A. In the current year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business. The machine had been purchased a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $20,000 and an adjusted basis of $30,000. For the current year, how should the gain or loss be treated? Show supporting computations and Explain your answer.

B. Elmer sold machinery used in his business for $20,000. The machinery originally cost $80,000 and had $45,000 of accumulated depreciation at the time of the sale. It is his only sale this year. a. What is the gain or loss on the sale of the machinery? b. Is the gain or loss treated as capital or ordinary? Explain.

exercise 3

C. Robert acquired his rental property 10 years ago for $110,000 and sold it in the current year for $230,000. The accumulated straight-line depreciation on the property at the time of the sale was $35,000. Robert is in the 32 percent tax bracket for ordinary income.

a. What is Robert's gain on the sale of his rental property?

b. How is the gain taxed? (i.e., what tax bracket is the gain subject to)?

exercise 4

Dan acquired rental property in June 2009 for $370,000 and sold it in October, 2019. $78,500 in straightline depreciation has been taken on the house. A run-up in housing prices allowed him to sell the house for $530,000. In the year of sale, Dan received $130,000 when the buyer sold some investments, an additional $200,000 when the buyer closed a loan from the bank, and took a $200,000 note from the buyer, payable on the anniversary of the sale date in 10 installments of $20,000 each plus interest on the unpaid balance. Using the installment method, calculate his taxable gain in the year of sale. You must show supporting computations to receive full credit.

exercise 5

A. The IRS determined that John underpaid his 2017 tax liability by $6,000 due to negligence. In 2019, John pays $1,000 of interest related to the underpayment and the full amount of any penalties assessed by the IRS.

1. Calculate the amount of the accuracy-related penalty that could be assessed by the IRS in this situation.

2. What part of the deficiency, income taxes, interest, and penalty, is deductible by John on his current tax return? Explain.

B. 1. Geoffrey filed his tax return 2 months and 8 days late and had not requested an extension of time for filing. Geoffrey's return indicated that he is to receive a $600 refund in taxes. Calculate the amount of Geoffrey's penalty for failure to file his tax return on time, assuming the failure to file was not fraudulent.

2. John filed his individual income tax return 3 months after it was due. He had not requested an extension of time for filing. Along with his return, John remitted a check for $1,000, which was the balance of the taxes he owed with his return. Disregarding interest, calculate the total penalty that John will be required to pay, assuming the failure to file was not fraudulent (and that he is not subject to failure-to-pay penalties).