Ch 14 Hw:
...
17) Melba purchases land from Adrian. Melba gives Adrian $225,000 in cash and agrees to pay Adrian an additional $400,000 one year later plus interest at 5%.
a) What is Melba's adjusted basis for the land at the acquisition date?
b) What is Melba's adjust
a. Melba's basis is the cost of $625,000 ($225,000 + $400,000). Whether the full acquisition price is paid in cash is not relevant.
b. Melba's basis for the land remains at $625,000. The interest paid does not affect the adjusted basis and land does not d
19)
LO.3 Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana's basis in the condominium and the amount of any income as a result of this purchase?
Luciana must include the $35,000 ($120,000 ? $85,000) difference between the cost and the fair market value of the land in gross income for the taxable year. The bargain element represents additional compensation to Luciana. Her basis for the land is $120
20)
LO.3 Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian's basis
The lump-sum cost is allocated on the basis of the fair market values of the individual assets acquired.
Sebastian's basis for the first piece of equipment is $40,000 [$72,000/($72,000 + $108,000) � $100,000], and his basis for the second piece of equipme
inheritance
The basis of property acquired from a decedent is generally the property's fair market value at the date of death (referred to as the primary valuation amount)
LO.3 Ashley inherited all of the property of her aunt, who died in 2017. Her aunt's adjusted basis for the property at the date of death was $1,200,000. The property's fair market value was $4,500,000 at the date of death and $4,800,000 six months after t
The basis of property acquired from a decedent is generally the property's fair market value at the date of death (referred to as the primary valuation amount). The property's basis is the fair market value six months after the date of death if the execut
Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for its fair market value of $100,000.
a) What is Lisa's realized and recognized gain or loss?
b) What is Alfred's recognized gain or loss if he subsequently sells the pro
a) Lisa's realized loss of $30,000 is not recognized.
Section 267 provides that realized losses from sales or exchanges of property, directly or indirectly, between certain related parties are not recognized.
b) Alfred recognizes an $8,000 gain ($38,000 g
Juan owned 200 shares of Circle Corporation stock (adjusted basis of $30,000). He sold 100 shares for $12,000. Twenty days later he purchased 100 shares of the same stock for $8,500. What is Juan's realized and recognized loss? What is his basis in the ne
Juan has a realized loss of $3,000 ($12,000 amount realized ? $15,000 adjusted basis of 100 shares) that is not recognized because it resulted from a wash sale. His basis in the newly acquired stock is $11,500 ($8,500 purchase price + $3,000 unrecognized
The wash sale rules stipulate that
in certain cases, a realized loss on the sale or exchange of stock or securities is not recognized. Specifically, if a taxpayer sells or exchanges stock or securities and within 30 days before or after the date of the sale or exchange acquires substantial
Arianna's personal residence has an adjusted basis of $230,000 and a fair market value of $210,000. Arianna converts the personal residence to rental property. What is Arianna's gain basis? What is her loss basis?
The original basis for loss on personal use assets converted to business or income-producing use is the lower of the property's adjusted basis or fair market value on the date of conversion. The gain basis for converted property is the property's adjusted
LO.1 Ricky owns stock in Dove Corporation. His adjusted basis for the stock is $90,000. During the year, he receives a distribution from the corporation of $75,000 that is labeled a return of capital (i.e., Dove has no earnings and profits).
a. The $75,000 distribution is labeled a return of capital because Dove has no earnings and profits. Ricky reduces the basis of his stock by $75,000 to $15,000 ($90,000 adjusted basis ? $75,000 return of capital distribution).
1. Stephen purchased a video game console five years ago for $500. In order to raise money for the "latest and greatest" console, Stephen sold his console for $100. Because of advances in technology, Stephen can purchase the new console for $400. What is
b) Stephen does not report the sale.
Gains and losses on the sale of nonbusiness personal property, such as a video game console, are calculated as the difference between the original cost and the sales price. In general, although gains are taxable, losse
Uncle Ubb gave his nephew, Leroy Lamprey, a gift of stock worth $10,000. Uncle Ubb's basis in the stock was $15,000. Leroy sold the stock to an unrelated party for $11,000. What amount of gain or loss should Leroy report as a result of this sale?
a) $0
b)
a) $0
When property that has declined in value is received as a gift, the recipient's basis will depend on whether the property is ultimately sold at a gain or a loss. Since the value of the stock was lower than its basis on the date of the gift, Leroy wi
CH 16 HW
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Sect 1237 (real property divided for sale)
allows real estate investors CAPITAL GAIN treatment if they engage only in limited development activities (certain requirements must be met).
