Jacob started a small business a year ago (i.e., this is the SECOND year of operations). He purchased the following assets to use in the business: Cost (1/1/x1) Estimated Selling Price (12/31/x2) Machinery $1,500,000 $1,650,000 Land $55,000 $62,000 Warehouse $120,000 $127,000

In addition to the above assets that are used in the business, Jacob purchased 1,000 shares of stock to be held as an investment for the business. He paid $15,000 for the stock. The estimated market value of the stock as of 12/31/x2 is $10,000. Jacob always elects to maximize deductions whenever possible. The estimated operating income from the business in x2 is $85,000. Jacob's tax rate on ordinary income is 37% and all capital gains are taxed at 15%. Jacob has decided to begin a new career and, therefore, intends to sell all of the assets in his business (on 12/31/x2).

* Answer ALL SIX of the following questions. You may use tax year 2022 limits/deduction amounts where needed. You may IGNORE BONUS DEPRECIATION for the entirety of the case, but do NOT ignore Section 179.

1. What are Jacob's CURRENT YEAR (YEAR 2) cost recovery deductions?

Machinery: Land: Warehouse: Stock:

2. What is the ADJUSTED BASIS of each asset as of 12/31/x2 (just before the asset is sold)?

Machinery: Land: Warehouse: Stock:

3. What is Jacob's GAIN OR LOSS FROM SELLING EACH ASSET?

Machinery: Land: Warehouse: Stock:

4. How much depreciation recapture will Jacob be subject to for each asset?

Machinery: Land: Warehouse: Stock: