Question

In 1987, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2006, Drab decides not to renew the lease and vacates the property. At that time, the value of the improvements is $800,000. Roy sells the real estate in 2018 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea. Is that revenue (from Korea) subject to the U.S. income tax? Explain.

Answer 1

• After studied the given information, the Darb corporation decided to discontinue the lease after 20 years and handover to the Roy in 2006. At that time the value of the improvement cost is $800,000. Roy sold the property for $1,200,000 in which $900,000 is the value of improvement cost, it was done in the year of 2018. So, we can observe here nearly $100,000($900,000 - $800,000) improvement cost difference from 2006 to 2018. Here we can come to the conclusion for every 12 years the improvement cost reached $100,000. Darb corporation took lease 20 years, it means the tax collected by Roy nearly $150,000. So, the Roy taxed on the Darb corporation of approximately $150,000.

• Lee is a citizen of Korea but he is residing in U.S. Lee is getting income by the way of rent on his own land. So, it is ensuring revenue to Korea. If he wants to transfer the money from Korea to the U.S, then the government of U.S will charge minimum tax according to their policies. So, it is revenue to Korea because it is generating the income from his citizenship country.