In 2019, Norm, a carpenter whose tax rate is 30%, received a beach boat from the...

In 2019, Norm, a carpenter whose tax rate is 30%, received a beach boat from the Newport Marina, which has a 35% ordinary tax rate and a 15% long term capital gain tax rate, in exchange for carpentry work to build a new, permanent dock, and Norm spent $12,000 on materials. Norm is going to use the boat to take pleasure cruises with his family. The dock was completed and went into service on November 8, 2019 and Norm was given the boat at that time. The beach boat cost the marina $41,000 and has a five year depreciable life. The marina purchased the boat on February 3, 2018, and put it into service that month for taking clients fishing, and it was the only depreciable asset put into service in 2018. The marina properly claimed depreciation of $4,100 in 2018 and took no Sec. 179 expense or bonus depreciation on it. The fair market value of the boat at the time it was transferred to Norm was $46,000. What are Norm’s tax effects from this transaction for 2019? What are the tax effects for Newport Marina for 2019? Be certain to show all necessary work and analyze all tax consequences related to these transactions for both parties. Compute depreciation.

Solutions

Expert Solution

1. RATE OF TAX :

a. Norm 30%

b. Newport Marina 35 % and LTGT @ 15%

2. Cost of Beach Boat to Marina on 3/2/2018 $41,000

3. Fair value on date of transfer 8/11/2019 $46,000

4. Amount of Materials spend by Norm for the dock $12000

5. Rate of Depreciation full year for the boat on straight line method 20 %

6. Depreciation claimed by Marina in 2018 $4100

7. Salvage value assessed for the boat after 5 Yr $ 20500

8. CALCULATION OF SHORT TERM CAPITAL GAIN FOR MARINA ON SALE OF BOAT.

(Since the asset is held for only 21 months only )

Written DownValue of Boat on 8/11/2019 $ 36,900

Fair Market Value of Boat on 8/11/2019 $ 46,000

SHORT TERM CAPITAL GAIN $ 9100

TAX ON THIS FOR MARINA @ 35 % $3185

9. TAX EFECT FOR NORMA

Norma received a boat with a FV of $46000 for his buildingthe dock on which he spend materials worth $12000 . So we can assume that his net receipt for buliding the dock is $ 34000. He is taxable only for his profits from the work of building the dock. Since no other details of expenses in this respect are given in the problem we cannot arrive at the profir/loss of Norma. For the acquisition of boat no taxble efect for Norma .

10 CALCULATION OF DEPRECIATION FOR THE YEAR 2019 in the hands of Norm

FMV of the asset acquired on 8/11/2019 46 ,000

Less : Salvage Value of the boat 20,500

DEPRECIATION TO BE PROVIDED IN SLM FOR 4 YEARS = 25,500

DEPRECIATION FOR THE YEAR 2019 25500/4 = $6375

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Determining of property tax rate The county legislature approved the budget for 2019. Revenues from property...

Determining of property tax rate The county legislature approved the budget for 2019. Revenues from property taxes are budgeted at $800,000. According to the county assessor, the assessed valuation of all of the property in the county is $50 million. Of this amount, property worth $10 million belongs to the federal government or to religious organizations and, therefore, is not subject to property taxes. In addition, certificates for the following exemptions have been filed: Homestead $2,500,000 Veterans 1,000,000 Old age,...

Use the 2019 Tax Rate Schedules to determine the tax liability for each of the following...

Use the 2019 Tax Rate Schedules to determine the tax liability for each of the following cases. A. Single taxpayer, taxable income of $38,862. B. Single taxpayer, taxable income of $89,889. C. Married taxpayers, who file a joint return, have taxable income of $89,889. D. Married taxpayers, who file a joint return, have taxable income of $61,229. E. Married taxpayers, who file a joint return, have taxable income of $38,862. F. Single taxpayer, taxable income of $61,229. Please show work

If the applicable tax rate is 28% (federal and state combined), and if 70% of dividends received are exempt from taxes, what is the corporation's tax liability?

The Main Street Pub & Grill has the following cash flows:Operating income: $300,000Interest received: $20,000Interest paid: $65,000Dividends received: $40,000Dividends paid: $50,000If the applicable tax rate is 28% (federal and state combined), and if 70% of dividends received are exempt from taxes, what is the corporation's tax liability?

If the applicable income tax rate is 40% (federal and state combined), and if 70% of dividends received are exempt from taxes, what is the corporation's tax liability?

Your corporation has the following cash flows:Operating income$250,000Interest received$10,000Interest paid$45,000Dividends received$24,000Dividends paid$50,000If the applicable income tax rate is 40% (federal and state combined), and if 70% of dividends received are exempt from taxes, what is the corporation's tax liability?a. $84,436b. $85,325c. $88,880d. $73,770e. $94,213

Magruder Company reports pretax accounting income of $5,000,000 for 2019. The 2019 income tax rate is...

Magruder Company reports pretax accounting income of $5,000,000 for 2019. The 2019 income tax rate is 20%. INCLUDED in accounting income is depreciation expense of $500,000 which was calculated using the straight line method. Magruder’s tax manager indicates that depreciation expense per the tax return will be $2,000,000 because the tax laws allow more accelerated depreciation. Magruder’s pretax accounting income does NOT include $1,000,000 of prepaid rent that a tenant paid to the company in 2019 because the prepayment represents...

Magruder Company reports pretax accounting income of $5,000,000 for 2019. The 2019 income tax rate is...

During the 2019 tax year, Thomas and Yolanda received $30,000 in Social Security benefits. The amount...

During the 2019 tax year, Thomas and Yolanda received $30,000 in Social Security benefits. The amount of their pension for the year was $33,000 and they received tax-exempt interest income of $18,000. Calculate the amount of the Social Security benefits that Thomas and Yolanda must include in their gross income for 2019. SHOW ALL WORK!

Suppose the corporate tax rate is 30 %30%. Consider a firm that earns $ 3 comma...

Suppose the corporate tax rate is 30 %30%. Consider a firm that earns $ 3 comma 000$3,000 in earnings before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 7 %7%. a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the...

Question 1 At 30 June 2019, Beta Ltd had the following deferred tax balances: Deferred tax...

Question 1 At 30 June 2019, Beta Ltd had the following deferred tax balances: Deferred tax liability $18,000 Deferred tax asset 15,000 Beta Ltd recorded a profit before tax of $80,000 for the year to 30 June 2020, which included the following items: Depreciation expense – plant $7,000 Doubtful debts expense 3,000 Long-service leave expense 4,000 For taxation purposes the following amounts are allowable deductions for the year to 30 June 2020: Tax depreciation – plant $8,000 Bad debts written...

Tax Year 2019 This year Jack intends to file a married-joint return. Jack received $173,400 of...

Tax Year 2019 This year Jack intends to file a married-joint return. Jack received $173,400 of salary and paid $8,600 of interest on loans used to pay qualified tuition costs for his dependent daughter, Deb. This year Jack has also paid moving expenses of $4,550 and $30,055 of alimony to his ex-wife, Diane, who divorced him in 2012. (Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.) a. What is Jack’s adjusted gross...

Subjects