Taxation
Respond very briefly no more then 50 words per questions to the following 8 questions chapter 16, and 4 questions chapter 14
chapter 16
2. LO.2 An individual taxpayer sells some used assets at a garage sale. Why are none of the proceeds taxable in most situations?
3. LO.2, 4 Alison owns a painting that she received as a gift from her aunt 10 years ago. The aunt created the painting. Alison has displayed the painting in her home and has never attempted to sell it. Recently, a visitor noticed the painting and offered Alison $5,000 for it. If Alison decides to sell the painting, what tax issues does she face?
12. LO.3 Hubert purchases all of the rights in a patent from the inventor who developed the patent product. After holding the patent for two years, Hubert sells all of the rights in the patent for a substantial gain. What issues does Hubert face if he wants to treat the gain as a long-term capital gain?
14. LO.4 Siva purchased corporate stock for $20,000 on April 10, 2010. On July 14, 2012, when the stock was worth $12,000, he gave it to his son, Mithra. What has to happen to the value of the property while Mithra holds it if Mithra is to tack Siva’s holding period on to his own holding period?
28. LO.3 Fred is an investor in vacant land. When he thinks he has identified property that would be a good investment, he approaches the landowner, pays the landowner for a "right of first refusal" to purchase the land, records this right in the property records, and then waits to see if the land increases in value. The right of first refusal is valid for four years. Fourteen months ago, Fred paid a landowner $9,000 for a right of first refusal. The land was selected as the site of a new shopping center, and the landowner was offered $1 million for the land. In its title search on the land, the buyer discoverd Fred’s right of first refusal and involved him in the purchase negotiations. Ultimately, the landowner paid Fred $220,000 to give up his right of first refusal; the landowner then sold the land to the buyer for $4,220,000. Fred has a marginal tax rate of 35%.
a. What difference does it make whether Fred treats the right of first refusal as an option to purchase the land?
b. What difference does it make whether Fred is a "dealer" in land?
33. LO.3 Tricia owns numerous office buildings. A major tenant of one of the buildings wanted to cancel its lease because it was moving to another city. After lengthy negotiations, the tenant paid Tricia $5000,000 to cancel its obligations under the lease. If the tenant had fulfilled the lease terms, Tricia would have received rent of $1.8 million. What factors should Tricia consider to determine the amount and character of her income from these circumstances?
41. LO.2, 4, 5 Bridgette is known as the "doll lady." She started collecting dolls as a child, always received one or more dolls as gifts on her birthday, never sold any dolls, and eventually owned 600 dolls. She is retiring and moving to a small apartment and has decided to sell her collection. She lists the dolls on an Internet auction site and, to her great surprise, receives an offer from another doll collector of $45,000 for the entire collection. Bridgette sells the entire collection, except for five dolls she purchased during the last year. She had owned all of the dolls sold for more than a year. What tax factors should Bridgette consider in deciding how to report the sale?
43. LO.5 Phil has the following long-term capital gains and losses for 2012: $32,000 28% gain, $11,000 28% loss, $18,000 25% gain, and $34,000 0%/15% gain. He also has a $23,000 short-term loss and a $5,000 short-term gain. What is Phil’s AGI from these transactions? If he has a net long-term gain. What is its makeup in terms of the alternative tax rates?
chapter 14
4. LO.1 Ivan invests in land, and Grace invests in taxable bonds. The land appreciates by $8,000 each year, and the bonds earn interest of $8,000 each year. After holding the land and bonds for five years, Ivan and Grace sell them. There is a $40,000 realized gain on the sale of the land and no realized gain or loss on the sale of the bonds. Are the tax consequences to Ivan and Grace the same for each of the five years? Explain.
10. LO.1 Marge owns land and a building (held for investment) with an adjusted basis of $75,000 and a fair market value of $250,000. The property is subject to a mortgage of $400,000. BecauseMarge is in arrears on the mortgage payments, the creditor is willing to accept the property in return for canceling the amount of the mortgage.
a. How can the adjusted basis of the property be less than the amount of the mortgage?
b. If the creditor’s offer is accepted, what are the effects on the amount realized, the adjusted basis, and the realized gain or loss for Marge?
c. Does it matter in (b) if the mortgage is recourse or nonrecourse?
15. LO.2 Sandra is considering selling tow personal use assets that she owns. One has appreciated in value by $14,000, and the other has declined in value by $18,000. Sandra believes that she should sell both assets in the same tax year so that the loss of $18,000 can offset the gain of $14,000.
a. Advise Sandra regarding the tax consequences of her plan.
b. Could Sandra achieve better tax results by selling the assets in different tax years? Explain.
16. LO.2 Ron sold his sailboat for a $5,000 loss in the current year because he was diagnosed with skin cancer. His spouse wants him to sell his Harley-Davidson motorcycle because her brother broke his leg while riding his motorcycle. Because Ron no longer has anyone to ride with, he is seriously considering accepting his wife’s advice. Because the motorcycle is a classic, Ron has received two offers. Each offer would result in a $5,000 gain. Joe would like to purchase the motorcycle before Christmas, and Jeff would like to purchase it after New Year’s. Identify the relevant tax issues Ron faces in making his decision.
