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 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)

a) Total Amount of ordinary gain under Section 1245 reported on (6) _______________________

b) Net Section 1231 Gain or loss from personal property_________________

(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 ________

4(b): Total Remaning Section 1231 Gain ________

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 and Other Long-term Capital Gains

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 limitation discussed 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 percent of the taxpayer's taxable income minus 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