Statement of Facts

Taxpayer John Doe has the following personal information:

Name: Dr. John Doe

SSN: 333-33-3333

Address: 333 Any Street, Anytown, CA 90000

Summary:

Dr. John Doe (Dr. DOE) has been a medical doctor for the last 20 years. Since 2002, Dr. DOE had his own medical practice (the Practice). The Practice uses the cash-basis accounting method and operates as a sole proprietorship. According to Dr. DOE's last income tax filings, the Practice had several business assets (details below). In 2021, Dr. DOE decided to retire from medicine to pursue a career as a long haul trucker. In 2021, Dr. DOE sold the Practice and all of its assets to a physician group for $3,000,000 ($2,500,000 in cash and a short term note for $500,000). The note will be paid over 13 months (12 months in 2022 and 1 month in 2023). The first payment in 2022 will be an interest only payment of $25,000. All other payments are principle only. Dr. DOE would like to invest the cash proceeds from the sale in: 1) commercial real estate; and 2) machinery and equipment for his new trucking business. The remaining funds will be used as working capital for Dr. DOE's new trucking business and for personal expenses.

The Practice has the following long term assets just prior to the sale to the physician group:

1) Accounts Receivable from Patients (all older than 1 year): $30,000; FMV = $10,000

2) Medical Equipment: Cost Basis = $200,000; Adjusted Basis = $20,000; FMV = $110,000

3) Office Equipment & Furniture: Cost Basis = $50,000; Adjusted Basis = $0; FMV = $10,000

4) Medical Office: Cost Basis = $800,000; Adjusted Basis = $400,000; FMV = $2,000,000; Debt $0

5) Customer Lists and Goodwill: Cost Basis = $0; Adjusted Basis = $0; FMV (TBD by student)

Dr. DOE would like to elect to defer recognition of the gain in his building through a Section 1031 exchange. Dr. DOE timely identified replacement property (a small strip mall) with a FMV of $1,800,000. DOE will purchase the replacement property through a transfer in escrow of the sale's cash proceeds.

Note: When preparing DOE's 2021 tax return, please make any and all elections that will give DOE the lowest total income tax in 2021. For simplicity purposes, please 1) complete only page 2 of Form 8824 and assume all required dates/notices were timely; and 2) complete only page 1 of Schedule 1.