners in K&K Partnership. K&K had an ordinary loss of $30. and a Net Long Term Capital Gain of $10.000.000.000.14. each s/h’s basis would have been: 120. None of the above (a-c) is correct. An LLC has greater flexibility than does an S Corporation in terms of the number of owners.000 during the current year. An advantage of an LLC when compared to a C corporation is the ability to pass tax attributes through to the owners.000 (recourse debt).000) $480. Which of the following (a-c) is NOT correct with respect to limited liability companies? a.000 + 5. c.000 150.000 = $110. All of the above (a-c) are correct. At the beginning of the year each partner’s adjusted basis in K&K was $120. e. during 2009. Maize has no other items of income and expense for the year.000. d. Compute Maize Corporation’s taxable income. special allocation opportunities and capital structure. A disadvantage of a partnership when compared with an LLC is the inability of all the owners to have limited liability.000 (120. Basis = 120. type of owners.
e. Which of the following (a-d). and she has sufficient passive income to be able to deduct entire amount at risk). b. A non-qualifying trust. Section 1231 gain. Interest Income. d.17. Her allocable share of CDE’s passive ordinary losses from a non-realty activity for the current year is ($40.000 (limited to at-risk basis. None of the above (a-d) is an eligible S Corporation shareholder. Advertising expenses. A Partnership. c. Foreign taxes paid.000. A resident alien. Carole’s basis in her CDE partnership (before consideration of the loss) is $30. . She also has $50. b. 19. is an eligible S Corporation shareholder? a. A Foreign corporation. Carole is a partner in CDE partnership.000 of passive income from other sources. Which of the following items (a-d) is NOT separately stated on an S Corporation’s Schedule K? a. c. e. How much of her allocated loss can she deduct this year? $25. Her amount “at-risk” is $25. if any. 18. All of the above (a-d) are separately stated.000.000). d.
000 50.000 distribution from the partnership.000 20.000 150.000 150. Determine the S Corporation Ordinary Income and separately-stated items. Assume instead that Manning Corporation is an electing S Corporation owned 100% by Peyton.000 to Peyton and $50.000 610.000 15. Determine the Partnership’s Ordinary Income and Separately Stated Items.000 to Eli. Compute Manning's C Corp Taxable Income. whose basis in his shares is $120. B.000 60. and Peyton’s year end basis for his S Corporation Shares. Also assume that the Officer Salary is instead guaranteed payments of $100. and that in addition each partner received a $25.000 25. a personal service corporation.20. reported the following items of income and expense for the year: Gross Profit (less than 20% owned Domestic corps) Dividends Received U.000 59.000 12. Manning Corporation. indicate how much income Peyton would report on his individual income tax return as a result of partnership activities. Eli and Peyton. Also. C.000 45.S.000 170.000 75. Treasury Bond Interest LTCG STCL City of Indianapolis Bond Interest Officer Salary Salary Expense Bad Debt Write-Offs Change in Balance of Allow for Doubtful Accts Book Depreciation Expense MACRS Depreciation Expense Charitable Contributions Key-Man Life Insurance Premiums Other Expenses Dividends Paid/Distributions to Owners A.000 at the beginning of the year. Assume instead that Manning is a Partnership with two equal partners.000 .000 +9. $1.250.000 35.
000) Distributions to Partners 50.000 (150.250.000 45.000 $1.000) Bad Debt Expense (75. Charitable Contributions Net Effect on Peyton’s Income $93. Treasury Interest LTCG STCL G.000 75.000 (22. DRD CC TI B4 DRD DRD Taxable Income Part B: Manning Partnership Ordinary Income Gross Profit $1.000) (170.000) [150.000 * 70%] $ 260.500 30.000] $ 365.S.000 Guaranteed Payments (150.000 Guaranteed Payments 150.250. Treasury Interest 25.000) Other Expenses (170.000 U.000) (610.000 (7.Part A: Gross Profit Dividends LTCG U.000 Charitable Contributions (45.000 STCL (15.000 LTCG 60.000) (75.600) [limited to 10%*406.500 *assuming he itemizes his deductions .P.500) 100.000 (40.000) Salary Expense (610.S.000 150.000 Separately Stated Items Dividends Income $150.400 (105.000 12. Treas Bond Interest Officer Salary Salary Expense Bad Debt Expense Depreciation Expense Other Expenses TI B4 CC.000) $ 406.000) Total Ordinary Income $186.000 25.000) (59.500)* $280.000) Municipal Bond Interest 20.000) Depreciation Expense (59.400 Peyton’s Taxable Income would be affected by the following amounts: Ordinary Income Dividends U.S.
000) Salary Expense (610.000 (50. Treasury Interest 25.000 LTCG 60.000 20.000 150.000 Charitable Contributions (45.000 186.000 .000 Peyton’s Basis: Beginning Basis Plus: Ordinary Income Dividends Received U.000) $439.000 60.000 STCL (15.000) Other Expenses (170.250.Part C: Manning S Corporation Ordinary Income Gross Profit $1.000) Municipal Bond Interest 20.000) Bad Debt Expense (75.S.000) Distributions to S/H 50.000 25.000) – key man insurance (15.000) (12.000 Separately Stated Items Dividends Income $150.000) (45.000 Officer Salary (150.000) Total Ordinary Income $186.000) Depreciation Expense (59.S. Treasury Interest LTCG Muni Interest Less: Distributions Non-deductible Items STCL Charitable Contributions Ending Basis $120.000 U.
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