Abby and Isaiah are married and file a joint income tax return each year. The following...
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Abby and Isaiah are married and file a joint income tax return each year. The following table shows the purchase price for items that were purchased, depreciation claimed, and fair market value (sale price) of their farm assets. Feed Feeder calves Dairy heifers (under 24 months old) Dairy cows Machinery Buildings Land Total Asset Feed Feeder calves Heifers Cows Machinery Buildings Land Total Asset Feed Feeder calves Heifers Cows Purchase Depreciation Fair Market Value Price Claimed (=Sale Price) Machinery Buildings Land $305,000 (Raised) Sum Total (Raised) (Raised) $886,000 $1,210,000 $685,000 $3,086,000 $1,261,000 Abby and Isaiah are planning their transfer of the farm assets to their son, John. They have asked the following questions. Please answer them. 1. If they sold all the farm assets to John for their fair market value, how much gain would they have to report on their income tax return for each asset? FYI, Basis = Purchase Price - Depreciation or 0 if raised asset and Gain = Sale Price - Basis. Basis Gain or Loss Sale Price Purchase Price Depreciation $345,000 $305,000 $185,000 Raised $85,000 Raised $680,000 Raised $305,000 $380,000 $6,885,000 $8,865,000 SO SO SO SO $506,000 $755.000 $0 $886,000 $1,210,000 $685,000 $3,086,000 $345.000 $185,000 $85,000 $680,000 $305,000 $380,000 SO SO SO $0 $6,885,000 $8,865,000 $506,000 $755,000 $0 $1,261,000 2. Note the character of the gain for each asset by entering how much of the gain is subject to ordinary income tax, self-employment tax, and/or capital gains tax in each column below. Ordinary Income or Loss Self-Employment Income or Loss Capital Gains 3. Using the following Tax Table, calculate the income taxes Abby and Isaiah must pay on the sale of the assets that result in ordinary income. Assume that they have $75,000 of taxable income from other sources in addition to the income from the sale of assets. If taxable income is over: but not over: $0, $19,750 $19,751, $80,250 $80,251, $171,050 $171,051, $326,600 $326,601, $414,700 $414,701, $622,050 $622,051, no limit Total Ordinary Income from Question 2 + 75,000 = Ordinary Income Tax Due =_ 4. Assume all the self-employment income is Abby's self-employment income. Using an effective self-employment tax rate of 15.3% on the first $132,900 of self-employment income and 2.9% on the self-employment income over $132,900, calculate Abby's self- employment tax liability from the sale of the assets. Total Self-Employment Income from Question 2 = Self-Employment Tax Due= 5. Using a 20% tax rate on capital gains, calculate Abby and Isaiah's tax on capital gains and losses from the sale of the assets. Total Capital Gains from Question 2 = Capital Gains Tax Due= 6. If Abby and Isaiah gave the assets to John rather than sold them to him, what is John's income tax basis in each of the assets? [Hint: you cannot give someone a loss. If you have a loss, then the basis becomes the fair market value if you give someone the asset.] John's Income Tax Basis Asset Feed the ordinary income tax is: 10% of the amount over $0 $1,975 plus 12% of the amount over $19,750 $9,235 plus 22% of the amount over $80,250 $29,211 plus 24% of the amount over $171,050 $66,543 plus 32% of the amount over $326,600 $94,735 plus 35% of the amount over $414,700 $167,307.50 plus 37% of the amount over $622,050 Feeder calves Heifers Cows Machinery Buildings Land > N13 7. If John sold the assets for their fair market value immediately after Abby and Isaiah gave them to him, what is his gain or loss on each of the assets? John's Gain Asset Feed Feeder calves Heifers Cows Machinery Buildings Land 8. Assume Abby and Isaiah owned all the assets as survivorship marital property and Abby died. If the assets had the fair market value listed above, what is Isaiah's income tax basis in each of the assets? Asset Feed Feeder calves Heifers Cows Machinery Buildings Land 9. If Abby died and then Isaiah sold all the assets to John immediately, what is Isaiah's gain or loss on each of the assets? What is John's income tax basis in each of the assets? Isaiah's Gain John's Income Tax Basis Asset Feed Feeder calves Heifers Cows Isaiah's Income Tax Basis Machinery Buildings Land Abby and Isaiah are married and file a joint income tax return each year. The following table shows the purchase price for items that were