52. Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, DC. She doesnt
Question:
52. Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, DC. She doesn’t sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a place somewhere sunny and warm. Tonya’s townhouse is worth $1,000,000 and the land is worth another $1,000,000.
The original basis in the townhouse was $600,000, and she has claimed $250,000 of depreciation deductions against the asset over the years. The original basis in the land was
$500,000. Tonya has located a buyer that would like to finalize the transaction in December of the current year. Tonya’s marginal ordinary income tax rate is 35 percent and her capital gains tax rate is 20 percent.
a. What amount of gain or loss does Tonya recognize on the sale? What is the character of the gain or loss? What effect does the gain or loss have on her tax liability?
b. In addition to the original facts, assume that Tonya reports the following nonrecaptured net §1231 loss:
Year Net §1231 Gains/(Losses)
Year 1 $(200,000)
Year 2 0 Year 3 0 Year 4 0 Year 5 0 Year 6 (current year) ?
What amount of gain or loss does Tonya recognize on the sale? What is the character of the gain or loss? What effect does the gain or loss have on her year 6 (the current year)
tax liability?
c. As Tonya’s tax adviser, you suggest that Tonya sell the townhouse in year 7 in order to reduce her taxes. What amount of gain or loss does Tonya recognize on the sale in year 7?
Step by Step Answer:
Taxation Of Individuals And Business Entities 2020
ISBN: 9781259969614
11th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver