What is wrong in the following computation? I included what i have computed that was told to be correct. however, they said some parts were wrong
Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019 For a 7-year property, it is in the MACRS table that year 1 is 14.29%. Therefore, the computation is as follows. Using straight line method: Year 2018 50,000 x 14.29% Depreciation = = $3572.5 For year 2, the percentage in the table is 24.49% 2 Year 2019 Depreciation = 50,000*24.49% = $12,245 They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for $25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2018 and 2019. The MARCS' percentage, in this case that the truck will have half year depreciation on the first year of service and half year on the year of disposal and the other years in-between are done full depreciation, will be 20% for year 1 and 32% for year 2. Year 2018, 25,000 x 20% Depreciation = 2 = $2,500 Year 2019 50,000 x 32% Depreciation = = $4,000 2 Total depreciation = $2,500 + 4,000 = $6,500 On 10/26/2019 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 2019 Business income and expenditures (Schedule -C): Sales $ 657,500 Cost of goods sold Other business expenses (incl. deprecation taken on the storage building) He had gains/loss of $202,500. $ 315,000 $ 140,000 1 Property Transactions Return Name: Class time: In 2019 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 2019 Depr: Amount Accumulated Depreciation. (Dert. Allowed) Tax Basis= Initial Cost-Repr: Allowed Office tables 4/4/2018 $3,000 $375 $825 $2175 Office chairs 3/1/2015 $8,000 $1,000 $2,200 $5800 10/16/2019 For $2,900 11/8/2019 For $4,000 12/1/2019 For $20,000 11/29/2019 For $48,000 2/1/2019 Marketable securities Land held for investment $12,000 $0 $0 $12000 7/1/2018 $45,000 $0 $0 $45000 In 2019 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 2018: MACRS Rate Initial Cost Date Acquired (1) Date Disposed (2) 2018 MACRS Depreciation Deduction (5) = (3) (4) 4/1/2018 N/A 14.29% 50,000 $7145 Business Equipment Pick-up Truck $25,000 $5000 10/1/201 8 11/15/2 20% 019 2019 Depreciation MACRS Rate Initial Cost Date Acquired Date Disposed 2019 MACRS Depreciation Deduction 4/1/2018 Business Equipment 24.49% 50,000 $12,245 $25,000 $8000 Pick-up Truck 10/1/201 11/15/2 32% (Sold during 8 019 the year) 2019 Tax Basis Date Acquired (1) Date Disposed (2) Initial Cost (3) Accumulated Depreciation (4) Tax Basis at year end (5) = (3)-(4). 4/1/2018 N/A 50,000 19390 30,610 Business Equipment Pick-up Truck 13000 12,000 10/1/201 11/15/2 $25,000 8 019 2019 Net Schedule-C Business income 184, 880 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 (1) Date Date Sold acquired (2) (3) Gross Accumulated Tax Basis Sales Price Depreciation (6) (5) Gain or (loss) (4-6) Truck 10/1/2018 11/15/2019 $24,000 $13000 $12000 $12000 10/26/2019 $220,000 $20,000 $80,000 $140,000 Old storage 2001 building 725 Office Table 4/4/2018 $2,900 $825 $2175 10/16/2019 -1800 Office Chair 3/1/2015 $4000 $2,200 $5800 11/8/2019 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 Accumulated Adj. Basis Price Depreciation Gain or (loss) 0 0 0 0 0 0 0 Step 3). Descriptions of Section 1245 property: 1) Description of property 2) Date acquired 3) Date Sold 4) Gain 7) Remaining Gain = 5) 6) Accumulated Amount of Depreciation Gain reported as Ordinary (Lesser of 4 or 5) 13,000 12,000 (4)-(6) Pickup truck 10/1/2018 11/15/2019 $12,000 0 Step 3). Descriptions of Section 1245 property: 1) 2) Description Date of property acquired 3) Date Sold 4) Gain 7) Remaining Gain = 5) 6) Accumulated Amount of Depreciation Gain reported as Ordinary (Lesser of 4 or 5) 13,000 12,000 (4)-(6) 10/1/2018 Pickup truck 11/15/2019 $12,000 2017 2019 $1000 Wine Collection 0 $1000 4/4/18 10/16/19 725 825 725 0 Office Tables 4 Property Transactions Return Name: Class time: 3/1/2015 11/8/2019 -1800 $2,200 0 Office chairs -1800 3 (a) Net the gains/loss in AB,C,D: 11,925 3 (b) Total Amount reported on (6) above: 12,725 3 (c) = 3(a)-3(b) (Remaining Section 1231 Gain) 11925 12725 = -800 (Part II. continued) Summary Sheet for the Sales of Business Property Step 4. Description of Section 1250 property 1) 2) Description Date of property acquired 3) 4) 5) Date Sold Gain Depreciation allowed (Accumulated Depreciation) 10/26/2019 $140,000 $20,000 6) 7) Unrecaptured Remaining $1250 Gain. Gain = (4)-(6) 2001 $35,000 $105,000 Old Storage Building 4(a) = Remaining Section 1231 Gain from 3(C): -800 4(b): Total Unrecaptured $1250 Gain on 6) above: 35000 4(c) = 4(a) 4(b) = -800 - 35000 = -38000 Part III. Summary Sheet on the Sales of Capital Assets (Form 8949) 1). Short-term Date Sold Gain or Description of property Date acquired Gross Sales Depreciation Cost Basis Price allowed (loss) Marketable securities 0 8,000 2/1/19 12/1/19 20,000 12,000 2) Long-term Date Sold Description of property Date acquired Gross Sales Depreciation Cost Basis Price allowed Gain or (loss) Truck 10/1/2018 11/15/2019 $24,000 $13,000 $25,000 $1000 10/26/2019 $220,000 $20,000 $100,000 $120,000 Old Storage 2001 Building 2017 2019 $9000 0 $8000 $1000 Wine Collection 4/4/18 10/16/19 $2,900 $825 $3,000 -$100 Office Table Office chairs Land held for investment 3/1/18 11/8/19 $4,000 $2200 $8,000 -$4000 7/1/18 11/29/19 $48,000 0 $45,000 $3,000 Summary for Capital Gains and Losses: 1. Net Short-term totals $ 8000 2. Net Long-term totals $118, 900 Part IV: Netting Process Short-term Capital Gains and Loss Carry-overs Long-term Capital Gain (LTCG) $10,000 Collectibles Unrecaptured 1250 Gain Net Sec. 1231 Gain Other Long- term capital gain Net the Short-term Capital Gain or Losses above = $8000 $35000 $1000 $118,900 Use the above amount to net against Collectibles, Unrecaptured Sec. 1250 Gain, LTCG, etc. on the right Net Capital Gain: 126,900 Part VI. Income Tax Computation A. Net Capital Gains (NCG from page 6): 126,900 B. Other Gains (the amount for Part II 3(b) on page 3_12725 C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, less one-half of Self-employment tax) AGI: (Net Schedule-C Income): 184, 880 D. Taxable Income before Qualified Business Income Deduction (AGI 2019 Standard Deduction for Married Filing Jointly). The standard deduction for Married Filing Jointly is $24,400 for 2019. Therefore: 184,880 - 24,400 = 160,480 E. Qualified Business Income Deduction (see page 8): 160,480 * 20% = 32,096 E Taxable income: (F=D-E) = 160,480-32,096 = 128,384 G. Tax Computation 1) Tax on Capital Gains: 15% x $118, 900 = 17,835 + 25% x $118, 900 = 29,725 + 28% x $118, 900 = 33,292 2) Tax based on tax rate schedule Y-1 (Taxable income (F) NCG): 128,384 3) Total Self-Employment Tax from Part V. 21,431 Add G (1), G (2) and G (3), this is their total tax: 80,852 Dean and Ellen Price are married and have a manufacturing business. They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019 For a 7-year property, it is in the MACRS table that year 1 is 14.29%. Therefore, the computation is as follows. Using straight line method: Year 2018 50,000 x 14.29% Depreciation = = $3572.5 For year 2, the percentage in the table is 24.49% 2 Year 2019 Depreciation = 50,000*24.49% = $12,245 They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for $25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2018 and 2019. The MARCS' percentage, in this case that the truck will have half year depreciation on the first year of service and half year on the year of disposal and the other years in-between are done full depreciation, will be 20% for year 1 and 32% for year 2. Year 2018, 25,000 x 20% Depreciation = 2 = $2,500 Year 2019 50,000 x 32% Depreciation = = $4,000 2 Total depreciation = $2,500 + 4,000 = $6,500 On 10/26/2019 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 2019 Business income and expenditures (Schedule -C): Sales $ 657,500 Cost of goods sold Other business expenses (incl. deprecation taken on the storage building) He had gains/loss of $202,500. $ 315,000 $ 140,000 1 Property Transactions Return Name: Class time: In 2019 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 2019 Depr: Amount Accumulated Depreciation. (Dert. Allowed) Tax Basis= Initial Cost-Repr: Allowed Office tables 4/4/2018 $3,000 $375 $825 $2175 Office chairs 3/1/2015 $8,000 $1,000 $2,200 $5800 10/16/2019 For $2,900 11/8/2019 For $4,000 12/1/2019 For $20,000 11/29/2019 For $48,000 2/1/2019 Marketable securities Land held for investment $12,000 $0 $0 $12000 7/1/2018 $45,000 $0 $0 $45000 In 2019 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 2018: MACRS Rate Initial Cost Date Acquired (1) Date Disposed (2) 2018 MACRS Depreciation Deduction (5) = (3) (4) 4/1/2018 N/A 14.29% 50,000 $7145 Business Equipment Pick-up Truck $25,000 $5000 10/1/201 8 11/15/2 20% 019 2019 Depreciation MACRS Rate Initial Cost Date Acquired Date Disposed 2019 MACRS Depreciation Deduction 4/1/2018 Business Equipment 24.49% 50,000 $12,245 $25,000 $8000 Pick-up Truck 10/1/201 11/15/2 32% (Sold during 8 019 the year) 2019 Tax Basis Date Acquired (1) Date Disposed (2) Initial Cost (3) Accumulated Depreciation (4) Tax Basis at year end (5) = (3)-(4). 4/1/2018 N/A 50,000 19390 30,610 Business Equipment Pick-up Truck 13000 12,000 10/1/201 11/15/2 $25,000 8 019 2019 Net Schedule-C Business income 184, 880 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 (1) Date Date Sold acquired (2) (3) Gross Accumulated Tax Basis Sales Price Depreciation (6) (5) Gain or (loss) (4-6) Truck 10/1/2018 11/15/2019 $24,000 $13000 $12000 $12000 10/26/2019 $220,000 $20,000 $80,000 $140,000 Old storage 2001 building 725 Office Table 4/4/2018 $2,900 $825 $2175 10/16/2019 -1800 Office Chair 3/1/2015 $4000 $2,200 $5800 11/8/2019 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 Accumulated Adj. Basis Price Depreciation Gain or (loss) 0 0 0 0 0 0 0 Step 3). Descriptions of Section 1245 property: 1) Description of property 2) Date acquired 3) Date Sold 4) Gain 7) Remaining Gain = 5) 6) Accumulated Amount of Depreciation Gain reported as Ordinary (Lesser of 4 or 5) 13,000 12,000 (4)-(6) Pickup truck 10/1/2018 11/15/2019 $12,000 0 Step 3). Descriptions of Section 1245 property: 1) 2) Description Date of property acquired 3) Date Sold 4) Gain 7) Remaining Gain = 5) 6) Accumulated Amount of Depreciation Gain reported as Ordinary (Lesser of 4 or 5) 13,000 12,000 (4)-(6) 10/1/2018 Pickup truck 11/15/2019 $12,000 2017 2019 $1000 Wine Collection 0 $1000 4/4/18 10/16/19 725 825 725 0 Office Tables 4 Property Transactions Return Name: Class time: 3/1/2015 11/8/2019 -1800 $2,200 0 Office chairs -1800 3 (a) Net the gains/loss in AB,C,D: 11,925 3 (b) Total Amount reported on (6) above: 12,725 3 (c) = 3(a)-3(b) (Remaining Section 1231 Gain) 11925 12725 = -800 (Part II. continued) Summary Sheet for the Sales of Business Property Step 4. Description of Section 1250 property 1) 2) Description Date of property acquired 3) 4) 5) Date Sold Gain Depreciation allowed (Accumulated Depreciation) 10/26/2019 $140,000 $20,000 6) 7) Unrecaptured Remaining $1250 Gain. Gain = (4)-(6) 2001 $35,000 $105,000 Old Storage Building 4(a) = Remaining Section 1231 Gain from 3(C): -800 4(b): Total Unrecaptured $1250 Gain on 6) above: 35000 4(c) = 4(a) 4(b) = -800 - 35000 = -38000 Part III. Summary Sheet on the Sales of Capital Assets (Form 8949) 1). Short-term Date Sold Gain or Description of property Date acquired Gross Sales Depreciation Cost Basis Price allowed (loss) Marketable securities 0 8,000 2/1/19 12/1/19 20,000 12,000 2) Long-term Date Sold Description of property Date acquired Gross Sales Depreciation Cost Basis Price allowed Gain or (loss) Truck 10/1/2018 11/15/2019 $24,000 $13,000 $25,000 $1000 10/26/2019 $220,000 $20,000 $100,000 $120,000 Old Storage 2001 Building 2017 2019 $9000 0 $8000 $1000 Wine Collection 4/4/18 10/16/19 $2,900 $825 $3,000 -$100 Office Table Office chairs Land held for investment 3/1/18 11/8/19 $4,000 $2200 $8,000 -$4000 7/1/18 11/29/19 $48,000 0 $45,000 $3,000 Summary for Capital Gains and Losses: 1. Net Short-term totals $ 8000 2. Net Long-term totals $118, 900 Part IV: Netting Process Short-term Capital Gains and Loss Carry-overs Long-term Capital Gain (LTCG) $10,000 Collectibles Unrecaptured 1250 Gain Net Sec. 1231 Gain Other Long- term capital gain Net the Short-term Capital Gain or Losses above = $8000 $35000 $1000 $118,900 Use the above amount to net against Collectibles, Unrecaptured Sec. 1250 Gain, LTCG, etc. on the right Net Capital Gain: 126,900 Part VI. Income Tax Computation A. Net Capital Gains (NCG from page 6): 126,900 B. Other Gains (the amount for Part II 3(b) on page 3_12725 C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, less one-half of Self-employment tax) AGI: (Net Schedule-C Income): 184, 880 D. Taxable Income before Qualified Business Income Deduction (AGI 2019 Standard Deduction for Married Filing Jointly). The standard deduction for Married Filing Jointly is $24,400 for 2019. Therefore: 184,880 - 24,400 = 160,480 E. Qualified Business Income Deduction (see page 8): 160,480 * 20% = 32,096 E Taxable income: (F=D-E) = 160,480-32,096 = 128,384 G. Tax Computation 1) Tax on Capital Gains: 15% x $118, 900 = 17,835 + 25% x $118, 900 = 29,725 + 28% x $118, 900 = 33,292 2) Tax based on tax rate schedule Y-1 (Taxable income (F) NCG): 128,384 3) Total Self-Employment Tax from Part V. 21,431 Add G (1), G (2) and G (3), this is their total tax: 80,852
