ACCT 323 7980 INCOME TAX I (Spring 2016) WEEK 5 HOMEWORK 1) Tamara owns a non-depreciable capital asset she has held for investment. She purchased the asset for $240,000 six years ago, and it is now subject to a $74,000 liability. During the current year, Tamara sells the asset to Leon in exchange for $93,000 cash and a new automobile with a fair market value of $51,000 to be used by Tamara for personal use. Leon assumes the $74,000 liability. Calculate the amount of Tamara’s Long Term Capital Gain or her Long Term Capital Loss on this sale. 2) Durwin receives a house as a gift from his father. His father’s basis in the house and the land is $90,000. On the date of the gift, the land and house have a fair market value of $40,000 and $80,000, respectively. No gift tax is paid by Durwin’s father at the time of the gift. a) To determine gain on sale of the gifted property, what is Durwin’s basis in the land? b) To determine gain on sale of the gifted property, what is Durwin’s basis in the house? c) Will the basis of the land and house be the same as in parts (a) and (b) for purposes of determining a loss on their sale? 3) During the current year, Lance sells a tract of land for $800,000 that he had received from Gwen on March 10, 1995, when the land had a FMV of $310,000. The taxable gift was $300,000 because the annual exclusion was $10,000 in 1995. Gwen purchased the land on April 12, 1980, for $110,000. On the date of the gift, Gwen paid a gift tax of $12,000. Lance paid a sales commission to his broker of $16,000 to sell the land. a) What is Lance’s realized gain on the sale? b) How would your answer to part (a) change, if at all, if the FMV of the gift property were $85,000 on the date of the gift? 4) Nigel received a Land Rover from his mother as a gift. Mom had purchased the Land Rover two years earlier for $65,000, but its fair market value at the date of the gift was only $50,000. No gift tax was paid by Mom at time of the gift. a) If Nigel sells the Land Rover for $70,000, what, if any, gain or loss will he recognize on the sale? b) If Nigel sells the Land Rover for $45,000, what, if any gain or loss will he recognize on the sale? c) If Nigel sells the Land Rover for $55,000, what, if any gain or loss will he recognize on the sale? 5) Jones, a CPA, provided accounting services to a client, Thomas. On December 15 of the same year, Thomas gave Jones 100 shares of Franklin Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. Two months later, Jones sold the stock on February 15 for $7,500. What is the amount that Jones should recognize as gain on the sale of stock? 6) Jane and Kyle Cooper had the following stock sales during the current taxable year: Gross Proceeds Basis Crispy Crunch, Inc. $ 4,000 $ 5,000 Summer Solstice, Inc. 3,500 3,000 Sealy & Sealy, Inc. 2,000 10,000 Each stock was held for over 12 months. What amount should be reported on their current year tax return for capital gain/loss? 7) Thor acquired a machine at a cost of $27,000 for use in his business, and he placed it in service on April 1, 2014. The machine is depreciated under MACRS, with a 7-year recovery period. This machine was the only asset Thor purchased this year. Thor elects to expense $25,000 of the acquisition cost under IRC Sec. 179. a) What is Thor’s total depreciation deduction for the machine in 2014? b) Thor then sells the machine on October 5, 2016 for $10,000. Calculate Thor’s depreciation deductions for 2014 through 2016, the adjusted basis of the machine on October 5, 2016, and the gain or loss on the sale. 8) In 2015, Tamika, a self-employed CPA and calendar-year taxpayer, purchased and placed in service a car and a personal computer. Both assets are “listed property” and are subject to the special rules contained in IRC Sec. 280F. Both assets are 5-year MACRS property. The following information regarding each asset is presented below: Asset Date Acquired Acquisition Cost Business Usage Sec. 179 Election Car 1/2/15 $21,000 60% No Computer 7/1/15 $4,000 40% No For each asset, calculate the MACRS 2015 depreciation deduction, assuming that Tamika does not elect the Sec. 179 expensing option. 9) How is the depreciation deduction of nonresidential real property determined for regular tax purposes using MACRS? a. Straight-line method over 40 years. b. Straight-line method over 39 years. c. Straight-line method over 27.5 years. d. 150% declining-balance method with a switch to the straight-line method over 27.5 years. e. 150% declining-balance method with a switch to the straight-line method over 39 years. 10) Digitron Corp., a calendar year corporation, purchased and placed into service office equipment during November Year 1. No other equipment was placed into service during Year 1. Under the general MACRS depreciation system, what convention must Digitron use? a. Half-year. b. Mid-month. c. Full-year. d. Mid-quarter.