- if met: all gain is capital gain UNTIL the tax year in which the SIXTH lot is sold.
- beginning with the tax ye
Shen purchased corporate stock for $20,000 on April 10, 2015. On July 14, 2017, when the stock was worth $12,000, Shen died and his son, Mijo, inherited the stock. Mijo sold the stock for $14,200 on November 12, 2017. What is the amount and character of M
His long-term capital gain is $2,200
Mijo has a fair market value at date of Shen's death basis and an automatic long-term holding period for the stock. His long-term capital gain is $2,200 ($14,200 amount realized ? $12,000 fair market value at Shen's de
inheritances holding period:
are ALWAYS long term
Coline has the following capital gain and loss transactions for 2017.
Short-term capital gain $ 5,000
Short-term capital loss (2,100)
Long-term capital gain (28%) 6,000
Long-term capital gain (15%) 2,000
Long-term capital loss (28%) (10,500)
After the cap
Coline first nets the short-term gains and losses against each other and the long-term gains and losses against each other. There is a net short-term capital gain of $2,900 ($5,000 ? $2,100) and a net long-term capital loss of $2,500 ($6,000 + $2,000 ? $1
LO.2During the year, Eugene had the four property transactions summarized below. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are the amount and nature of the gain or loss from each of these t
All the assets are capital assets because they do not fit any of the items listed in � 1221 as not capital assets. The antique vase is a "collectible." Therefore, the $5,000 gain ($42,000 sale price ? $37,000 basis) is a 28% long-term capital gain that wo
For 2017, Ashley has gross income of $38,350 and a $5,000 long-term capital loss. She claims the standard deduction. Ashley is 35 years old and unmarried with two dependent children. How much of Ashley's $5,000 capital loss carries over to 2018?
Ashley has a $3,000 capital loss deduction for AGI. The remaining $2,000 of the $5,000 carries forward as a long-term capital loss.
2. On January 15 of the current year Kreutzer, an individual, inherited from Gladstone shares of stock worth $25,000. Gladstone had purchased the shares in June of the previous year for $20,000, and the shares were worth $23,000 at Gladstone's date of dea
a) $4,000 long-term capital gain
The gain or loss on the sale of inherited property is always considered long-term. The basis in inherited property will be equal to the property's fair value at the date of death, unless the alternate valuation date, six m
2. The following facts apply to Collins, an individual:
In February of the current year, Hodge, who had owed a $5,000 personal debt to Collins for the past three years, declared bankruptcy.
Collins sold land used in Collins's business for a $10,000 gain.
b) $8,000 long-term capital gain
CH 17 HW
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Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $26,000 with an adjusted basis of $15,500 for $17,000. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basis
Lena has an ordinary gain (due to � 1245 depreciation recapture) of $1,500 ($17,000 ? $15,500) from the sale of the first equipment and a � 1231 loss of $2,700 ($5,500 ? $8,200) from the sale of the second equipment.
Renata Corporation purchased equipment in 2015 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2017 for $110,000. What is the amount and character of Renata's gain or loss?
Renata's equipment gain is subject to � 1245 depreciation recapture. The property had an adjusted basis of $97,000 ($180,000 cost ? $83,000 depreciation).
The gain is $13,000 ($110,000 selling price ? $97,000 adjusted basis) and is all ORDINARY GAIN due t
Sissie owns two items of business equipment. Both were purchased in 2013 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2017. One of them is worth $60,000,
Both assets are � 1231 assets. Section 1245 depreciation recapture causes the entire gain of $22,510 ($60,000 ? $37,490) to be taxed as ordinary income because the selling price does not exceed the $100,000 original cost of the asset. Because the loss of
An apartment building was acquired in 2008. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?
The maximum amount of unrecaptured � 1250 gain is equal to the depreciation taken on the property or the gain from disposition, whichever is lower. Because the gain ($34,000) is less than the depreciation taken ($123,000),
the maximum amount of unrecaptur
An individual taxpayer has $25,000 of � 1231 gain from the disposition of nonresidential real estate. Straight-line depreciation of $43,000 was deducted on the real estate. The taxpayer also has a � 1231 loss of $56,000 from the sale of equipment. How muc
None of the gain is taxed as unrecaptured � 1250 gain because there is a net � 1231 loss for the year of $31,000 ($25,000 nonresidential real estate gain less $56,000 equipment loss). A � 1231 loss resulting from the disposition of other � 1231 assets red
Enzo is a single taxpayer with the following gains and losses for 2017:
$2,100 short-term capital loss.
$24,000 long-term capital gain from sale of stock.
$14,000 � 1231 gain that is all unrecaptured � 1250 gain.
What is the amount and character of Enzo's
The $2,100 short-term capital loss first offsets the unrecaptured � 1250 gain, reducing it to $11,900. The total long-term capital gain is $35,900 ($24,000 + $11,900), and it is potential $11,900 25% rate gain and $24,000 0%/15%/20% rate gain.
In a � 1031 like-kind exchange, Rafael exchanges a piece of equipment that originally cost $200,000. On the date of the exchange, the equipment given up has an adjusted basis of $85,000 and a fair market value of $110,000. Rafael pays $15,000 and receives
Rafael has no recognized gain or loss. There was a realized gain of $25,000 ($110,000 value ? $85,000 adjusted basis) on the property relinquished, but because no boot was received, none of the gain is recognized.
However, the � 1245 depreciation recaptur
1. Joe purchased a van for $30,000 on February 1, 2015, for use with his business, Crew Airport Transport. Joe elected to take the � 179 deduction for the entire cost. On January 1, 2017, Joe sold the van for $20,000. What were the tax effects of this tra
c) $20,000 ordinary gain
Having taken the � 179 deduction for the entire $30,000 cost of the van, Joe had a $0 basis in the van when it was sold for $20,000, resulting in a gain. Since the van is tangible personal property used in a trade or business, it
On March 1 of the current year Reiter, an individual, sold an office building for $300,000 that had an adjusted basis of $220,000, resulting in a gain of $80,000. Reiter had purchased the building for $260,000 on April 1 of the previous year, and $30,000
a) $80,000 ordinary gain
a) Depreciable real property is � 1250 property subject to recapture of excess depreciation. However, since the building was held for 1 year or less, it is an ordinary asset and the entire $80,000 gain is ordinary gain.
3. In Year 3 Daniels, an individual, sold depreciable equipment for $21,000 that had an adjusted basis of $12,000, resulting in a $9,000 gain. The property had cost Daniels $20,000 when purchased in Year 1, and $8,000 of MACRS depreciation had been taken.
c) As an ordinary gain of $8,000 and a � 1231 gain of $1,000
When � 1231 property is sold at a gain, all depreciation taken, to the extent of the gain, is recaptured, resulting in an ordinary gain.
The remainder, if any, is � 1231l gain, Daniels recapture
CH 19 HW
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Joanna, age 44, defers $23,000 in a qualified � 401(k) plan in 2017.
a) What amount must be returned to Joanna and by what date?
b) In what year will the amount be taxed?
c) What percent of the tax will be imposed on the employer if excess contributions a
A � 401(k) plan allows participants to elect to receive up to $18,000 (in 2017) in cash (taxed currently) or to have a contribution made on their behalf to a profit sharing or stock bonus plan.
a) The $5,000 excess over the annual limit, along with the ap
� 401(k) plan
allows participants to elect to receive up to $18,000 (in 2017) in cash (taxed currently) or to have a contribution made on their behalf to a profit sharing or stock bonus plan. The plan may also be in the form of a salary-reduction agreement under which
Zack, a sole proprietor, has earned income of $85,000 in 2017 (after the deduction for one-half of self-employment tax). What is the maximum contribution Zack may make to a defined contribution Keogh plan?
The maximum contribution Zack may make to a defined contribution Keogh plan is $54,000, the lesser of $85,000 or $54,000.
self-employed individual
may annually contribute the smaller of $54,000 (in 2017) or 100% of earned income to a defined contribution Keogh plan. However, if the defined contribution plan is a profit sharing plan or stock bonus plan, a 25% deduction limit applies.
(25% limit = 20%
IRA
For 2017, the contribution ceiling is the smaller of $5,500 (or $11,000 for spousal IRAs) or 100% of compensation.
The contribution ceiling applies to all types of IRAs (traditional deductible, traditional nondeductible, and Roth).
An individual who attai
Roth IRAs
are not subject to the minimum distribution rules that apply to traditional IRAs. Contributions to a Roth IRA (unlike a traditional IRA) may continue beyond age 701/2 as long as the person generates compensation income and is not barred by the AGI limits.
Meredith, who is single, would like to contribute $5,500 to her Roth IRA. However, her AGI is $119,000. What is the maximum amount that Meredith can contribute?
