Category: Writing

Secs. 1231, 1245, and 1250. Glen, whose tax rate is 32%, sells each of the following assets for $200,000. Each case is an independent case.

Secs. 1231 and 1250-Placed in Service After 1986. Molly,
whose tax rate is 37 %, sells an apartment complex for $4.5 million with 10% of
the price allocated to land. The apartment complex was purchased in 1994. She
has no other sales or exchanges during the year and no nonrecaptured net Sec.
1231 losses. Information about the assets at the time of sale is:
a. What is the recognized gain on the sale of the building
and the character of the gain?
b. What is the recognized gain on the sale of the land and
the character of the gain?
c. How much of the Sec. 1231 gain is taxed at 25% ?
d. If Molly has NSTCL of $50,000, will the capital loss
reduce the Sec. 1231 gain taxed at 25 % or 20% ?

Nonresidential Real Property-Noncorporate Taxpayer .
Consider three office buildings placed in service as shown below and answer the
following true -false questions. Assume all assets are sold by a noncorporate
taxpayer at a gain and there are no other sales or exchanges or nonrecaptured Sec.
1231 loss unless told otherwise. None of the buildings are fully depreciated
when sold and the taxpayer’s tax rate is 32 % and 15% for ANCG .
1. Some or all of the gain on sale of #1 is ordinary if
accelerated depreciation was used.
2. If the straight-line method of depreciation was used for
#1, some or all of the gain
may be taxed at 25%.
3. Gain on the sale of #2 could be Sec. 1245 ordinary
income.
4. Gain on the sale of #2 could be Sec. 1231 gain.
5. Part of the gain on the sale of #2 could be Sec. 1245
ordinary income and part could be
Sec. 1231 gain.
6. If the straight-line method of depreciation was used for
#2, some or all of the gain
may be taxed at 25%.
7. Some or all of the gain on the sale of #3 could be Sec.
1245 ordinary income.
8. Some or all of the gain on the sale of #3 could be taxed
at 25% .
9. Some of the gain on the sale of #3 could be Sec. 1250
ordinary income.
10. If the taxpayer has a nonrecaptured Sec. 1231 loss of
$30,000 and the gain on the sale
of #3 is $40,000, all $40,000 of the gain is taxed as
ordinary income.

Unrecaptured Sec. 1250 Gain and 1231. Mr. Briggs purchased
an apartment complex on Januar y 10, 201 7, for $2 million with 10% of the
price allocated to land. He sells the complex on October 22, 2019, for $2.5
million. Assume that 10% of the $2.5 million selling price is allocated to land
and 90% is allocated to the building.
a. How much depreciation was allowed for 2017?
b. How much depreciation is allowed for 2019?
c. Will any of the gain be ordinary income?
d. What is the amount of gain and the character of the gain
on the sale of the building?
e. What is the amount of gain and the character of the gain
on the sale of the land?
f. Will any of the gain be taxed at 25 %?

Secs. 1245 and 1231. The LaPoint Corporation placed in
service $350,000 of used equipment (seven-year recovery property) on June 3,
2018 and elected to expense $250,000 as Sec. 179 depreciation expense but
elected out of bonus depreciation. LaPoint sold the equipment for $150,000 on
November 22, 2019. Determine the following:
a. Depreciation allowed in 2018
b. Depreciation allowed during 2019
c. Amount of gain or loss and character.

1.Assume the same faces as in Problem 1:13-47 except the
taxpa yer is a corporation and answer the same questions.
2. Secs. 1231, 1245, and Unrecaptured Sec. 1250. Brigham is
single and is in the 32% marginal income tax bracket. He has the sales or
exchanges below. Ac the beginning of the year, he has nonrecaptured net Sec.
1231 losses of $10,000. Determine the increase or decrease in Brigham’s tax
liability as a result of the following independent sales or exchanges.
a. Sells equipment used in his trade or business for
$40,000. The equipment was purchased for $100,000 and depreciation allowed
amounts to $72,000.
b. Sells land used in his trade or business for $80,000. The
land was purchased four years ago for $61,000.
c. He sells a building used in his trade or business for
$163,000. The building was purchased in 1997 for $250,000 and depreciation
allowed amounts to $110,000. d. Same as Part c except he sells the building for
$127,000.

Exchange of Sec. 1245 Property. General Corporation owns
equipment which cost $70,000 and has a $44,000 adjusted basis. General
exchanges the equipment in June of 2019 for other equipment ($52,000 FMV) and
marketable securities ($30,000 FMV). Determine the following:
a. Realized gain
b. Recognized gain
c. Gain treated as ordinary income
d. Gain treated as Sec. 1231 gain
e. Basis of marketable securities received
f. Basis of equipment received

Sec. 1245. Elizabeth owns equipment that cost $500,000 and
has an adjusted basis of $230,000. If the straight -line method of depreciation
had been used, the adjusted basis would be $300,000.
a. What is the maximum selling price that she could sell the
equipment for without having to recognize Sec. 1245 ordinary income?
b. If she sold the equipment and had to recognize $61,000 of
Sec. 1245 ordinary income, what was the selling price?

Sec. 1245. The Pear Corporation owns equipment with a
$300,000 adjusted basis. The equipment was purchased six years ago for
$650,000. If Pear sells the equipment for the selling prices given in the three
independent cases below, what are the amount and character of Pear’s recognized
gain or loss?

Sarah, a married taxpayer who files a joint return, is
considering a foreign assignment for two years. In 2019, she will earn $120,000
in the foreign country . Sarah has no other income. She will be eligible for
either the foreign tax credit or the foreign-earned income exclusion. The
average tax rare on Sarah’s earnings if fully taxab le under U.S. law would be
24%. The average tax rare for the foreign salary is 20% under the foreign
country’s laws.
a. Discuss in general terms the computation of the foreign
tax credit and its limitation.
b. Would Sara h be better off electing the foreign tax cred
it or the foreign earned income exclusion? Explain.