Advanced Tax Topics
Advanced Tax Topics TAX 5015
University of Central Florida
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Date Created: 10/22/15
TAX 5015 Spring 2010 Chapter review exercise 1 Topic review Property transactions amp individual taxation Due date January 20I21 2010 Names Part 1 Cost recovery and Sec 1245 recapture The RedSox Corporation purchased new equipment 7year MACRS property on January 3 2010 for 580000 In order to lower their current period taxes they elected to expense the maximum amount allowed in 2010 The equipment was sold on December 7 2012 Required What is the amount and character ofthe gainloss in each ofthe following independent situations a Selling price 190000 b Selling price 285000 c Selling price 600000 Part 2 Sec 1231 netting and deprecation recapture Secs 1245 1250 and 291 Lowell Corporation a Ccorporation disposed ofthe following assets all Sec 1231 property during 2010 Depreciation MACRS Adjusted Selling Gain Asset Method Cost 39 quot basis Price loss Equipment MACRS DDB 50000 35000 15000 20000 5000 Machinery MACRS DDB 60000 40000 20000 17000 3000 Building MACRS SL 110000 35000 75000 116000 41 000 Land 50000 0 50000 63000 13000 Required a How much is Lowell Corporation39s Sec 1245 ordinary income b How much is Lowell Corporation39s Sec 1250 ordinary income How much is Lowell Corporation39s Sec 291 ordinary income What is Lowell Corporation39s net Sec1231 gain loss for the current year e If Lowell39s only unrecaptured Sec 1231 loss is 13000 from 2007 what is the character ie ordinarycapital of the current year net Sec1231 gain loss Part 3 Individual taxation Mark and Julie Smith are married file a joint tax return and have two dependent child ages 13 and 17 The Smith39s income loss consisted of the following items Salary 91000 Interest income 1300 Qualified dividend income 900 STCL on sale of stock 700 Passive income from limited partnership 140001 Rental real estate loss 42002 In addition they incurred the following expenditures Qualified medical expenses 8150 Investment interest expense 2800 Unreimbursed employee business expenses 2960 Qualified home mortgage interest 7500 Credit card interest 650 Interest on loan for personal auto 2450 Charitable contributions all cash donations 1350 State income tax paid 1900 Property taxes paid 2250 Federal income tax withheld during 2009 9100 FICA social security taxes withheld during 2009 6962 Note1 The partnership income includes a 3000 net Sec1231 gain and 11000 of ordinary partnership income This is the first Sec 1231 gain or loss that the Smiths have incurred Notez The Smiths actively participate in the real estate activity and they own more than 10 ofthe activity They do not elect to treat any of their LTCG s as ordinary income Required Compute the Smiths 2009 federal income tax liability and the final amount of taxes due or refund owed to them TAX 5015 Fall 2009 Chapter review exercise 6 Topic review Partners i Due date October 22 2009 Names Part 1 Partnership formation In January of 2009 Jason and Jesse contribute the following assets to become equal partners in the JampJ General Partnership MACRS Partner Property contributed Cost depreciation taken Fair value Jason Cash 85000 Office equipment 28000 12000 20000 Jesse Land 20000 30000 Building1 52000 8000 75000 Note 1 The building is subject to a nonrecourse liability of 10000 which is assumed by the partnership The partnership will use all ofthese assets in its business Subsequent to forming the partnership JampJ secures a nonrecourse loan in the amount of 15000 from a private individual using the land as security No payments are due on the loan until 2011 The partnership agreement states that the partners will share profits losses and all liabilities equally Additionally Jesse and Jason are both material participants in partnership activities Required a What is the amount and character of the gainloss recognized on the transfer by Jason and by Jesse b What bases do Jason and Jesse have in their partnership interests after taking into consideration liabilities c What are their atrisk bases d What is the partnerships basis in the contributed assets e During 2009 the JampJ General Partnership sustains an operating loss of 150000 How much if any of this loss can Jason and Jesse deduct on their individual tax returns assume they have substantial income from other sources How much is suspended under 1 the basis rules and 2 the at risk limitations f In 2011 the land and building that Jesse contributed is sold for 120000 with 25000 being allocated to the land Assume that an additional 2000 of MACRS depreciation has been recognized What is the amount and character of the partnership gain loss that Jesse and Jason respectively should report Part 2 Partnership operations Magic Company is a general partnership with two equal partners Nelson and Howard At the beginning of 2009 the partnership had 20000 in liabilities Nelson s beginning of year basis in his partnership interest was 75000 and Howard s was 50000 Magic reported the following activity during 2009 Gross profit 900000 Dividends received 130000 US Treasury bond interest 20000 Long term capital gain 35000 Short term capital loss 5000 City of Orlando bond interest 25000 Salary expense 450000 Sec 1231 gain 13000 Guaranteed payment to Nelson 100000 Guaranteed payment to Howard 150000 MACRS cost recovery 74000 Straightline depreciation used for book purposes 42000 Charitable contributions 12000 Keyman life insurance premiums 8000 Other expenses 160000 Cash distribution to Nelson 20000 Cash distribution to Howard 40000 Mortgage incurred to purchase new office building 90000 Required a Compute Magic s 2009 ordinary partnership taxable income and determine the separately stated Items b Compute each partner s basis at the end of 2009 c Compute the additional income tax that Nelson and Howard respectively will pay as a result of their partnership activities making the following assumptions 1 their marginal tax rate is 35 2 they itemize and thus can take advantage of their share of the partnerships CC 3 their only capital transactions are from the partnership 4 all of the dividends are qualified dividends and 5 ignore selfemployment taxes TAX 5015 Chapter 12 S Corporations Topic review Allocation of income amp basis adjustments updated September 26 2006 KJA Inc is an electing S corporation with 100 shares outstanding Karl owns 50 shares Basis 100000 John owns 25 shares Basis 50000 and Antoine owns 25 shares Basis 50000 During 2004 KJA had ordinary income of 50000 and recognized a LTCG of 36500 1 What is Karl John and Antoine s share of ordinary income and LTCG 2 Assume instead that Antoine sold his shares to Michael on March 1 2004 a nonleap year for 65000 How much S corporation income does Antoine and Michael respectively recognize How much gain does Antoine recognize on the sale of his S corporation shares to Michael 3 Assuming Antoine sold his shares to Michael compute Karl John and Michael s basis in the shares as of December 31 2004 4 In January 2005 John loaned 30000 to KJA The entire amount was still outstanding as of December 31 2005 Additionally KJA recognized a 400000 ordinary loss for2005 Compute the amount of loss that each shareholder may deduct for 2005 and their ending basis for their S corporation shares assume that all three shareholders materially participate in the activities of the corporation