1 / 26

Textbook Problems Page 686

Textbook Problems Page 686. Page 686 Problem 1. NCG is $35,000 -- $15,000 @ 28% = 4,200 $20,000 @ 15% = 3,000 -- $22,200* *$7,200 (see (b) above) + $15,000 (30% X 50,000). Page 686 Problem 2. -- $10,000 -- LTCG ($5,000 28% / $5,000 15%) - 5,000 -- LTCL ($5,000 28%)

telyn
Download Presentation

Textbook Problems Page 686

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. TextbookProblemsPage 686

  2. Page 686 Problem 1 • NCG is $35,000 • -- • $15,000 @ 28% = 4,200 • $20,000 @ 15% = 3,000 • -- • $22,200* *$7,200 (see (b) above) + $15,000 (30% X 50,000)

  3. Page 686 Problem 2 • -- $10,000 -- LTCG ($5,000 28% / $5,000 15%) - 5,000 -- LTCL ($5,000 28%) = 5,000 -- NCG @ 15% • -- $10,000 -- LTCG ($5,000 28% / $5,000 15%) - 5,000 -- LTCL ($5,000 15%) = 5,000 -- NCG @ 28% Capital gains and losses are first netted within each class (28% or 5%/15%)

  4. Page 686 Problem 2 • -- $10,000 -- NLTCG ($5,000 28% / $5,000 15%) - 5,000 -- NSTCL = 5,000 -- NCG @ 15%* * STCL offsets 28% rate LTCG first (the highest rate LTCG) per Code Sec 1(h)(5)(B)(ii)

  5. Page 686 Problem 2 • -- $15,000 -- LTCG ($5K 28% / $5K 25% / $5K 15%) - 10,000 -- LTCL 15% = 5,000 -- NCG @ 25%* * The first $5,000 of 15% rate loss offsets gains within the same class (15%), then it offsets capital gains at the highest rate (28%). Note that the ordering rules are generally taxpayer friendly.

  6. TextbookProblemsPage 691

  7. Page 691 Problem Note, technically capital losses are limited to capital gains + $3,000; in practice, we first net the losses against the gains. • Situation 1 - $4,000 -- NLTCL ($2,000 – $6,000) + 1,600 -- NSTCG ($2,600 - $1,000) = - 2,400 -- NLTCL The entire ($2,400) NLTCL would be allowed in the current year; no carryover

  8. Page 691 Problem Situation 2 - $8,000 -- NLTCL ($2,000 – $10,000) - 2,000 -- NSTCL ($2,000 - $4,000) Current year capital loss of ($3,000) consisting of ($2,000) STCL and ($1,000) LTCL. The carryover of ($7,000) is all LTCL. The ($7,000) carryover LTCL is treated as loss in the 28% class per Code Sec. 1(h)(4)(B(iii).

  9. Must an Individual Use $3,000 of Capital Loss Against Ordinary Income? • Assume Taxable Income of $1,000 prior to a $2,000 personal exemption under Section 151 and prior to consideration of capital losses during the year. Code Secs. 1212(b)(2)(A)(ii) and (B) • Assume: • ($8,000) NLTCL (2,000 LTCG – 10,000 LTCL) ($2,000) NSTCL (2,000 STCG – 4,000 STCL) • Result: • Use ($1,000) of STCL in current year (wasted) • Carryover ($9,000).

  10. TextbookProblemsPage 708

  11. Page 708 Problem • Creditor (it appears that the note is a capital asset to the creditor/investor): • Realized gain of $1,000 ($5,000 – 4,000) • Character of recognized gain: ordinary income per Hudson. No “sale or exchange” by the creditor. The debtor merely paid the debt.

  12. Page 708 Problem • Code Sec 1271(a) declares that amounts received by the holder on retirement of any debt instrument shall be considered in exchange therefor. • Does Sec 1271(a) apply? No, Sec 1271(b) declares that this “section shall not apply to– an obligation issued by a natural person before June 9, 1997” and this was issued in 1996.

  13. Page 708 Problem • Debtor: • Gain Realized of $3,000 ($5,000 amount realized from debt discharge minus adjusted basis of GM stock). (Old Colony Trust, and Crane). • Character of $3,000 gain realized: Debtor has an exchange under Kenan so the gain is capital gain (sale of stock, a capital asset).

  14. TextbookProblemsPage 713

  15. Problem 1 (a) • $1,000 LTCG. Held more than 1 year. Ignore the acquisition date and count the date of disposition (the acquisition and sale dates are the trade date not the settlement date for stock). Count both January 16 year 1 and January 16 year 2 (over 1 year). Explained in Rev Rul 66-7 (although the ruling dealt with a more than 6 month holding period).

  16. Problem 1 (b) • $1,000 STCG. The start date is the day after the acquisitoin date (March 1 of year one). The date of sale is also counted – Feb. 29. • This is exactly one year (not more than one year); therefore, the gain is STCG.

  17. Problem 1 (c) • $1,000 LTCG. Where the taxpayer cannot actually identify which block of stock is sold, Regs 1.1223-1(i) and 1.1012-1(c) provide a FIFO rule. • Feb 11 to Feb 15 is clearly more than 1 year. • Adequate identification is discussed in Rev Rul 72-415.

  18. Problem 1 (d) • Probably $1,000 LTCG. Assuming the broker immediately placed the trades on the days T told the broker to buy and sell, T’s trade dates are December 29, year 1 (acquisition date) and December 30 year 2 (sale date). • December 30 to December 30 is more than 1 year.

  19. Problem 1 (d) • What year is the gain recognized? The stock was not delivered to the third party buyer until year 3. • Even though T is a cash basis taxpayer, IRS requires T to include the income on December 30 of year two – the “trade date.” Rev Rul 93-84.

  20. Problem 1 (e) • $500 LTCL. Again the “trade date” controls the timing of recognition (and amount) of the loss. Rev Rul 93-84.

  21. Problem 1 (f) • $3,000 LTCG to Son. Section 1223(2) provides for tacking holding periods when there is a transferred basis under Code Sec 1015. • Note, the son actually held the stock for less than 1 year. Also, the son’s $3,000 LTCG may be taxed at 5% (instead of 15%) if the son does not have much other income and he is 18 years of age or older by year end (the new Kiddie tax threshhold).

  22. Problem 1 (g) • $10,000 LTCG to T. • Under Code Sec 1014 the stock gets a DOD FMV; no gain to father or father’s estate. • On inherited property, the holding period is always long term (over 12 months) per Code Sec. 1223(9).

  23. Problem 1 (h) • $10,000 LTCG to for the estate which also is entitled to the Section 1223(9) automatic long-term holding period.

  24. Problem 2 • Assume for simplicity that she only deducted $9,000 of her $10,000 of annual rental payments. • Therefore, upon exercising the option, Tacker would have a basis in the option rights of $25,000 and would pay another $225,000 (total cost $250,000) for the property. • Tacker would realize and recognize a gain of $50,000.

  25. Problem 2 • Tacker has a STCG of $50,000 on the sale. • If Tacker sells her option for $75,000, then she recognizes $50,000 of LTCG because, per Code Sec 1234, she characterizes the gain on the option based upon the underlying property and she has held the option for 25 years.

  26. Problem 3 • This issue here is the holding period. The realized gain is clearly $100,000. • The Paul decision requires the proceeds be allocated between the portion of the construction completed more than 1 year before the sale and the portion completed within 1 year of sale. • The $50,000 gain attributable to the land is LTCG. • The $25,000 of gain attributed to construction more than 1 year before the sale is LTCG. • The $25,000 of gain on construction within 1 year of sale is STCG.

More Related