Property Transactions Return Name: ___________ Class time:

Dean and Ellen Price are married and have a manufacturing business.

They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use
half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019

For a 7-year property, it is in the MACRS table that year 1 is 14.29%. Therefore, the computation is
as follows.

Using straight line method:

Year 2018
50,000 x 14.29 %
Depreciation = = $3572.5
2
For year 2, the percentage in the table is 24.49%

Year 2019
Depreciation = 50,000*24.49% = $12,245

They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for
$25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate
the MACRS depreciation on the truck for 2018 and 2019.

The MARCS’ percentage, in this case that the truck will have half year depreciation on the first
year of service and half year on the year of disposal and the other years in-between are done full
depreciation, will be 20% for year 1 and 32% for year 2.

Year 2018,
25,000 x 20 %
Depreciation = = $2,500
2

Year 2019
50,000 x 32%
Depreciation = = $4,000
2

Total depreciation = $2,500 + 4,000 = $6,500

On 10/26/2019 Dean sold his old storage building used for his business for $220,000. They purchased
the building in 2001 for $100,000. Total depreciation (accumulated depreciation) taken on the building is
$20,000.

His 2019 Business income and expenditures (Schedule -C):

Sales $ 657,500

Cost of goods sold $ 315,000

Other business expenses (incl. deprecation taken on the storage building) $ 140,000

1
Property Transactions Return Name: ___________ Class time:

He had gains/loss of $202,500.

In 2019 Dean also sold various assets. The information about the selling price and depreciation of the
property is listed below.

Placed in
Accumulated
Service / 2019 Depr. Tax Basis= Initial
Sold on Initial Cost Depreciation.
Purchased Amount Cost – Depr.
(Depr. Allowed)
on Allowed

Office tables 10/16/2019

4/4/2018 For $2,900 $3,000 $375 $825 $2175
11/8/2019
Office chairs
3/1/2015 For $4,000 $8,000 $1,000 $2,200 $5800
Marketable 12/1/2019
securities 2/1/2019 For $20,000 $12,000 $0 $0 $12000
Land held for 11/29/2019
investment 7/1/2018 For $48,000 $45,000 $0 $0 $45000

In 2019 Dean sold his wine collection for $9,000, which is bought two years ago for $8,000.

 They also has a short-term capital loss carryover of $10,000 from 2009.

2
Property Transactions Return Name: ___________ Class time:

Part I: MACRS Depreciations and Adjusted Basis

2018:

Date Date MACRS Rate Initial Cost 2018 MACRS

Acquired Disposed (3) (4) Depreciation
(1) (2) Deduction
(5) = (3)*(4)

Business 4/1/2018 N/A 14.29% 50,000 $7145

Equipment
Pick-up Truck 10/1/201 11/15/2 20% $25,000 $5000
8 019

2019 Depreciation

Date Date MACRS Rate Initial Cost 2019 MACRS

Acquired Disposed Depreciation
Deduction

Business 4/1/2018 N/A 24.49% 50,000 $12,245

Equipment

Pick-up Truck 10/1/201 11/15/2 32% $25,000 $8000

(Sold during
the year) 8 019

2019 Tax Basis

Date Date Initial Cost Accumulated Tax Basis at year

Acquired Disposed (3) Depreciation end
(1) (2) (4) (5) = (3)-(4).

Business 4/1/2018 N/A 50,000 19390 30,610

Equipment
Pick-up Truck 10/1/201 11/15/2 $25,000 13000 12,000
8 019

2019 Net Schedule-C Business income _________________________________184, 880

Property Transactions Return Name: ___________ Class time:

Part II. Summary Sheet for the Sales of Business Property (Form 4797)

Step 1) Sales or Exchanges of Property Used in a Trade or Business (Held for More Than 1 Year)

Description Date Date Sold Gross Accumulated Tax Basis Gain or

of property acquired (2) (3) Sales Price Depreciation (6) (loss) (4-6)
(1) (4) (5)

Truck 10/1/2018 11/15/2019 $24,000 $13000 $12000 $12000

Old storage 2001 10/26/2019 $220,000 $20,000 $80,000 $140,000

building

Office 725
Table 4/4/2018 $2,900 $825 $2175
10/16/2019
Office -1800
Chair 3/1/2015 $4000 $2,200 $5800
11/8/2019

Step 2) Ordinary Gains and Losses (incl. property held 1 year or less). Enter zero if not applicable.