Meredith can only contribute $5,133 computed as follows: Excess AGI = ($118,000 ? $117,000) = $1,000; ($1,000/$15,000) = 6.67% � $5,500 = $367 reduction; $5,500 ? $367 = $5,133 contribution.
bc of AGI limitations
Amber's employer, Lavender, Inc., has a � 401(k) plan that permits salary deferral elections by its employees. Amber's salary is $99,000, her marginal tax rate is 25%, and she is 42 years old.
a) What is the maximum amount Amber can elect for salary defer
a. The maximum amount for which Amber can elect � 401(k) plan salary deferral for 2017 is $18,000.
b. Her tax liability for 2017 would be reduced by $4,500 ($18,000 � 25%) as a result of the salary deferral election.
c. $18,000 maximum amount. The electio
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $64,000 in 2017.
a) Calculate the amount Janet can contribute to a traditional IRA and the amount she can deduct.
b) Assume instead that Janet is
AGI limitation ($10,000 phaseout range)
a) ($2,000/$10,000) � $5,500 = $1,100 phaseout
or ($64,000-62,0000)/ $10,000 � $5,500 = $1,100 phaseout
Although Janet can deduct only $4,400 ($5,500 - $1,100), she still can contribute $5,500 to her traditional IRA
Answer the following independent questions with respect to a deductible IRA and � 401(k) contributions for 2017:
a) Govind, age 31, earns a salary of $26,000 and is not an active participant in any other qualified plan. His wife has $600 of compensation i
a. Govind may contribute a total of $11,000 to his IRA and a spousal IRA, with a maximum of $5,500 to either account. The $11,000 is deductible on their joint return.
b. Danos may contribute $2,520 of elective deferrals (6% � $42,000), and his employer wi
Answer the following independent questions with respect to traditional IRA contributions for 2017:
a) Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified plan. His wife, Agnes, has no earned income. What is the
a. $11,000. A homemaker under the spousal IRA provision may take a full $5,500 deduction to a traditional IRA. Therefore, $5,500 may be contributed to Juan's traditional IRA and $5,500 may be contributed to Agnes's traditional IRA.
b. $11,000. Their combi
Jimmy establishes a Roth IRA at age 47 and contributes a total of $89,600 over 18 years. The account is now worth $112,000. How much of these funds may Jimmy withdraw tax-free?
ALL $112,000.
Assuming that Jimmy met the income limitations at the time of his contributions, all of the funds may be withdrawn tax-free.
He satisfies the five-year holding period for a Roth IRA and is over age 59 1/2 at the time of the distribution.
Dana, age 54, has a traditional deductible IRA with an account balance of $107,600, of which $77,300 represents contributions and $30,300 represents earnings. In 2017, she converts her traditional IRA into a Roth IRA. What amount must Dana include in her
The entire amount of $107,600 is included in Dana's gross income in 2017. Dana's adjusted basis for her traditional IRA is zero, because she has deducted the $77,300 of contributions.
1. The following facts apply to Newton, a single individual, for 2017:
W-2 income $110,000
Traditional IRA contribution 5,000
Coverdell Education Savings Account contribution 2,000
State Qualified Tuition plan (529 plan) contribution 3,000
Qualifying medi
d) $105,000
Since Newton is not participating in a pension or profit sharing plan other than the traditional IRA, contributions of up to $5,500 may be deducted as an adjustment for adjusted gross income (AGI). Contributions to Coverdell Education Savings
. On 15 February of the current year Young received a $10,000 lump-sum payment from a qualified profit-sharing plan, the full amount of which Young rolled over into an IRA 46 days later. How much of this lump-sum payment may Young exclude from current yea
b) $10,000
All $10,000 excluded from income.
A distribution from a qualified profit-sharing plan is excluded from income to the extent that it is transferred to an eligible retirement plan, such as an IRA, within 60 days. Since Young transferred the distr
(rollover)
A distribution from a qualified profit-sharing plan is excluded from income to the extent that
it is transferred to an eligible retirement plan, such as an IRA, within 60 days. Since Young transferred the distribution in 46 days, it would be excludable from income in its entirety.
CH 14 QUIZ
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Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition. (T/F)
True
In a casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss. (T/F)
True
The basis of inherited property usually is its fair market value on the date of the decedent's death. (T/F)
True
Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie's recognized gain or loss?
$0
Because the automobile is a personal use asset, none of the realized loss of $13,000 ($12,000 - $25,000) is recognized.
Ralph gives his daughter, Angela, stock (basis of $8,000; fair market value of $6,000). No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?
