I need help understanding loss and depreciation.
1.Tom purchased and placed in service used office furniture on January 3, 2014, for $40,000. Tom’s accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Tom’s income tax returns. On January 10, 2019, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.
2.Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules. During the first year, her share of the entity’s loss was $120,000. At the beginning of the second year, the entity obtained $800,000 of recourse financing. During the second year, Sarah withdrew cash of $20,000, and her share of the entity’s loss was $25,000. Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.
3.Hugh has four passive activities which generate the following income and losses in the current year.
|
Activity |
Gain (Loss) |
|
A |
($60,000) |
|
B |
(20,000) |
|
C |
(10,000) |
|
D |
10,000 |
|
Total |
($80,000) |
How much of the $80,000 net passive loss can Hugh deduct this year? Calculate the suspended losses (by activity).
4.Jim acquires a new seven-year class asset on September 20, 2013, for $80,000. He placed the asset in service on October 5, 2013. He does not elect to expense any of the asset under § 179 or elect straightline, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2014. This is the only asset he acquires in 2013. Determine Jim’s cost recovery in 2013 and 2014.
5.Myles, single, age 31, had the following items for 2014:
Salary $50,000
Nonbusiness bad debt (6,000)
Casualties—independent events:
Asset A (personal use property held for two years)—gain 3,000
Securities (stolen)—loss (8,000)
Dividends 2,000
Interest expense on personal residence 10,000
Compute Myles’ taxable income for 2014.
6.Myles, single, age 31, had the following items for 2014:
Salary $50,000
Nonbusiness bad debt (6,000)
Casualties—independent events:
Asset A (personal use property held for two years)—gain 3,000
Securities (stolen)—loss (8,000)
Dividends 2,000
Interest expense on personal residence 10,000
Compute Myles’ taxable income for 2014.
7.Gloria, single and age 43, had the following items for 2014:
|
Salary |
$60,000 |
|
Interest income |
6,000 |
|
Casualty loss on business property |
(15,000) |
|
Casualty loss on rental property |
(5,000) |
|
Loss on theft of securities |
(8,000) |
|
Personal casualty gains |
9,000 |
|
Personal casualty loss (after $100 floor) |
(13,000) |
|
Other itemized deductions |
(9,000) |
Compute Gloria’s taxable income for 2014.
8.Nate owns an insurance agency. The following selected data are taken from the agency balance sheet andincome statement prepared using the accrualmethod.
|
Revenue |
$250,000 |
|
Salaries and commissions |
100,000 |
|
Rent |
10,000 |
|
Insurance |
5,000 |
|
Utilities |
6,000 |
|
Accounts receivable, 1/1/2014 |
40,000 |
|
Accounts receivable, 12/31/2014 |
38,000 |
|
Accounts payable, 1/1/2014 |
12,000 |
|
Accounts payable, 12/31/2014 |
11,000 |
Calculate Nate’s net profit using the cash method for 2014
9.Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jimoperates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur thefollowing expenses.
|
Terry |
Jim | |
|
Employee salaries |
$200,000 |
$200,000 |
|
Bribes to police |
25,000 |
25,000 |
|
Rent and utilities |
50,000 |
50,000 |
|
Cost of goods sold |
–0– |
125,000 |
What is Terry and Jim’s report as net profit from their businesses?
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Rating:
/5
Solution: Tax problems done (solution 1-4, and 9) only