Description Date Date Sold Gross Sales Accumulated Adj. Basis Gain or
of property acquired Price Depreciation (loss)

0 0 0 0 0 0 0

Step 3). Descriptions of Section 1245 property:

1) 2) 3) 4) 5) 6) 7)
Description Date Date Sold Gain Accumulated Amount of Remaining
of property acquired Depreciation Gain Gain =
reported as
Ordinary (4) - (6)
(Lesser of 4
or 5)
Pickup 10/1/2018 11/15/201 $12,000 13,000 12,000 0
truck 9

Wine 2017 2019 $1000 0 0 $1000

Collection

Office 4/4/18 10/16/19 725 825 725 0

Tables

Office 3/1/2015 11/8/2019 0 $2,200 0 0

chairs
Property Transactions Return Name: ___________ Class time:

3 (a) Net the gains/loss in A,B,C,D: 13,725

3 (b) Total Amount reported on (6) above: 12,725

3 (c) = 3(a) – 3(b) (Remaining Section 1231 Gain)= 13,725 – 12 725 = 1000
Property Transactions Return Name: ___________ Class time:

(Part II. continued) Summary Sheet for the Sales of Business Property

Step 4. Description of Section 1250 property

1) 2) 3) 4) 5) 6) 7)
Description Date Date Sold Gain Depreciation Unrecaptured Remaining
of property acquired allowed §1250 Gain. Gain =
(Accumulated (4) - (6)
Depreciation)
Old 2001 10/26/2019 $140,000 $20,000 $35000 $105, 000
Storage
Building

4(a) = Remaining Section 1231 Gain :105000 + 1000 = 106,000

4(b): Total Unrecaptured §1250 Gain on 6) above: 35000

4(c) = 4(a) – 4(b) = 105000-35000 = 71,000

Property Transactions Return Name: ___________ Class time:

Part III. Summary Sheet on the Sales of Capital Assets (Form 8949)

1). Short-term

Description Date Date Sold Gross Sales Depreciation Cost Basis Gain or
of property acquired Price allowed (loss)

Marketable
0 8, 000
securities 2/1/19 12/1/19 20,000 12,000

2) Long-term

Description Date Date Sold Gross Sales Depreciation Cost Basis Gain or
of property acquired Price allowed (loss)

Truck 10/1/2018 11/15/2019 $24,000 $13,000 $12,000 -$1000

Old Storage 2001 10/26/2019 $220,000 $20,000 $80,000 $120,000

Building

Wine 2017 2019 $9000 0 $8000 $1000

Collection

Office
Table 4/4/18 10/16/19 $2,900 $825 $3,000 -$925
Office
chairs 3/1/18 11/8/19 $4,000 $2200 $8,000 -$6200
Land held
for
investment 7/1/18 11/29/19 $48,000 0 $45,000 $3, 000

Summary for Capital Gains and Losses:

1.Net Short-term totals $8000

2. Net Long-term totals $115, 875

Property Transactions Return Name: ___________ Class time:

Part IV: Netting Process

Short-term Capital Gains Long-term Capital Gain (LTCG)

and Loss Carry-overs

$10,000 Net Sec. 1231

Collectibles Unrecaptured Other Long-
Gain term capital
§ 1250 Gain
gain

Net the Short-term Capital

Gain or Losses above =
71000
$8000 $35000
$9,875

Use the above amount to

net against Collectibles,
Unrecaptured Sec. 1250
Gain, LTCG, etc. on the
right

Net Capital Gain: 97,875

Property Transactions Return Name: ___________ Class time:

Part V. Self-Employment Tax Computation

2019 Net Schedule-C income (from page 2): _____184,880_______

2019 Self-Employment Tax: __________________

Social security tax = (The lesser of Net Sch-C income or $132,900)*12.4%, round up to nearest
dollar:16479.6

Medicare tax = (Net Schedule-C business income)*92.35%*2.9%, round up to nearest dollar:4951.4

Total Self-Employment Tax = 21,431

Part VI. Income Tax Computation

A. Net Capital Gains (NCG from page 6): 97,875

B. Other Gains (the amount for Part II 3(b) on page 3) : 12725

C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, less one-half of Self-employment tax)

AGI: 295480 – (21431/2) = 284764.5

D. Taxable Income before Qualified Business Income Deduction (AGI – 2019 Standard Deduction for
Married Filing Jointly): The standard deduction for Married Filing Jointly is $24,400 for 2019.

Therefore: 284764.5 – 24,400 = 260,364.5

E. Qualified Business Income Deduction (see page 8): 260364.5 * 20% = 52,072.9

F: Taxable income: (F=D-E) = 260,364.5- 52,072.9 = 208,284.6

G. Tax Computation

1) Tax on Capital Gains:

15% x $97875 = 14681.25

+ 25% x $97875 = 24468.75

+ 28% x $97875 = 27405

2) Tax based on tax rate schedule Y-1 (Taxable income (F) – NCG): 110409.6

3) Total Self-Employment Tax from Part V : 21,431

Add G (1), G (2) and G (3), this is their total tax: 198,395.6
Property Transactions Return Name: ___________ Class time:

Q: How is the deduction for Qualified Business Income (QBI) computed?

A: The SSTB (Specified Trade or Business) limitation does not apply if a taxpayer’s taxable income is
below $321,400 for a married couple filing a joint return and $160,700 for all other taxpayers in 2019; the
deduction is the lesser of:
       A) 20 percent of the taxpayer’s QBI (Net Schedule-C income), plus 20 percent of the taxpayer’s
qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income

     B) 20%*(excess of taxpayer’s taxable income before QBI deduction over net capital gains)
If the taxpayer’s taxable income is above the thresholds, the deduction may be limited based on whether
the business is an SSTB, the W-2 wages paid by the business and the unadjusted basis of certain property
used by the business.