Question

The class is "Individual Taxation". I have the following questions: Q1.Esther gave an old truck to Lamont for use in his business. Esther's basis in the truck was $2,000 and its fair market value on the date of the gift was $500. Esther paid $90 of gift tax on the transaction. What is Lamont's basis for depreciation? Q2. Ten years ago, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June of the current year, when the stock's fair market value was $7,000, Edwin gave it to his sister, Lynn. No gift tax was paid. Lynn died in October of the same year, bequeathing the stock to Edwin, when the stock's fair market value was $9,000. Lynn's executor did not elect the alternate valuation date. What is Edwin's basis for his his stock after he inherits it from Lynn's estate? Q3. During Year 1, Frank, a cash-basis taxpayer, sold a piece of land that had an adjusted basis to him of $110,000 to Tony for $200,000. Tony paid $50,000 down and agreed to pay $30,000 per year plus interest for the next 5 years beginning in January of Year 2. Frank incurred selling expenses of $10,000. What is the amount of gain to be included in Frank's gross income for Year 1? Q4. Judy Tower, age 34, is single. Her adjusted gross income for 2018 is $179,500. Included in this total is $5,000 of net long-term capital gains from assets held over 12 months. Judy claims the standard deduction. What is Judy's income tax liability for 2018? Q5. During the current year. Nancy had the following transactions: Short-term capital loss ($2,400) Short-term capital gain 2,000 Short-term capital loss carryover from 2 years ago ($1,400) Long-term capital gain (15% basket) $3,800 Lon-term capital loss (28% basket) ($8,000) Nancy files as head of household and has taxable income of $130,000 for the current year. What is the amount of her capital loss deduction in the current year, and what is the amount and character of capital loss carryover? Q6. Steve and Cindy, both under age 65, file a joint tax return for 2018 reporting the following information: -Salary income $56,000 -Interest income $4,000 -Qualified dividend income $32,000 -Capital gain from sale of investment land held 10 years $190,000 -Capital loss from sale of stock held 11 months ($8,000) -Itemized expenses $18,600 Compute the couple's regular taxable income and their regular tax liability using the applicable tax rates for their ordinary income and any alternative rates for other qualifying income. Q7. For 2018, Alex and Judy had the following capital gains and losses in addition to ordinary income form salaries and interest of $150,000. -40 acres of land held for investment for 12 years $12,000 -100 shares of Bright Cororation common stock, held 9 months $5,200. -Short-term capital loss carryover from 2017 ($7,500). -50 shares of Dark Corporation shares, held for 2 years ($22,000). Determine the amount and character of the couple's capital gain or loss, how that gain or loss impacts their adjusted gross income in 2018, and the amount and character of any capital loss carryovers to 2019.

Answer 1

Q.1. If the FMV of the asset is more than basis of the donor, then the basis for the recipient is the basis of the asset for donor plus any gift tax paid by him. but in no case, basis can be more than FMV.

If the FMV of the asset is less than the basis for the donor, then the recipient basis in the asset is usually the basis for the donor. When the asset is disposed off by the recipient at a loss, then the basis is not the donor's basis but FMV at the time of gift will be taken as the basis.

If a depreciable asset is gifted, the adjusted basis of the asset for depreciation is the fair market value of the asset on the date of the gift.

In this case, Lomant will take $500, fair market value as the basis of the truck for the depreciation purpose.

Q.2 When stock is inherited from someone, the tax basis of the receiver is the fair market value of the stock on the date when that person died, unless executor choose any alternate valuation date.

Edwin's basis will be $9000, which is the FMV of the stock when Lynn died.

Q 3. Selling price $200,000

Adjusted basis $110,000

Selling Expense $10,000

Gain on sale $80,000

Frank is cash basis tax payer, and he is receiveing sale amount in installment basis, thus he will recognize the gain in gross income on installment basis.

First down payment of $50000 is 25% of $200,000, so he will include $20000 ($80000*25%) in the gross income of Year 1.

Q 4. Computation of Tax liability

Adjusted Gross Income	$179,500
Less: standard deduction	$12,000
Taxable income	$167,500
Tax on long term capital gain @ 15%	$750.00
Tax on ordinary income	$15,689.50
Total tax liability	$16,439.50
Tax on ordinary income
Upto 157,500	$14,089.50
From 157501-162500 (167500-5000 capital gain)	$1,600.00
Total	$15,689.50