Category: Writing

Joseph Allen, who is single, purchased his first house in
Orono, ME one year ago for $200,000 . Katahdin wants to purchase the house for
$360,000 . Refer to the regulations to determine if he may exclude part of the
gain in the following independent cases:
a. He has been unemployed for 16 months and has a chance to
start work for Penobscot Manufactur ing whose plant is located 62 miles from
Joseph ‘s home in Orono.
b. His dependent son, Ryan, has chronic asthma, and the
son’s doctor has advised Joseph that Ryan should live in a warm, dry climate to
mitigate the chronic asthma. Joseph and Ryan move to Nevada .
c. Joseph has become increasingly annoyed at the amount of
traffic in his neighborhood although the amount of traffic has not increased
much compared to the traffic when he purchased the house. A partial list of
research sources is:
• Reg. Sec. 1.121 -3(c), (d), and (e)

1.When a taxpa yer disposes of oil, gas, or geothermal
property, part or all of the gain may be recaptured as ordinary income. Explain
how the recapture amount is determined for oil and gas and geothermal
properties.
2. William owns nvo appreciated assets, land and a building,
which have been used in his trade or business since purchased in 1990. If he
sells the two assets to his 100% -owned corporation, will William have to
recognize any ordinary income? Explain.

Ted owns a warehouse that cost $850,000 in 1984 and is
subject to depreciation recapture under Sec. 1245. The warehouse, which has an
adjusted basis of zero, is destroyed by a tornado and Ted receives $580,000
from the insurance company. Within nine months, he pays $500,000 for a new
warehouse and an election is made to defer the gain under Sec. 1033. What is
the amount and character of Ted’s recognized gain?

Carlos owns equipment with an $800,000 acquisition cost, a
$270,000 adjusted basis, and a $500,000 FMV. Carlos makes a gift of the equip –
ment to a charitable organization. The equip – ment is used by the charity in
its exempt function. What is the amount of his charitable contribution
deduction?

John and Karen are unrelated individuals. John sold land
that is Sec. 1231 property held for three years and recognized a $50,000 gain.
Karen sold a building that is Sec. 1231 property held for three years and
recognized a $50,000 gain. Straight -line depreciation was used. John and Karen
both have a 32% tax rate, no other transactions involving capital assets or
1231 assets, and no nonrecap – tured Sec. 1231 losses. Except for the sales of
different assets, their tax situation is exactly the same. As a result of selling
his Sec. 1231 prop – erty, will John pay more, less or the same amount of taxes
than Karen as a result of selling her Sec. 1231 property? Explain.