Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she plans to replace as part of the expansion. To finance this expansion she will have to sell some of her personal assets. Because it is close to the end of the tax year, she can time the sales of the assets to take the greatest advantage of the tax laws. Monique’s ordinary income of $600,000 currently places her in the 37 percent marginal tax bracket.
Following are the assets that Monique plans to sell; assume that she will realize their fair market value on the sales.

In addition to the proceeds from the sales of the business assets, Monique needs a minimum of an additional $800,000 for her planned expansion. Which assets should Monique sell to minimize her tax liability on the sales of the business and personal assets?

Transcribed Image Text:

Original Depreciation method Business assets Fair market value Adjusted basis Acquisition date cost Truck Office building $3,000 $0 $20,000 MACRS 2001 MACRS 1996 300,000 160,000 25,000 55,000 285,000 Machine 1 MACRS 80,000 95,000 2010 10,000 60,000 Machine 2 MACRS 2011 Acquisition date 1998 2005 Personal assets Fair market value Original cost Sculpture Painting $400,000 $260,000 525,000 1,050,000 350,000 400,000 800,000 100,000 shares ACC 10,000 shares of BBL 2012 2016 400,000