$2,000
As Angela's gain basis is $8,000, she has a recognized gain of $2,000 calculated as follows:
Amount realized $10,000
Basis for stock (8,000)
Realized gain $ 2,000
Recognized gain $2,000
Because the property was sold at a gain, Angela's loss basis o
Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?
$0 Recognized gain and $105,000 basis in the land
Arthur's realized loss of $40,000 ($105,000 - $145,000) is disallowed as a related-party transaction under � 267. Ned's basis for the land is his purchase price of $105,000.
Weston sells his residence to Joanne on October 15, 2017. Indicate which of the following statements is correctly associated with � 121 (exclusion of gain on sale of principal residence).
Capital expenditures made by the seller prior to the sale increase the seller's adjusted basis and have no effect on the buyer's adjusted basis.
Eric and Faye, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years,
With exclusion: $0
Elect to forgo: $285,000
375,000 - 10,000 realtor's fees = 365,000
365,000 amt realized - 80,000 adj basis = 285,000
The � 121 exclusion reduces the recognized gain by $285,000 to $0. Without the � 121 exclusion, the recognized gain is
Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000. He incurs selling expenses of $20,000 and legal fees of $2,000. He had purchased another residence one month prior to the sale for $380,000. What is the recognized g
$28,000 and $380,000.
Amount realized ($200,000 - $20,000 - $2,000) $178,000
Adjusted basis (150,000)
Realized gain $ 28,000
Recognized gain $ 28,000
CH 16 Quiz
...
The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses. (T/F)
True
A security that was purchased by an individual and qualifies as � 1244 stock becomes worthless. The taxpayer is single and the loss is $30,000. The loss is treated as an ordinary loss. (T/F)
True
For a single taxpayer, up to $50,000 per year of loss on � 1244 stock is treated as ordinary loss.
Section 1244 small business stock - allows an ordinary deduction of stock at a loss.
The possible holding periods for capital assets include:
Long-term = greater than 12 months.
The short-term holding period is 12 months or less and the long-term holding period is greater than 12 months.
Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:
Virgil has a $1,000 capital gain.
Since the apartment was Virgil's personal residence, the lease on the apartment was a capital asset because all personal use assets are capital assets.
Virgil has a zero basis for the lease. Therefore, the entire payment
In 2017, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?
Mark has a $3,000 capital loss deduction. (limit of $3,000 capital loss deduction for AGI per year)
There is a net short-term capital loss of $5,000 ($18,000 short-term capital loss - $7,000 28% gain - $6,000 0%/15%/20% gain) of which $3,000 is deductible
In 2017, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?
All of the LTCG will be taxed at 20%.
Since taxable income without the $48,000 puts the taxpayer in the 39.6% marginal tax bracket, all of the $48,000 0%/15%/20% capital gain is taxed at 20%.
Which of the following comparisons is correct?
a. Both corporations and individuals may use an alternative tax rate on net capital gains.
b. Corporations may carryback capital losses; individuals may not.
c. Corporations may carryforward capital losses in
Corporations may carryback capital losses; individuals may not.
Corporations may carryback capital losses; individuals may not ("Corporations may carryback capital losses; individuals may not"). Individual long-term capital losses carryover as long-term,
Diff between corps and individuals:
- corps have a five year carryforward limit; individuals may carryforward capital losses indefinitely.
- corps may carryback capital losses (3 years); individuals may not
- corps alternative tax rate on long term capital gains is 35%, not 20%
A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 capital loss. (T/F)
Since the property was depreciable business property, it is not a capital asset. Since the property was held more than one year, it is a � 1231 asset and, therefore, the loss is a � 1231 loss.
Section 1231: If sold at a loss - ordinary loss treatment (abo
The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain. (T/F)
True
Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2017?
$30,000
The net capital loss is $5,000 ($15,000 NSTCL - $10,000 NLTCG). However, corporate taxpayers are not permitted to deduct net capital losses against ordinary income. Therefore, the taxable income of $30,000 consists of the ordinary income from oper
corporate taxpayers:
are not permitted to deduct net capital losses against ordinary income.
Ch 17 Quiz:
...
Section 1231
an asset used in a trade or business. Held more than 1 year (net all section 1231 assets together)
if there is a net section 1231 loss - treat loss as ordinary loss
Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties. (T/F)
True
Section 1231 applies to the sale of business properties and to certain involuntary conversions such as casualties of nonpersonal use property.
