• Mr. A is taxed in the top bracket (highest personal tax rate) and he owns a bond which is worth $50,000. Mr. A paid $50,000 for the bond. It earns $5,000 of interest income (one type of property income).
• Mrs. A (Mr. A’s spouse) has no income.
• Mr. A gave the bond to Mrs. A.

REQUIRED
(1) What are the tax consequences to Mr. and Mrs. A?
(2) What are the tax consequences to Mr. and Mrs. A, if Mr. A sells the bond to Mrs. A at its fair market value of $50,000 for cash and they jointly elect out of the automatic rollover?
(3) What are the tax consequences to Mr. and Mrs. A if Mr. A makes a loan of $50,000 to Mrs. A instead of giving the bond to her or taking cash from her? What if Mr. A charges Mrs. A interest on the loan at a rate which is lower than the prescribed interest rate?