Question

Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$650,000	$642,000	$37,000
Sparkle Corporation stock	130,000	175,000	n/a

Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $800,000.

What are Shimmer's taxable income and tax liability for the year? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.)

Answer 1

Asset	Sales Price	Cost	Accumulated Depreciation	Adjusted basis	Gain/(Loss)	Character
Building	$ 650,000.00	$ 642,000.00	$                                 37,000.00	$ 605,000.00	$    45,000.00	$7,400 is §291 ordinary income $37,600 is §123
Sparkle Corporation stock	$ 130,000.00	$ 175,000.00	n/a	$ 175,000.00	$ (45,000.00)	45,000 is long term capital loss

So the Amount of $37,600 which is long term capital gain can be adjusted with the Long term capital loss.

Balance amount in Long term capital loss (45000-37600) i.e 7400 will be carry back 3 years or carry forward 5 years.

Taxable income before transactions	$ 800,000.00
Ordinary income from sale	$      7,400.00
Taxable income after transactions	$ 807,400.00
Tax liability ($807,400 × 21%)	$ 169,554.00