Problems: 1 . Julia currently is considering the purchase of some land to be held as an
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Question:
Problems:
Julia currently is considering the purchase of some land to be held as an investment. She and the seller have agreed on a contract under which Julia would pay $ per month for months, or $ total. The seller, not in the real estate business, acquired the land several years ago by paying $ in cash. Two alternative interpretations of this transaction are a price of $ with percent interest and a price of $ with percent interest. Which interpretation would you expect each party to prefer? Why?
Assume that a taxpayer can choose when he is to receive $ of fully taxable income. If the taxpayer receives the income at the end of Year he will receive exactly $ If he delays receipt of the income until the end of Year the amount will grow to $ If the taxpayer takes the money at the end of Year he can invest the proceeds and earn a pretax return of percent over the next year.
a If the taxpayer faces a marginal tax rate of percent in both Year and Year when should he elect to receive the income?
b At what pre tax rate of return, will the taxpayer be indifferent to taking the money in Year and Year
c If the taxpayers marginal tax rate increases to percent in Year when should he elect to receive the income?
d What would the tax rate need to be in Year to make the taxpayer indifferent?
A taxpayer can invest $ in a taxable year bond that yields an annual pretax return of percent or buy land a capital asset for $ that is expected to increase at an annual pretax rate of percent. The taxpayer expects to hold the bond and the land for years and expects to pay capital gains taxes of percent when the land is sold. The taxpayers marginal tax rate on ordinary income is expected to be percent throughout the year period.
Greg Jones lives in Augusta, Georgia and has the opportunity to rent his condominium during the next Masters golf tournament. He has offers one to rent for days at $ per day and the other to rent for days at $ per day. Rental expenses will be negligible. What is your advice to Greg?
Paris Corporation holds a $ unrealized net capital gain and a capital loss carryforward that will expire in the current year. Paris is subject to a percent cost of capital. Its marginal tax rate is percent. Should Paris accelerate the recognition of this gain from next year to this year, assuming a net capital loss carryforward in each of the following amounts?
a $
b $
c Repeat parts a and b assume that Paris is subject to a percent cost of capital.
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