Category: Writing

Marginal Tax Rates. Mr. and Mrs. Dunbar have taxable income
of $260,000 without considering the following sales. Consider the following
independent cases where capital gains are recognized and determine the marginal
tax race for the capital gain in each case. Ignore the effect of increasing AGI
on deductions.
CASE A: $10,000 gain from sale of Storm Lake common stock
held for seven months.
CASE B: $10,000 gain from sale of antique clock held for six
years.
CASE C: $10,000 gain from sale of Ames preferred stock held
for three years.
a. Determine Trisha’s increase in income tax liability as a
result of the three sales. All assets are stock held for investment. Ignore the
effect of increasing AGI on deductions and phaseout amounts.
b. Determine her increase in income tax liability if the
holding period for asset B is 8 months.
c. Determine her increase in income tax liability if the
holding periods are the same as in Pare a but asset B is an antique clock.
d. Determine her increase in income tax liability if her
taxable income is $700,000.

Real Property Subdivided for Sale. Bech acquired only one
tract of land seven years ago as an investment. In order to sell the land at a
higher price, she decides to subdivide it into 20 lots. She pays for
improvements such as clearing and leveling, bur the improvements are not
considered to be substantial. Each lot has a basis of $2,000, and a selling
price of $6,000. Selling expenses of $480 were incurred to sell two lots lase
year. This year, ten lots are sold, and selling expenses amount co $1,900. How
much ordinary income and capital gain must be recognized in the prior and
current year?

Stock Rights. Martha Lou owns 100 shares of Blain
Corporation common stock. She purchased the stock on July 25, 1998, for $4,000.
On May 2 of the current year, she receives a nontaxable distribution of 100
stock rights. Each stock right has a $10 FMV, and the FMV of the Blain common
stock is $70 per share. With each stock right, Martha Lou may acquire one share
of Blain common for $68 per share. Assuming chat she elects co allocate basis
co the stock rights, answer the following:
a. What is the basis allocated co the stock rights?
b. If she sells the stock rights on June 10 for $1,080,
determine the amount and character of the recognized gain?
c. If she exercises the stock rights on May 14, what is the
basis of the 100 shares purchased and when does the holding period stare?
d. If she does nor elect co allocate basis co the stock
rights, determine the amount and character of the gain if she sells the stock
rights on June 10 for $1,080?

Stock Rights. Kathleen owns 500 shares of Buda Corporation
common stock which was purchased on March 20, 2000, for $48,000. On October 10
of the current year, she receives a distribution of 500 stock rights. Each
stock right has a $20 FMV and the FMV of the Buda common stock is $100 per
share. With each stock right, she may acquire one share of Buda common stock
for $95.
a. How much gross income muse Kathleen recognize?
b. What is the basis of each stock right received?
c. If she sells the 500 stock rights for $10,600, what is
her gain?
d. If she exercises the 500 stock rights on November 10,
what is the basis of the 500 shares she receives and when does the holding
period for chose shares scare?

Personal-Use Property Converted to Rental Property. Tally
owns a house that she has been living in for eight years. She purchased the
house for $245,000 and the FMV today is $200,000. She is moving into her
friend’s house and has decided to convert her residence co rental property.
Assume 20% of the property’s value is allocated to land.
a. What is the basis of the house for depreciation?
b. If she claims depreciation of $15,000 and sells the
property six years later for $260,000 (20% allocated to land), determine the
gain on the sale of the building and gain on the sale of the land.
c. How much of the gain is due to depreciation?
d. If the FMV is $290,000 when she converts the house co
rental property instead of $200,000, what is the basis of the house for
depreciation?

Sale of Assets Received as a Gifr and Inherited . Daniel
receives 400 shares of A&M Corporation stock from his aunt on May 20, 2019,
as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in
2009 for $42,000. The taxable gift is $60,000 because she made earlier gifts to
Daniel during 2019 and used the annual exclusion. She paid a gift tax of $9,300
on the gift of A&M stock to Daniel. Daniel also inherited 300 shares of
Longhorn Corporation preferred stock when his uncle died on November 12, 2018,
when the stock’s FMV was $30,000. His uncle purchased the stock in 1997 for
$27,600. Determine the gain or loss on the sale of A&M and Longhorn stock
on December 15, 2019, under each alternative situation below.
a. A&M stock was sold for $62,600, and Longhorn stock
was sold for $30,750.
b. A&M stock was sold for $58,200, and Longhorn stock
was sold for $28,650.
c. Assume the same as in Part a except his aunt purchased
A&M stock for $71,000 and his uncle purchased Longhorn stock for $31,200.

Sale of Asset Received as a Gifr. Bud received 200 shares of
Georgia Corporation stock from his uncle as a gift on July 20, 2018, when the
stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12,
2002. The taxable gift was $45,000, because his uncle made another gift co Bud
for $20,000 in January and used the annual exclusion. The uncle paid a gift tax
of $1,500. Without considering the transactions below, Bud’s AGI is $45,000 in
2019. No ocher transactions involving capital assets occur during the year.
Analyze each transaction below, independent of the ochers, and determine Bud’s
AGI in each case.
a. He sells the stock on October 12, 2019, for $48,000.
b. He sells the stock on October 12, 2019, for $28,000.
c. He sells the stock on December 16, 2019, for $42,000.

Basis of Property Received as a Gifr. Doug receives a duplex
as a gift from his uncle. The uncle’s basis for the duplex and land is $90,000.
Ac the time of the gift, the land and building have FMVs of $40,000 and
$80,000, respectively. No gift tax is paid by Doug’s uncle at the time of the
gift.
a. To determine gain, what is Doug’s basis for the land?
b. To determine gain, what is Doug’s basis for the building?
c. Will the basis of the land and building be the same as in
Parts a and b for purposes of determining a loss?

Amount Realized. Tracy owns a nondepreciable capital asset
held for investment. The asset was purchased for $250,000 six years earlier and
is now subject to a $75,000 liability. During the current year, Tracy transfers
the asset ro Tim in exchange for $94,000 cash and a new automobile with a
$50,000 FMV ro be used by Tracy for personal use; Tim assumes the $75,000
liability. Determine the amount of Tracy’s LTCG or LTCL.

Sylvia, a dentist with excellent skills as a carpenter,
started the construction of a house chat she planned to give ro her son as a
surprise when he returned from Afghanistan, where he is serving in the
military. She began construction on March 23, 2018, and finished the house on
July 10, 2019, at a total cost of $70,000. Her son is expected to be home on
September 1, 2019.
On July 30, 2019, Roscoe offered Sylvia $245,000 for the
house and Sylvia considered the offer to be so attractive chat she accepted it.
She decided that she could purchase a suitable home for her son for about
$200,000. What tax issues should Sylvia consider?