Z owns a rental building (its only asset) with a gross fairmarket value of $5,000 subject to the non-recourse mortgage of$2,000. Zâs adjusted basis for this building is $1,500. All of Zâsstock is owned by C, whose basis for his stock in Z is $500. Z had1,000 of E&P. Z is on the accrual method of accounting andreports on the calendar year. Assume that the corporate tax payableby Z on $3,500 gained is$1250 and on $3,000 gained is $1,000. Zadopts a plan of complete liquidation instead of selling thebuilding to D. Z distributes the building to C âin-kindâ pursuantto the plan. C then sells the building to D for $3,000 in cash withD taking subject to the mortgage of $2,000. Z is an S Corporationand Section 1374 does not apply.
a. Z has $1,500 gain.
b. C has a $2,500 gain on the distribution.
c. C has a $1,000 ordinary loss on the distribution underSection 1244 if that section applies.
d. C has $1,000 capital loss.
e. None of the above.
please explain why choose this answer.
Z owns a rental building (its only asset) with a gross fairmarket value of $5,000 subject to the non-recourse mortgage of$2,000. Zâs adjusted basis for this building is $1,500. All of Zâsstock is owned by C, whose basis for his stock in Z is $500. Z had1,000 of E&P. Z is on the accrual method of accounting andreports on the calendar year. Assume that the corporate tax payableby Z on $3,500 gained is$1250 and on $3,000 gained is $1,000. Zadopts a plan of complete liquidation instead of selling thebuilding to D. Z distributes the building to C âin-kindâ pursuantto the plan. C then sells the building to D for $3,000 in cash withD taking subject to the mortgage of $2,000. Z is an S Corporationand Section 1374 does not apply.
a. Z has $1,500 gain.
b. C has a $2,500 gain on the distribution.
c. C has a $1,000 ordinary loss on the distribution underSection 1244 if that section applies.
d. C has $1,000 capital loss.
e. None of the above.
please explain why choose this answer.
Related questions
John borrowed $4,500 to purchase a machine. He later borrowed$2,000 using the machine as collateral. Both notes are nonrecourse.Ten years later, the machine has an adjusted basis of zero and twooutstanding not balances of $2,500 and $800. John sells the machinesubject to the two liabilities for $1,000. What is his realizedgain or loss?â
| a. | âNone of the above. | |
| b. | â$4,300 | |
| c. | â$0. | |
| d. | â$3,300. | |
| e. | â$1,000. |
10 points
QUESTION 2
Angelica purchases a house for $165,000. She converts theproperty to rental property when the fair market value is $140,000.After deducting depreciation (cost recovery) expense of $3,130, shesells the house for $100,000. What is her recognized gain orloss?â
| a. | â($65,000). | |
| b. | â($36,870). | |
| c. | âNone of the above. | |
| d. | â$0. | |
| e. | â($62,870). |
10 points
QUESTION 3
Olivia and Matthew exchange real estate in a like-kind exchange.Olivia's basis in the real estate, subject to a $100,000 mortgage,is $250,000 and the fair market value is $400,000. She receivesreal estate with a fair market value of $300,000 and Matthewassumes the mortgage. What is Olivia's recognized gain and adjustedbasis for the real estate received?â
| a. | âNone of the above. | |
| b. | â$50,000, $400,000. | |
| c. | â$100,000, $250,000. | |
| d. | â$100,000, $400,000. | |
| e. | â$0, $250,000. |
10 points
QUESTION 4
On October 1, Denise exchanged an apartment building (adjustedbasis of $575,000 and subject to a mortgage of $325,000) foranother apartment building owned by Quinn (fair market value of$850,000 and subject to a mortgage of $325,000). The propertytransfers were made subject to the outstanding mortgages. Whatamount of gain should Denise recognize?â
| a. | â$0. | |
| b. | â$50,000. | |
| c. | âNone of the above. | |
| d. | â$225,000. | |
| e. | â$275,000. |
10 points
QUESTION 5
Maple, Inc., owns a delivery truck which initially cost $40,000.After depreciation of $25,000 had been deducted, the truck wastraded-in on a new truck that cost $50,000. Maple was required topay the car dealer $20,000 in cash. What is Maple's basis for thenew truck assuming the exchange qualifies for §1031 treatment?â
| a. | â$0. | |
| b. | â$15,000. | |
| c. | â$35,000. | |
| d. | â$50,000. | |
| e. | âNone of the above. |
10 points
QUESTION 6
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000. Assume that Aaron soldthe property on June 20, 2016 for $90,000.
