In problem 89 in Chapter 9 and problem 74 in

In problem 89 in Chapter 9 and problem 74 in Chapter 10, the initial basis and the adjusted basis of Emelio and Charita’s assets were determined as of December 31, 2011. During 2012, they have the following transactions related to the assets:

a. In June, an electrical connection shorts out and starts a fire in Emelio’s building. The cost of repairing the damage caused by the fire is $11,500. Emelio’s insurance policy reimburses him $5,500 for the fire damage.

b. The real estate market begins to deteriorate in 2012. Emelio and Charita decide to sell their rental house before it loses any more value. They sell the house for $76,000 on October 16, 2012. They pay $325 to advertise the property for sale. In addition, they pay $5,200 in brokerage commissions and $1,045 in legal fees on the sale. Because their renters had a one-year rental agreement, Emelio and Charita have to pay the renters $900 to vacate the lease.

c. Emelio’s office building is next to a new industrial park development project. The developer needs to run utility lines through Emelio’s property. The developer agrees to pay Emelio $2,000 for an easement to run the utility lines along one side of Emelio’s property.

d. While assessing the damage caused by the fire, the contractor Emelio hired to repair the damage finds an antique chair that had been sealed behind one wall. Emelio sells the chair to a local dealer for $1,200.

e. Emelio raises the additional cash he needs to complete the building repairs by selling 100 shares of Software Corporation stock for $24 per share. (He pays brokerage commissions of $140.) He also sells 100 shares of Flex Corporation stock for $40 per share. (Brokerage commissions are $200.)

f. Charita decides to upgrade her home office by purchasing new furniture costing $1,300. She gives the old office furniture to her gardener,who agrees to exchange 8weeks of gardening services for the furniture. The gardener normally charges $50 per week.

g. In addition to these transactions, Charita tells you that a company in which she and Emelio had invested went bankrupt in 2010. They had purchased the stock from Charita’s father for $24,000 in 2005. The company was dissolved in 2010, and the shareholders received nothing from the bankruptcy proceeding. Emelio and Charita had no other capital asset transactions in 2010 and 2011.

For each of these transactions, determine the realized and recognized gain or loss and the character of the gain or loss. Do the appropriate year-end netting procedures and determine the effect of the transactions on Emelio and Charita’s 2012 adjusted gross income and their income tax liability. Assume that Emelio and Charita’s adjusted gross income before considering these transactions is $100,000.


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Dealer
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