If there is a net � 1231 loss, it is treated as an ordinary loss. (T/F)
True
If � 1231 asset casualty gains and losses net to a gain, the gain is treated as a � 1231 gain. (T/F)
True
A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI. (T/F)
True
Rental use depreciable machinery held more than 12 months is an example of a � 1231 asset. (T/F)
True
Which of the following assets held by a manufacturing business is a � 1231 asset?
a. Office furniture used in the business and held less than one year.
b. Inventory.
c. Accounts receivable.
d. A factory building used in the business and held more than one
A factory building used in the business and held more than one year.
Inventory is an ordinary asset. Office furniture used in the business is a � 1231 asset once it has been held more than a year. Accounts receivable are an ordinary asset.
Vertigo, Inc., has a 2017 net � 1231 loss of $64,000 and had a $32,000 net � 1231 gain in 2016. For 2017, Vertigo's net � 1231 loss is treated as:
Ordinary loss.
Since there is a 2017 net � 1231 loss, the loss is treated as an ordinary loss. Section 1231 lookback (and depreciation recapture) applies only if there is a current year � 1231 gain.
Blue Company sold machinery for $45,000 on December 23, 2017. The machinery had been acquired on April 1, 2015, for $69,000 and its adjusted basis was $34,200. The � 1231 gain, � 1245 recapture gain, and � 1231 loss from this transaction are:
$0 � 1231 gain, $10,800 � 1245 recapture gain, $0 � 1231 loss.
section 1245 recapture - Have to treat as ordinary income (rather than the capital gain special rates)
Since the machine was held more than 12 months and was depreciated, it was a � 1231 asset
Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be:
Section 1231 gain.
The gain is � 1231 gain. Since straight-line depreciation was used, there is no � 1250 recapture. Also, since Lynne is an individual, there is no "ordinary gain adjustment" under � 291. Section 1239 would not apply because there is no r
Vertical, Inc., has a 2017 net � 1231 gain of $67,000 and had a $22,000 net � 1231 loss in 2016. For 2017, Vertical's net � 1231 gain is treated as:
$45,000 long-term capital gain and $22,000 ordinary gain.
Lookback provision: (on gains)
The 2016 � 1231 loss is a lookback loss and converts $22,000 of the 2017 net � 1231 gain into ordinary gain. The $45,000 remaining of the $67,000 2017 net � 1231 gain
Ch 19 Quiz
...
In a profit sharing plan, a separate account is not maintained for each participant. (T/F)
False
An account is maintained for each participant for a profit sharing plan.
A defined contribution plan is exempt from funding requirements. (T/F)
True
If a taxpayer receives an early distribution from a qualified retirement plan, a 10% additional tax is levied on the full amount of any distribution includible in gross income. (T/F)
True
A taxpayer who receives a distribution can avoid current taxation by rolling the distribution into another qualified employer retirement plan or into an IRA. (T/F)
True
Under a defined benefit plan, the annual benefit payable to an employee is limited to the smaller of $215,000 (in 2017) or 100% of the employee's average compensation for the highest 3 years of employment. (T/F)
True
Brown, Inc., uses the three-to-seven year graded vesting approach for its defined benefit retirement plan. Peter has five years of service completed as of February 5, 2017, his employment anniversary date. Determine Peter's nonforfeitable percentage.
60%
(Use the table - Three-to Seven-Year vesting for defined benefit plan)
Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years. The account is now worth $376,000. How much of these funds can Frank withdraw tax-free?
$376,000
Assuming that Frank met the AGI limitations at the time of his contributions, all of the funds may be withdrawn tax-free. He satisfies the five-year holding period requirement for a Roth IRA and is over age 59.5 at the time of the distribution.
Jana has $225,000 of earned income in 2017. Calculate the amount she can contribute to a SEP.
$54,000
25% � $225,000 statutory limit = $56,250, but limited to $54,000 (in 2017).
Mary establishes a Roth IRA at age 50 and contributes the maximum amount per year to the Roth IRA for 15 years. The account is now worth $199,000, consisting of $75,000 in contributions plus $124,000 in accumulated earnings. How much can Mary withdraw tax
$199,000
Assuming that Mary meets the income limitation at the time of the contributions to the Roth IRA, all of the funds may be withdrawn tax-free. She satisfies the five-year holding period for a Roth IRA and is over age 59.5 at the time of the distrib
Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax). He has a profit sharing plan (i.e., defined contribution plan). What is the maximum amount Fred can contribute
$28,000
Fred can contribute $28,000, which is 20% of $140,000, or 25% ($140,000 - $28,000).