What amount should Aaron use for his basis?
| a. | â$90,000 | |
| b. | â$40,000 | |
| c. | âNone of the above | |
| d. | â$0 | |
| e. | â$35,000 |
10 points
QUESTION 7
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000. Assume that Aaron soldthe property on June 20, 2016 for $90,000.
â
What amount of gain/(loss) should Aaron recognize on thesale?â
| a. | âNone of the above | |
| b. | â$55,000 | |
| c. | â$50,000 | |
| d. | â$40,000 | |
| e. | â$90,000 |
10 points
QUESTION 8
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $36,500 on 6/20/16?
| a. | âNone of the above. | |
| b. | $1,500 âShort-term capital gain | |
| c. | â$0 | |
| d. | â$3,500 Short-term capital loss | |
| e. | â$1,500 Long-term capital gain |
10 points
QUESTION 9
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam hadacquired the property in 1988 and had an adjusted basis in theproperty of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $30,000 on 6/20/16?
| a. | â($5,000) Short-term Loss. | |
| b. | âNo Gain or Loss recognized. | |
| c. | âNone of the above | |
| d. | â($10,000) Short-term Loss. | |
| e. | â($10,000) Long-term Loss. |
10 points
QUESTION 10
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $90,000. Miriamacquired the property in 1966 and had an adjusted basis in theproperty of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $100,000 on 6/20/16?
| a. | â$10,000 Long-term capital gain. | |
| b. | âNone of the above. | |
| c. | â$10,000 Short-term capital gain. | |
| d. | â$60,000 Long-term capital gain. | |
| e. | â$60,000 Short-term capital gain. |
Please answer the following Questions with the factsprovided.
What is the net Form W-2 wages?
What is miscellaneous income?
What is Schedule B income (Interest and dividends)?
What is Schedule C net income (Business income)?
What is Schedule D net income (Capital gains and losses)?
What is Schedule E depreciation (Rental property)?
What is Schedule E net income (Rental income & Sub-Sincome)?
What is the total âFor AGIâ deductions?
What is Adjusted Gross Income?
What is the Schedule A deduction for taxes?
What is the Schedule A deduction for interest expense?
What is the Schedule A deduction for charitablecontributions?
What is the Schedule A total itemized deductions?
What is the total personal and dependent exemptions?
What is taxable income?
What is the tax on ordinary income?
What is the tax on long-term capital gain (loss) and qualifieddividends?
What is the self-employment tax?
What is the kiddie tax?
What is the balance due or (refund)?
Facts:
Paul Turner is single and has two children, Allen and Lee Ann,from his previous marriage. Allen lives with Paul and Paul providesmore than half of his support. In the current year, Allen earned$300 of interest income and $5,000 working at a fast-foodrestaurant. Allen graduated from high-school in December 2015 andwas not a registered student during 2016. Lee Ann lives with hermother, Wilma (Lee Ann lived with Wilma for all of the currentyear). Wilma provides more than half of Lee Ann's support. Paulpays âalimonyâ of $400 per month to Wilma. The payments are tocontinue until Lee Ann reaches age 18, when they will be reduced to$250. Paul uses the cash method of accounting and a calendar yearfor reporting. Paul's birthday is May 31, 1975. Allen's birthday isOctober 5, 1998. Lee Ann's birthday is December 1, 2002. Paulprefers to report any âkiddie taxâ on his tax return.
