Chapter 10 Home work

(1). Rafael sold an asset to Jamal. What is Rafael's amount realized on the sale in each of the following alternative scenarios?

a.	Rafael received $125,000 of cash and a vehicle worth $18,400. Rafael also pays $9,000 in selling expenses.

Amount realized

b.	Rafael received $86,000 of cash and was relieved of a $30,250 mortgage on the asset he sold to Jamal. Rafael also paid a commission of $7,000 on the transaction.

Amount realized

c.	Rafael received $25,000 of cash, a parcel of land worth $81,500, and marketable securities of $17,000. Rafael also paid a commission of $12,450 on the transaction.

Amount realized

(2). In year 0, Longworth Partnership purchased a machine for $52,000 to use in its business. In year 3, Longworth sold the machine for $40,900. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $31,400. (Loss amounts should be indicated by a minus sign.)

a.	What amount of gain or (loss) is recognized on the sale?

Total Gain/Loss Recognized

Character of Recognized Gain/Loss

Ordinary Gain/Loss

1231 gain/loss

b.	What amount of gain or (loss) is recognized on the sale if the sale proceeds were increased to $63,250?

Total Gain/Loss Recognized

Character of Recognized Gain/Loss

Ordinary Gain/Loss

1231 gain/loss

c.	What amount of gain or (loss) is recognized on the sale if the sale proceeds were decreased to $19,100?

Total Gain/Loss Recognized

Character of Recognized Gain/Loss

Ordinary Gain/Loss

1231 gain/loss

(3). Kase, an individual, purchased some property in Potomac, Maryland, for $207,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kases Maryland property. Kase agrees to the exchange.

What is Kases realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios? (Loss amounts should be indicated by a minus sign.)

a.	The transaction qualifies as a like-kind exchange and the fair market value of each property is $702,500.

Realized gain

Or

Realized loss

Adjusted basis in new property

b.	The transaction qualifies as a like-kind exchange and the fair market value of each property is $176,000

Realized gain

Or

Realized loss Adjusted basis in new property

(4). Ken sold a rental property for $858,000. He received $182,000 in the current year and $169,000 each year for the next four years. $617,500 of the sales price was allocated to the building and the remaining $240,500 was allocated to the land. Ken purchased the property several years ago for $614,500. When he initially purchased the property, he allocated $477,500 of the purchase price to the building and $137,000 to the land. Ken has claimed $13,900 of depreciation deductions over the years against the building. (Round your answers to the nearest whole dollar amount.)

Ken had no other sales of 1231 or capital assets in the current year.

a.	For the current year, determine the amount of Ken's total recognized gain or loss

Description Amount

(1). Amount realized

(2). Adjusted Basis

(3). Gain realized/

Loss realized

(4). Gross Profit

(5). Payment received in year 0

Gain recognized in year 0

b.	For the current year, calculate Kens total tax due because of the sale (assuming his marginal ordinary tax rate is 35 percent).

Character Amount

Uncaptured 1250 (1231 gain)

Other 1231

Tax