Question

1. During 2019, Cindy had the following transactions:

Salary	$50,000
Bank loan (proceeds used to buy personal auto)	10,000
Alimony paid	6,000
Child support paid	12,000
Gift from aunt	20,000

        Calculate Cindy's AGI:

2. Purple, Inc., owns a delivery truck which initially cost $60,000. After depreciation of $40,000 had been deducted, the truck was traded-in on a larger delivery truck with a FMV of $60,000. Purple was required to pay the other party $20,000 in cash. Purple recognize any gain or loss?

What is Purple’s basis for the new truck?

Answer 1

1. Cindy's AGI

	($)
Salary	50,000
Alimony Paid	6,000
AGI	44,000

• Child support and Bank loan proceeds are used for personal auto , not deductible
• Gift from aunt is not taxable.

2.

a.Recognized gain or loss on new truck

Nil.

• Purple will have a realised gain of $20,000 [(60000-20000)-(60000-40000)] however, such gain cannot be recognised immidiately, it will be recognised at a later date when the new truck is sold. Thus purple have realised gain of $20,000 but recognised gain is 0 or nil.

b. Purple's basis for new truck

• When an asset is exchanged with other asset, The remaining book value of old asset plus the cash paid for new asset will be the basis for new asset.

		($)
a	Initial Cost of truck	60,000
b	Depreciation	40,000
c	Book value remaining (a-b)	20,000
d	Amount paid in cash for new truck	20,000
e	Basis for new truck (c+d)	40,000