Paul is employed as a nuclear engineer with Atom SystemsConsultants, Inc. (ASCI). Paul's pay stubs indicate that he had$7,320 withheld in federal taxes, $4,987 in state taxes. He earned$80,000 of wages subject to employee Social Security taxes andMedicare taxes. ASCI has an extensive fringe benefits program forits employees.
Paul earned salary of $82,500 (before subtracting his 401(k) andflexible spending plan contributions). He contributed $6,500 to his401(k) account, and he contributed $2,600 to his flexible spendingaccount.
ASCI paid $497 of whole life insurance premiums to cover Paul'spersonal whole life insurance policy. ASCI also paid health clubdues of $825 to a nearby health club on Paul's behalf.
Taking advantage of ASCI's educational assistance program,during the fall Paul enrolled in two graduate engineering classesat a local college. ASCI paid his tuition, fees, and othercourse-related costs of $5,300.
Paul received free parking in the company's security garage thatwould normally cost $200 per month.
Paul manages the safety program for ASCI. In recognition of hissuperior handling of three potential crises during the year, Paulwas awarded the Employee Safety Award on December 15. The cashaward was $400.
On January 15, of the current year, Paul's father died. From hisfather's estate, he received stock valued at $30,000 (fatherâsbasis was $12,000) and his father's house valued at $95,000(fatherâs basis in the house was $55,000).
Paul owns several other investments and received the followinginformation reports for the current tax year:
Form 1009-Div:
General Dynamics â Gross qualified dividends - $400
Form 1099-Int
New Jersey Economic Development bonds â Gross interest -$300
IBM bonds â Gross interest - $600
State of Nebraska bonds â Gross Interest - $200
Form 1098-Mortgage InterestStatement
Sunbelt Credit Union â Mortgage interest - $7,100
Northeast Bank â Home-equity loan interest - $435
Form K-1 Grubstake Mining andDevelopment:
Distribution to shareholder - $1,000
Ordinary income (1% of $200,000) - $2,000
In addition to the investments discussed above, Paul owns 1,000shares of Grubstake Mining & Development common stock.Grubstake is organized as an S corporation and has 100,000 sharesoutstanding. Grubstake reported taxable income of $200,000 and paida distribution of $1.00 per share during the current year. Pauldoes not materially participate in Grubstake's activities.
Paul slipped on a wet spot in front of a computer store lastJuly. He broke his ankle and was unable to work for two weeks. Heincurred $1,300 in medical costs, all of which were paid by theowner of the store. The store also gave him $1,000 for pain andsuffering resulting from the injury. ASCI did not pay his salaryduring the two weeks he missed because of the accident. However,ASCI's disability insurance plan paid him $1,500 in disability payfor the time he was unable to work. Under this plan, ASCI pays thepremiums of $500 for the disability insurance as a taxable fringebenefit. The disability plan premiums and the disability benefitpayments were not included in Paulâs W-2 wages reported inparagraph 3.
Paul received a Form 1099-B from his broker for the sale of thefollowing securities during the current year. The adjusted basisamounts were reported to the IRS.
Security | Sale Date | Purchase Date | Sales Price | CommissionPaid Sale | His Basis |
Nebraska bonds | 03/14/16 | 10/22/07 | $2,300 | $200 | $1,890 |
| Cassill Corp (500 shares) | 10/20/16 | 02/19/12 | $8,500 | $425 | $9,760 |
In addition to the taxes withheld from his salary, he also madetimely estimated federal tax payments of $175 per quarter andtimely estimated state income tax payments of $150 for the firstthree quarters. The $150 fourth-quarter state payment was made onDecember 28 of the current year. Paul would like to receive arefund for any overpayment.
In August of the current year, he received a federal refund of$60 and a state tax refund of $200 related to the tax returns hefiled for the prior year. His itemized deductions for the prioryear were $18,430.
