Friday, January 25, 2019

Horse and Depreciation Adjusted Basis

Comprehensive difficulty Introduction Betty, whose tax rate is 33%, is in the business of teaching and racing horses. Except for the transactions below, she has no other sales or exchanges and she has no unrecaptured net Sec. 1231 losses. Consider the following transactions that occur during the form * A create with an adjusted flat coat of $300,000 is destroyed by fire. amends proceeds of $500,000 are received, but Betty does non plan to replace the building. The building was built 12 geezerhood ago at a damage of $430,000 and used to provide lodging for her employees.Straight-line disparagement has been used. * Four acres of the invoke are condemned by the state to widen the highway and Betty receives $50,000. The land was get from her mother 15 years ago when its FMV was $15,000. Her mother purchased the land for $10,300. Betty does not plan to purchase additional land. * A racehorse purchased four years ago for $200,000 was sold for $550,000. Total depreciation allow ed using the straight-line method amounts to $160,000. * Equipment purchased triad years ago for $200,000 is exchanged for $100,000 of IBM common stock. The adjusted root of the equipment is $120,000.If straight-line depreciation had been used, the adjusted basis would be $152,000. * An uninsurable pony with an adjusted basis of $20,000 and FMV of $35,000, which her daughter uses only for personal use, is injured while attempting a jump. Because of the injury, the uninsured pony has to be destroyed by a veterinarian. Task(s) a. What amount of Sec. 1245 medium income must be recognized? Sold for $200,000 Depreciation adjusted basiss of $152,000 $200,000-$152,000= $48,000 b. What amount of Sec. 1250 ordinary income must be recognized? From redress $300,000 depreciation ordinary $430,000 300,000-430,000= -70,000 c. Will the loss resulting from the destruction of her daughters pony be used to determine net Sec. 1231 gains or losses? Yes d. What is the amount of the net Sec. 1231 ga in or loss? Theres a loss of $15,000 e. After all of the netting of gains or losses is completed, will the gain resulting from the involuntary conversion of the building be toughened as LTCG? No the building is old and it would seem not to egest into that category f. What is the amount of her unrecaptured Sec. 1250 gain? I would say zero because she never really sold anything

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