Drop Down Options for incorrect answers that I need help with:

a) I had answered it is allocated and deducted by both Manuel and Melissa. The drop down options are Manuel and Melissa, the LLC, or Manuel.

C) I had answered MM must use the land as a 1231 asset for 4 years. The drop down options are 2 years, 3 years, 4 years, or 5 years.

Manuel and Melissa want to form the equal MM Partnership. Melissa will contribute cash of $140,000. Manuel has cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000 ). Manuel purchased the land several years ago as an investment (capital) asset. Manuel and MM LLC are trying to decide between two alternatives for Manuel's contribution. - In Alternative 1 , Manuel will contribute the land to the LLC. MM will use the property as a 1231 asset (a parking lot) and then sell it in six years at an estimated $100,000 price. (Disregard any potential improvements to the land.) - In Alternative 2, Manuel will sell the land immediately to a third party and contribute to MM the $100,000 cash proceeds from the sale. MM will use that cash to purchase similar land for $100,000 (also to be used as a parking lot). Use the following additional assumptions: 1. Neither Manuel nor MM will realize other capital or 1231 gains or losses now or in the future. 2. Manuel's marginal tax rate is 35%. 3. A reasonable annual discount rate is 3%. 4. The tax treatment of capital and 1231 gains and losses does not change in the foreseeable future. If required, round your answer to the nearest dollar. a. For each alternative, when would the $36,000 loss be recognized, to whom would the loss be allocated, what is the character of the loss, and over what time period can the loss be deducted? In Alternative 1 X would recognize the $36,000 loss ! . Because the LLC will have held the property for more than years, use of the property determines the character of the loss. The loss is treated as a and it is allocated and deducted by L X In Alternative 2 , the $36,000 loss would be ! by Manuel as a long-term capital Assuming no capital gains, Manuel would be able to deduct $ a year for the next years. b. In these two alternatives, calculate the present value of Manuel's tax savings each year from deducting his share of any loss allocated to him that year. The present value factor at 3%, six years is 0.8375 and the present value factor of an annuity at 3% for six years is 5.417 and for 12 years is 9.954 . Alternative 1 Alternative 2 In considering only the tax savings, is preferred because the present value of the tax savings is Regarding what other issues should Manuel consider, classify each of the following as "Yes" should be considered "No" should not be considered. - Uncertainty regarding the actual future selling price of the property. - Potential future changes in the tax laws regarding this transaction. - Whether Manuel has had a interest in a LLC in the last five years. c. How would the results in parts (a) and (b) change if MM were to sell the property in Alternative 1 after only four years? Answer conceptually; do not make calculations. If MM planned, instead, to sell the property in year 4 , X would be preferable for Manuel. The sale of the property in year 4 would result in X.MM must use the land as a asset for X before its use of the land governs the treatment of the precontribution loss. Manuel and Melissa want to form the equal MM Partnership. Melissa will contribute cash of $140,000. Manuel has cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000 ). Manuel purchased the land several years ago as an investment (capital) asset. Manuel and MM LLC are trying to decide between two alternatives for Manuel's contribution. - In Alternative 1 , Manuel will contribute the land to the LLC. MM will use the property as a 1231 asset (a parking lot) and then sell it in six years at an estimated $100,000 price. (Disregard any potential improvements to the land.) - In Alternative 2, Manuel will sell the land immediately to a third party and contribute to MM the $100,000 cash proceeds from the sale. MM will use that cash to purchase similar land for $100,000 (also to be used as a parking lot). Use the following additional assumptions: 1. Neither Manuel nor MM will realize other capital or 1231 gains or losses now or in the future. 2. Manuel's marginal tax rate is 35%. 3. A reasonable annual discount rate is 3%. 4. The tax treatment of capital and 1231 gains and losses does not change in the foreseeable future. If required, round your answer to the nearest dollar. a. For each alternative, when would the $36,000 loss be recognized, to whom would the loss be allocated, what is the character of the loss, and over what time period can the loss be deducted? In Alternative 1 X would recognize the $36,000 loss ! . Because the LLC will have held the property for more than years, use of the property determines the character of the loss. The loss is treated as a and it is allocated and deducted by L X In Alternative 2 , the $36,000 loss would be ! by Manuel as a long-term capital Assuming no capital gains, Manuel would be able to deduct $ a year for the next years. b. In these two alternatives, calculate the present value of Manuel's tax savings each year from deducting his share of any loss allocated to him that year. The present value factor at 3%, six years is 0.8375 and the present value factor of an annuity at 3% for six years is 5.417 and for 12 years is 9.954 . Alternative 1 Alternative 2 In considering only the tax savings, is preferred because the present value of the tax savings is Regarding what other issues should Manuel consider, classify each of the following as "Yes" should be considered "No" should not be considered. - Uncertainty regarding the actual future selling price of the property. - Potential future changes in the tax laws regarding this transaction. - Whether Manuel has had a interest in a LLC in the last five years. c. How would the results in parts (a) and (b) change if MM were to sell the property in Alternative 1 after only four years? Answer conceptually; do not make calculations. If MM planned, instead, to sell the property in year 4 , X would be preferable for Manuel. The sale of the property in year 4 would result in X.MM must use the land as a asset for X before its use of the land governs the treatment of the precontribution loss