Paul found a renter for his father's house on August 1. Themonthly rent is $400, and the lease agreement is for one year. Thelease requires the tenant to pay the first and last months' rentand a $400 security deposit. The security deposit is to be returnedat the end of the lease if the property is in good condition. OnAugust 1, Paul received $1,200 from the tenant per the terms of thelease agreement. In November, the plumbing froze and several pipesburst. The tenant had the repairs made and paid the $300 bill. InDecember, he reduced his rental payment to $100 to compensate forthe plumbing repairs. Paul provides you with the followingadditional information for the rental in the current year.
Propertytaxes $720
Other maintenanceexpenses 285
Insuranceexpense 495
Managementfee 350
Depreciation (to be computed) ?
Local practice is to allocate 10 percent of the fair marketvalue of the property to the land. (See ¶8 for basis information.)Paul makes all decisions with respect to the property.
Paul paid $2,050 in real estate taxes on his principalresidence. The real estate tax is used to pay for town schools andother municipal services.
Paul drives a 2013 Acura TL. His car registration fee (based onthe car year) is $50 and covers the period 1/1/16 through 12/31/16.In addition, he paid $280 in property tax to the state based on thebook value of the car.
In addition to the medical costs presented in ¶11, Paul incurredthe following unreimbursed medical costs:
Dentist $ 310
Doctor 390
Prescriptiondrugs 215
Over-the-counter drugs 140
Optometrist 125
Emergency room charges 440
LASIK eyesurgery 2,000
Chiropractor 265
On April 1, Paul took advantage of low interest rates andrefinanced his $75,000 home mortgage with her original lender. Thenew home loan is for 15 years. He paid $215 in closing costs and$1,600 in discount points (prepaid interest) to obtain the loan.The house is worth $155,000, and Paul's basis in the house is$90,000. As part of the refinancing arrangement, he also obtained a$10,000 home-equity loan. He used the proceeds from the home-equityloan to reduce the balance due on her credit cards. Paul receivedseveral Form 1098 statements from her bank for interest paid by himin the current year. Details appear below. (See also ¶9)
Primary home mortgage $7,100
Home-equityloan 435
Creditcards 498
Carloan 390
On May 14 of the current year, Paul contributed clothing to theSalvation Army. The original cost of the clothing was $740. She hassubstantiation valuing the donation at $360. In addition, she madethe following cash contributions and received a statement from eachof the following organizations acknowledging his contribution:
LarkinCollege $800
UnitedWay 152
First MethodistChurch 790
Amos House (homelessshelter) 200
Local Chamber of Commerce 100
On April 1 of the current year, Paul's house was robbed. Heapparently interrupted the burglar because all that's missing is anantique brooch he inherited from his grandmother (June 12, 2005)and $300 in cash. Unfortunately, he didn't have a separate rider onher insurance policy covering the jewelry. Therefore, the insurancecompany reimbursed him only $500 for the brooch. His basis in thebrooch was $6,000, and its fair market value was $7,500. Hisinsurance policy also limits to $100 the amount of cash that can beclaimed in a theft.
Paul sells real estate in the evening and on weekends(considered an active trade or business). He runs his business froma rental office he shares with several other realtors. Paul hasbeen operating in a business-like way since 2003 and has alwaysshown a profit. He had the following income and expenses from hisbusiness:
Commissions earned $21,250
Expenses:
Advertising 2,200
Telephone 95
Real estate license 130
Rent 6,000
Utilities 600
He has used his Acura TL in his business during the currentyear. During the year, he properly documented 5,000 business miles.The total mileage on his car (i.e., business-use and personal-usemiles) during the year was 15,000 miles. Paul elects to use thestandard mileage method to calculate his car expenses. He spent $45on tolls and $135 on parking related to the real estatebusiness.
Paul's company has an accountable expense reimbursement plan foremployees from which Paul receives $12,000 for the followingexpenses:
Airfare $4,700
Hotel 3,400
Meals 2,000
Car rentals 600
Entertainment 900
Incidentals 400
Total 12,000
During the current year, Paul also paid $295 for businesspublications other than those paid for by his employer and $325 fora local CPA to prepare his tax return for the prior year. (Pleaseanswer the questions that are provided.