purchased, depreciation claimed, and fair market value (sale price) of their farm assets. Feed Feeder calves Dairy heifers (under 24 months old) Dairy cows Machinery Buildings Land Total Asset Feed Feeder calves Heifers Cows Machinery Buildings Land Total Asset Feed Feeder calves Heifers Cows Purchase Depreciation Fair Market Value Price Claimed (=Sale Price) Machinery Buildings Land $305,000 (Raised) Sum Total (Raised) (Raised) $886,000 $1,210,000 $685,000 $3,086,000 $1,261,000 Abby and Isaiah are planning their transfer of the farm assets to their son, John. They have asked the following questions. Please answer them. 1. If they sold all the farm assets to John for their fair market value, how much gain would they have to report on their income tax return for each asset? FYI, Basis = Purchase Price - Depreciation or 0 if raised asset and Gain = Sale Price - Basis. Basis Gain or Loss Sale Price Purchase Price Depreciation $345,000 $305,000 $185,000 Raised $85,000 Raised $680,000 Raised $305,000 $380,000 $6,885,000 $8,865,000 SO SO SO SO $506,000 $755.000 $0 $886,000 $1,210,000 $685,000 $3,086,000 $345.000 $185,000 $85,000 $680,000 $305,000 $380,000 SO SO SO $0 $6,885,000 $8,865,000 $506,000 $755,000 $0 $1,261,000 2. Note the character of the gain for each asset by entering how much of the gain is subject to ordinary income tax, self-employment tax, and/or capital gains tax in each column below. Ordinary Income or Loss Self-Employment Income or Loss Capital Gains 3. Using the following Tax Table, calculate the income taxes Abby and Isaiah must pay on the sale of the assets that result in ordinary income. Assume that they have $75,000 of taxable income from other sources in addition to the income from the sale of assets. If taxable income is over: but not over: $0, $19,750 $19,751, $80,250 $80,251, $171,050 $171,051, $326,600 $326,601, $414,700 $414,701, $622,050 $622,051, no limit Total Ordinary Income from Question 2 + 75,000 = Ordinary Income Tax Due =_ 4. Assume all the self-employment income is Abby's self-employment income. Using an effective self-employment tax rate of 15.3% on the first $132,900 of self-employment income and 2.9% on the self-employment income over $132,900, calculate Abby's self- employment tax liability from the sale of the assets. Total Self-Employment Income from Question 2 = Self-Employment Tax Due= 5. Using a 20% tax rate on capital gains, calculate Abby and Isaiah's tax on capital gains and losses from the sale of the assets. Total Capital Gains from Question 2 = Capital Gains Tax Due= 6. If Abby and Isaiah gave the assets to John rather than sold them to him, what is John's income tax basis in each of the assets? [Hint: you cannot give someone a loss. If you have a loss, then the basis becomes the fair market value if you give someone the asset.] John's Income Tax Basis Asset Feed the ordinary income tax is: 10% of the amount over $0 $1,975 plus 12% of the amount over $19,750 $9,235 plus 22% of the amount over $80,250 $29,211 plus 24% of the amount over $171,050 $66,543 plus 32% of the amount over $326,600 $94,735 plus 35% of the amount over $414,700 $167,307.50 plus 37% of the amount over $622,050 Feeder calves Heifers Cows Machinery Buildings Land > N13 7. If John sold the assets for their fair market value immediately after Abby and Isaiah gave them to him, what is his gain or loss on each of the assets? John's Gain Asset Feed Feeder calves Heifers Cows Machinery Buildings Land 8. Assume Abby and Isaiah owned all the assets as survivorship marital property and Abby died. If the assets had the fair market value listed above, what is Isaiah's income tax basis in each of the assets? Asset Feed Feeder calves Heifers Cows Machinery Buildings Land 9. If Abby died and then Isaiah sold all the assets to John immediately, what is Isaiah's gain or loss on each of the assets? What is John's income tax basis in each of the assets? Isaiah's Gain John's Income Tax Basis Asset Feed Feeder calves Heifers Cows Isaiah's Income Tax Basis Machinery Buildings Land
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If Abby and Isaiah sold all the farm assets to John for their fair market value the gain or loss would be calculated as follows Asset Feed Basis Purchase Price Depreciation Basis 345000 0 raised asset ... View the full answer
Related Book For
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young
Posted Date:
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