Problem 2

Compute gain and/or loss in each of the following situations.For problem 2.4 compute total for year and how it will be treated on income tax return.

2.1In 2003 Helen bought a house in Brooklyn for 185,000.She lived there until 2013 when she took a new job in Texas.She was offered 450,000 for the house but was not sure how the job would be so she decided to rent the house.From July 2013 until June 2019 she rented the house.In June 2019 the tenant moved and she decided to sell the house.In November 2019 she sold the house for 850,000.At all times the rental income was more than costs and depreciation allowable).Compute gain.Is any part ordinary income?Capital gain?Is any part of the gain excluded from income?

2.2In 2004 Irving bought three shares in a real estate start-up from a friend.He paid 10,000 for each share and gifted them immediately to his three children, Jim, Ken and Louis. The company never did very well and paid a dividend of 25-50 per share each year.

In 2016 Jim needed some money and decided to sell his shares of the real estate company.The best offer he could get was $2,000.He mentioned to Ken (his brother) that he was trying to sell and Ken offered to buy the shares for $2,200.In 2019 Ken sold the two shares to an unrelated investor for 2,500 each.Compute any gain or loss reportable by Jim or Ken.Is it ordinary or capital, and if capital, long or short term?

2.3In October 2014 Mary bought 500 shares in XYZ (a listed traded company) for $40 per share.In December 2018 when the shares were worth $35 per share, she gifted 250 shares to each of her grandchildren Nancy and Oscar.In July 2019 Nancy sold her shares for $38 per share.In November 2019 Oscar sold his shares of $42 per share.

Compute gain or loss reported by Nancy and Oscar.Is it capital or ordinary and if capital, long or short term?

2.4Compute total gain or loss and tax treatment for 2019 for Peter.

In 2018, after considering all losses and allowances, Peter had net long term loss of 14,200 and net short-term loss of 2,200.

ABCpurchased 8/1/2014cost17,000sold 2/15/19 proceeds 25,000

DEFpurchased 11/15/2018 cost 8,800declared bankrupt 6/1/2019

GHIpurchased 2/15/10 cost 25,000 sold 12/20/2019 31,800