Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019 They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for $25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2018 and 2019. On 10/26/2019 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 2019 Business income and expenditures (Schedule -C): Sales $ 657,500 Cost of goods sold Other business expenses (incl. deprecation taken on the storage building) $ 315,000 $ 140,000 In 2019 Dean also sold various assets. The information about the selling price and depreciation of the property is listed below. Placed in Service / Purchased Sold on Initial Cost 2019 Depr. Amount Accumulated Depreciation. (Depr. Allowed) Tax Basis= Initial Cost - Depr. Allowed on Office tables 4/4/2018 $3,000 $375 $825 10/16/2019 For $2,900 11/8/2019 For $4,000 Office chairs 3/1/2015 $8,000 $1,000 $2,200 Marketable securities 2/1/2019 $ 12,000 $0 $0 12/1/2019 For $20,000 11/29/2019 For $48,000 Land held for investment 7/1/2018 $45,000 $0 $0 In 2019 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. 1 Property Transactions Return Name: Class time: Part I: MACRS Depreciations and Adjusted Basis 2018: Date Acquired (1) Date Disposed (2) MACRS Rate (3) Initial Cost (4) 2018 MACRS Depreciation Deduction (5) = (3)*(4) N/A Business Equipment Pick-up Truck 2019 Depreciation MACRS Rate Initial Cost Date Acquired Date Disposed 2019 MACRS Depreciation Deduction Business Equipment Pick-up Truck (Sold during the year) 2019 Tax Basis Date Acquired (1) Date Disposed (2) Initial Cost (3) Accumulated Depreciation (4) Tax Basis at year end (5) = (3)-(4) N/A Business Equipment Pick-up Truck 2019 Net Schedule-C Business income _184, 880 2 Property Transactions Return Name: Class time: 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) Tax Basis (6) Description of property (1) Date Date Sold acquired (2) (3) Gross Sales Price (4) Accumulated Depreciation (5) Gain or (loss) (4-6) A) B) C) D) Step 2) Ordinary Gains and Losses (incl. property held 1 year or less). Enter zero if not applicable. Date Sold Description of property Adj. Basis Date acquired Gross Sales Price Accumulated Depreciation 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 7) Remaining Gain = 6) Amount of Gain reported as Ordinary (Lesser of 4 or 5) (4) - (6) 3 (a) Net the gains/loss in A,B,C,D 3 (b) Total Amount reported on (6) above: 3 (c) = 3(a)-3(b) (Remaining Section 1231 Gain) 3 Property Transactions Return Name: Class time: (Part II. continued) Summary Sheet for the Sales of Business Property Step 4. Description of Section 1250 property 1) 2) Description Date of property acquired 3) Date Sold 4) Gain 5) Depreciation allowed (Accumulated Depreciation) 6) 7) Unrecaptured Remaining $1250 Gain Gain = (4)-(6) 4(a) = Remaining Section 1231 Gain from 3(c): 4(b): Total Unrecaptured $1250 Gain on 6) above 4(c) = 4(a) - 4(b) 4 Property Transactions Return Name: Class time: Part III. Summary Sheet on the Sales of Capital Assets (Form 8949) 1). Short-term Date Sold Cost Basis Description of property Date acquired Gross Sales Price Depreciation allowed Gain or (loss) 2) Long-term Date Sold Cost Basis Description of property Date acquired Gross Sales Price Depreciation allowed Gain or (loss) Summary for Capital Gains and Losses: 1. Net Short-term totals 2. Net Long-term totals 5 Property Transactions Return Name: Class time: Part IV: Netting Process Long-term Capital Gain (LTCG) Short-term Capital Gains and Loss Carry-overs Collectibles Unrecaptured $ 1250 Gain Net Sec. 1231 Gain Other Long- term capital gain Net the Short-term Capital Gain or Losses above = Amount from Part II, 4(c) Part III, Net LTCG, excluding Collectibles Amount from Part II, 4(b) Use the above amount to net against Collectibles, Unrecaptured Sec. 1250 Gain, LTCG, etc. on the right Net Capital Gain: 6 Property Transactions Return Name: Class time: Part V. Self-Employment Tax Computation 2019 Net Schedule-C income (from page 2): 2019 Self-Employment Tax: Social security tax = (The lesser of Net Sch-C income or $132,900)*12.4%, round up to nearest dollar: Medicare tax = (Net Schedule-C business income)*92.35%*2.9%, round up to nearest dollar: Total Self-Employment Tax = Part VI. Income Tax Computation A. Net Capital Gains (NCG from page 6) B. Other Gains (the amount for Part II 3(b) on page 3) C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, less one-half of Self-employment tax) AGI D. Taxable income before Qualified Business Income Deduction (AGI - 2019 Standard Deduction for Married Filing Jointly): E. Qualified Business Income Deduction (see page 8): F: Taxable income: (F=D-E) G. Tax Computation 1) Tax on Capital Gains = 15% X + 25% x + 28% x 2) Tax based on tax rate schedule Y-1 (Taxable income (F) - NCG): 3) Total Self-Employment Tax from Part V Add G(1), G(2) and G(3), this is their total tax 7 Property Transactions Return Name: Class time: Q: How is the deduction for Qualified Business Income (QBI) computed? A: The SSTB (Specified Trade or Business) limitation does not apply if a taxpayer's taxable income is below $321,400 for a married couple filing a joint return and $160,700 for all other taxpayers in 2019; the deduction is the lesser of: A) 20 percent of the taxpayer's QBI (Net Schedule-C income), plus 20 percent of the taxpayer's qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTR) income B) 20%*(excess of taxpayer's taxable income before QBI deduction over net capital gains) If the taxpayer's taxable income is above the 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. 8 Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019 They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for $25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2018 and 2019. On 10/26/2019 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 2019 Business income and expenditures (Schedule -C): Sales $ 657,500 Cost of goods sold Other business expenses (incl. deprecation taken on the storage building) $ 315,000 $ 140,000 In 2019 Dean also sold various assets. The information about the selling price and depreciation of the property is listed below. Placed in Service / Purchased Sold on Initial Cost 2019 Depr. Amount Accumulated Depreciation. (Depr. Allowed) Tax Basis= Initial Cost - Depr. Allowed on Office tables 4/4/2018 $3,000 $375 $825 10/16/2019 For $2,900 11/8/2019 For $4,000 Office chairs 3/1/2015 $8,000 $1,000 $2,200 Marketable securities 2/1/2019 $ 12,000 $0 $0 12/1/2019 For $20,000 11/29/2019 For $48,000 Land held for investment 7/1/2018 $45,000 $0 $0 In 2019 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. 1 Property Transactions Return Name: Class time: Part I: MACRS Depreciations and Adjusted Basis 2018: Date Acquired (1) Date Disposed (2) MACRS Rate (3) Initial Cost (4) 2018 MACRS Depreciation Deduction (5) = (3)*(4) N/A Business Equipment Pick-up Truck 2019 Depreciation MACRS Rate Initial Cost Date Acquired Date Disposed 2019 MACRS Depreciation Deduction Business Equipment Pick-up Truck (Sold during the year) 2019 Tax Basis Date Acquired (1) Date Disposed (2) Initial Cost (3) Accumulated Depreciation (4) Tax Basis at year end (5) = (3)-(4) N/A Business Equipment Pick-up Truck 2019 Net Schedule-C Business income _184, 880 2 Property Transactions Return Name: Class time: 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) Tax Basis (6) Description of property (1) Date Date Sold acquired (2) (3) Gross Sales Price (4) Accumulated Depreciation (5) Gain or (loss) (4-6) A) B) C) D) Step 2) Ordinary Gains and Losses (incl. property held 1 year or less). Enter zero if not applicable. Date Sold Description of property Adj. Basis Date acquired Gross Sales Price Accumulated Depreciation 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 7) Remaining Gain = 6) Amount of Gain reported as Ordinary (Lesser of 4 or 5) (4) - (6) 3 (a) Net the gains/loss in A,B,C,D 3 (b) Total Amount reported on (6) above: 3 (c) = 3(a)-3(b) (Remaining Section 1231 Gain) 3 Property Transactions Return Name: Class time: (Part II. continued) Summary Sheet for the Sales of Business Property Step 4. Description of Section 1250 property 1) 2) Description Date of property acquired 3) Date Sold 4) Gain 5) Depreciation allowed (Accumulated Depreciation) 6) 7) Unrecaptured Remaining $1250 Gain Gain = (4)-(6) 4(a) = Remaining Section 1231 Gain from 3(c): 4(b): Total Unrecaptured $1250 Gain on 6) above 4(c) = 4(a) - 4(b) 4 Property Transactions Return Name: Class time: Part III. Summary Sheet on the Sales of Capital Assets (Form 8949) 1). Short-term Date Sold Cost Basis Description of property Date acquired Gross Sales Price Depreciation allowed Gain or (loss) 2) Long-term Date Sold Cost Basis Description of property Date acquired Gross Sales Price Depreciation allowed Gain or (loss) Summary for Capital Gains and Losses: 1. Net Short-term totals 2. Net Long-term totals 5 Property Transactions Return Name: Class time: Part IV: Netting Process Long-term Capital Gain (LTCG) Short-term Capital Gains and Loss Carry-overs Collectibles Unrecaptured $ 1250 Gain Net Sec. 1231 Gain Other Long- term capital gain Net the Short-term Capital Gain or Losses above = Amount from Part II, 4(c) Part III, Net LTCG, excluding Collectibles Amount from Part II, 4(b) Use the above amount to net against Collectibles, Unrecaptured Sec. 1250 Gain, LTCG, etc. on the right Net Capital Gain: 6 Property Transactions Return Name: Class time: Part V. Self-Employment Tax Computation 2019 Net Schedule-C income (from page 2): 2019 Self-Employment Tax: Social security tax = (The lesser of Net Sch-C income or $132,900)*12.4%, round up to nearest dollar: Medicare tax = (Net Schedule-C business income)*92.35%*2.9%, round up to nearest dollar: Total Self-Employment Tax = Part VI. Income Tax Computation A. Net Capital Gains (NCG from page 6) B. Other Gains (the amount for Part II 3(b) on page 3) C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, less one-half of Self-employment tax) AGI D. Taxable income before Qualified Business Income Deduction (AGI - 2019 Standard Deduction for Married Filing Jointly): E. Qualified Business Income Deduction (see page 8): F: Taxable income: (F=D-E) G. Tax Computation 1) Tax on Capital Gains = 15% X + 25% x + 28% x 2) Tax based on tax rate schedule Y-1 (Taxable income (F) - NCG): 3) Total Self-Employment Tax from Part V Add G(1), G(2) and G(3), this is their total tax 7 Property Transactions Return Name: Class time: Q: How is the deduction for Qualified Business Income (QBI) computed? A: The SSTB (Specified Trade or Business) limitation does not apply if a taxpayer's taxable income is below $321,400 for a married couple filing a joint return and $160,700 for all other taxpayers in 2019; the deduction is the lesser of: A) 20 percent of the taxpayer's QBI (Net Schedule-C income), plus 20 percent of the taxpayer's qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTR) income B) 20%*(excess of taxpayer's taxable income before QBI deduction over net capital gains) If the taxpayer's taxable income is above the 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. 8