Answered: Alejandro purchased a building in… | bartleby

Alejandro purchased a building in 1985, which he uses in his manufacturing business. Alejandro used the ACRS statutory rates to determine the cost−recovery deduction for the building. Alejandro's original cost for the building is $500,000 and cost−recovery deductions allowed are $500,000. If the building is sold for $800,000, the tax results to Alejandro are A. $500,000 Sec. 1245 ordinary income and $300,000 Sec. 1231 gain. B. $800,000 Sec. 1231 gain. C. $800,000 Sec. 1245 ordinary income. D. $500,000 Sec. 1245 ordinary income and $300,000 Sec. 1250 income

Income Tax Fundamentals 2020

Income Tax Fundamentals 2020

38th Edition

ISBN:9780357391129

Author:WHITTENBURG

Publisher:WHITTENBURG

Chapter8: Depreciation And Sale Of Business Property

Section: Chapter Questions

Problem 16MCQ

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Alejandro purchased a building in 1985, which he uses in his manufacturing business. Alejandro used the ACRS statutory rates to determine the

cost−recovery

deduction for the building. Alejandro's original cost for the building is $500,000 and

cost−recovery

deductions allowed are $500,000. If the building is sold for $800,000, the tax results to Alejandro are

A.

$500,000 Sec. 1245 ordinary income and $300,000 Sec. 1231 gain.

B.

$800,000 Sec. 1231 gain.

C.

$800,000 Sec. 1245 ordinary income.

D.

$500,000 Sec. 1245 ordinary income and $300,000 Sec. 1250 income.

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Chelsea, who is single, purchases land for investment purposes in 2014 at a cost of 22,000. In 2019, she sells the land for 38,000. Chelseas taxable income without considering the land sale is 100,000. What is the effect of the sale of the land on her taxable income, and what is her tax liability?
Floyd, a cash basis taxpayer, has received an offer to purchase his land. The cash basis buyer will pay him either 100,000 at closing or 50,000 at closing and 56,000 two years after the date of closing. If Floyd recognizes the entire gain in the current year, his marginal tax rate will be 25% (combined Federal and state rates). However, if he spreads the gain over the two years, his combined marginal tax rate on the gain will be only 20%. Floyd does not consider the buyer a credit risk, and he understands that shifting the gain to next year with an installment sale will save taxes. Still, he realizes that the deferred payment will, in effect, earn only 6,000 for waiting two years for the other 50,000. Floyd believes he can earn a 10% before-tax rate of return on his after-tax cash. Floyds adjusted basis for the land is 25,000, the buyer is also a cash basis taxpayer, and the short-term Federal rate is 4%. Floyd has asked you to evaluate the two alternatives on an after-tax basis.
Determine whether the taxpayer has income that is subject to taxation in each of the following situations: a. Capital Motor Company is going out of business. As a result, June is able to purchase a car for 12,000; its original sticker price was 25,000. b. Chuck is the sole owner of Ransom, Inc., a corporation. He purchases a machine from Ransom for 10,000. Ransom had paid 50,000 for the machine, which was worth 30,000 at the time of the sale to Chuck. c. Gerry is an elementary school teacher. She receives the Teacher of the Month Award for February. As part of the award, she gets to drive a new car supplied by a local dealer for a month. The rental value of the car is 400 per month. d. Payne has worked for Stewart Company for the last 25 years. On the 25th anniversary of his employment with Stewart, he receives a set of golf clubs worth 1,200 as a reward for his years of loyal service to the company. e. Anna enters a sweepstakes contest that was advertised on the back of a cereal box, and wins 30,000. The prize will be paid out in 30 annual installments of 1,000. She receives her first check this year. f. Terry buys an antique vase at an estate auction for 780. Upon returning home, she accidentally drops the vase and finds that a 100 bill had been taped inside it.

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