Question
Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2017 for $50,000.Use
Dean and Ellen Price are married and have a manufacturing business.
They bought a piece of business equipment (7-year personal property) on 4/1/2017 for $50,000.Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2017 and 2018
They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2017 for $25,000. On 11/15/2018, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2017 and 2018.
On 10/26/2018 Dean sold his old storage building used for his business for $220,000.They purchased the building in 2001 for $100,000. Total depreciation (accumulated depreciation) taken on the building is $20,000.
His 2018 Business income and expenditures (Schedule -C):
Sales $ 657,500
Cost of goods sold $ 315,000
Other business expenses (incl. deprecation taken on the storage building) $ 140,000
In 2018 Dean also sold various assets. The information about the selling price and depreciation of the property is listed below.
Placed in Service / Purchased on
Sold on
Initial Cost
2018 Depr. Amount
Accumulated
Depreciation. (Depr. Allowed)
Adjusted
Basis
Office tables
4/4/2017
10/16/2018
For $2,900
$3,000
$375
$825
Office chairs
3/1/2015
11/8/2018
For $4,000
$8,000
$1,000
$2,200
Marketable securities
2/1/2018
12/1/2018
For $20,000
$12,000
$0
$0
Land held for investment
7/1/2017
11/29/2018
For $48,000
$45,000
$0
$0
In 2018 Dean sold his wine collection for $9,000, which is bought two years ago for $8,000.
They also has a short-term capital loss carryover of $10,000 from 2009.
Part I: MACRS Depreciations and Adjusted Basis
2017:
Date Acquired
(1)
Date Disposed
(2)
MACRS Rate
(3)
Initial Cost
(4)
2017 MACRS Depreciation Deduction
(5) = (3)*(4)
BusinessEquipment
N/A
Pick-up Truck
2018
Date Acquired
Date Disposed
MACRS Rate
Initial Cost
2018 MACRS Depreciation Deduction
BusinessEquipment
N/A
Pick-up Truck
(Sold during the year)
2018
Date Acquired
(1)
Date Disposed
(2)
Initial Cost
(3)
Accumulated Depreciation
(4)
Adjusted Basis at year end
(5) = (3)-(4).
Business Equipment
N/A
Pick-up Truck
2018 Net Schedule-C Business income
_________________________________________
Part II. Summary Sheet for the Sales of Business Property (Form 4797)
Step 1) Sales or Exchanges of Property Used in a Trade or Business (Held for More Than 1 Year)
Description of property
Date acquired
Date Sold
Gross Sales Price
Accumulated
Depreciation
Adjusted Basis
Gain or (loss)
A)
B)
C)
D)
Step 2) Ordinary Gains and Losses (incl. property held 1 year or less). Enter zero if not applicable.
Description of property
Date acquired
Date Sold
Gross Sales Price
Accumulated
Depreciation
Adj. Basis
Gain or (loss)
Step 3). Descriptions of Section 1245 property:
1) Description of property
2)
Date acquired
3)
Date Sold
4)
Gain
5)
Accumulated
Depreciation
6)
Amount of Gain reported as Ordinary
(Lesser of 4 or 5)
7) Remaining Gain =
(4) - (6)
3a) Total Amount reported on (6)_______________________
3b) Remaining Net 1231 Gain or Loss (other than real property) after 3a)______________
(Part II. continued)
Summary Sheet for the Sales of Business Property
Step 4. Description of Section 1250 property
1) Description of property
2)
Date acquired
3)
Date Sold
4)
Gain
5)
Depreciation allowed (Accumulated Depreciation)
6)
Unrecaptured 1250 Gain.
7) Remaining Gain =
(4) - (6)
4(a): Total Unrecaptured 1250 Gain on 6)________
4(b): Remaining Net Section 1231 Gain or Loss after 4a) ________
Step 5)
Line 1: Total amount from 3(b):
Line 2: Total amount from 4(b):
Net the total of 3(b) and 4(b), this is to be taxed at 15/20%:
Part III. Summary Sheet on the Sales of Capital Assets(Form 8949)
1). Short-term
Description of property
Date acquired
Date Sold
Gross Sales Price
Depreciation allowed
Cost Basis
Gain or (loss)
2) Long-term
Description of property
Date acquired
Date Sold
Gross Sales Price
Depreciation allowed
Cost Basis
Gain or (loss)
Summary for Capital Gains and Losses (Schedule D)
1.Net Short-term totals
2. Net Long-term totals
Part IV: Netting Process
Short-term Capital Gains and Loss Carry-overs
Long-term Capital Gain (LTCG)
Collectibles
Unrecaptured 1250 Gain
Net 1231 Gain
Other Long-term capital gain
Net Short-term Capital Gain or Loss =
Net Capital Gain:
Part V. Self-Employment Tax Computation
Self-Employment Tax: __________________
Social security tax = The lesser of Net Sch-C income or $132,900 (for 2018) *12.4% (round to nearest dollar) =
Medicare tax = Net Schedule-C business income*92.35%*2.9% (round to nearest dollar) =
Part VI. Income Tax Computation
A. Net Capital Gains ____________________
B. Other Gains
Realized ordinary income from disposition of property under Section 1245
________
C. Taxpayer's AGI (after one-half of Self-employment tax deduction)
AGI __________
D. Taxable Income before Qualified Business Income Deduction:
E. Qualified Business Income Deduction:
F. Tax Computation
1)Tax based on tax rate schedule Y-1:____________
2)Total tax on Capital Gains =
15% x __________________
25% x ___________________
28% x __________________
3)Total Self-Employment Tax from Part V
Add F(1), F(2) and F(3), this is their total tax____________
Q6. How is the deduction for qualified business income computed?
A6. The SSTB (Specified Trade or Business) limitation does not apply if a taxpayer's taxable income is below $315,000 for a married couple filing a joint return and $157,500 for all other taxpayers; the deduction is the lesser of:
A) 20 percent of the taxpayer's QBI, plus 20 percent of the taxpayer's qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income
B) 20%*( excess of taxpayer's taxable income over net capital gains)
If the taxpayer's taxable income is above the $315,000/$157,500 thresholds, the deduction may be limited based on whether the business is an SSTB, the W-2 wages paid by the business and the unadjusted basis of certain property used by the business. These limitations are phased in for joint filers with taxable income between $315,000 and $415,000, and all other taxpayers with taxable income between $157,500 and $207,500. The threshold amounts and phase-in range are for tax-year 2018 and will be adjusted for inflation in subsequent years.
2018 TAX RATES SCHEDULE Y-1 - MARRIED FILING JOINTLY OR QUALIFYING WIDOW(ER)
IF TAXABLE INCOME IS OVER
BUT NOT OVER
THE TAX IS
$0
$19,050
10% of the taxable amount
$19,050
$77,400
$1,905 plus 12% of the excess over $19,050
$77,400
$165,000
$8,907 plus 22% of the excess over $77,400
$165,000
$315,000
$28,179 plus 24% of the excess over $165,000
$315,000
$400,000
$64,179 plus 32% of the excess over $315,000
$400,000
$600,000
$91,379 plus 35% of the excess over $400,000
$600,000
no limit
$161,379 plus 37% of the excess over $600,000
2018 STANDARD deduction
Standard Deduction:
Married filing jointly or Qualifying Widow(er)
$24,000
Head of household
$18,000
Single or Married-filling-separately
$12,000
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