Tom has $2,000 in Sec. 1231 unrecaptured losses from Y9. He is considering the sale of additional land used in his business. He will have a loss on the land that he purchased two years ago, but feels the money could be put to more productive use. Because the end of the year is quite near, he can sell the land now or in January. He will incur a realized loss of $14,000 on the land. Other than selling the land, he does not plan to engage in any other sales or exchanges next year, and he expects his marginal rates to stay the same as this year.

Tom would like to know the impact on his taxes from the above transactions.

Required: (Please show your work in such a manner that colleagues and reviewers...and your professor...can follow your calculations.)

1. Calculate the tax impact of the above sales in the current year if Tom sells the land in December Year 10 (the current year).
2. Calculate the tax impact of the above transactions in both Year 10 and Year 11 if Tom chooses to sell the land in January Year 11. (Ignore present value implications if you were thinking that deeply.)
3. Ignoring the potential sale of land, what would be the impact on his taxes in the current year if the insurance company would have reimbursed Tom $2,200 instead of $200.

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Tom is a sole proprietor. He currently has a marginal tax rate of 32% and a capital gains rate of 15%. Tom engaged in or incurred the following property transactions during the current year (Year 10): a) Business laptop 1/1/Y8 Land used in business b) C) d) Warehouse- business h) Acquisition Date Equipment- business 1/4/Y2 1/1/Y2 4/5/Y7 e) Forklift-business 7/20/Y9 f) ABC stock 2/2/10 g) XYZ stock 5/5/Y8 Gold bars (collectible) 2/6/Y6 Disposition in Year 10 Stolen 6/1 Sold 8/1 Sold 8/1 Sold 7/20 Sold 9/15 Sold 9/8 Sold 10/10 Sold 11/11 Sale Price /Insurance $200 $36,000 $190,000 $7,000 $17,000 $13,000 $3,000 $10,000 Cost $2,000 $1,000 $20,400 Accum Depr $160,000 $50,000 $20,000 $12,000 $15,000 $20,000 $4,500 $5,000 $4,500 Tom is a sole proprietor. He currently has a marginal tax rate of 32% and a capital gains rate of 15%. Tom engaged in or incurred the following property transactions during the current year (Year 10): a) Business laptop 1/1/Y8 Land used in business b) C) d) Warehouse- business h) Acquisition Date Equipment- business 1/4/Y2 1/1/Y2 4/5/Y7 e) Forklift-business 7/20/Y9 f) ABC stock 2/2/10 g) XYZ stock 5/5/Y8 Gold bars (collectible) 2/6/Y6 Disposition in Year 10 Stolen 6/1 Sold 8/1 Sold 8/1 Sold 7/20 Sold 9/15 Sold 9/8 Sold 10/10 Sold 11/11 Sale Price /Insurance $200 $36,000 $190,000 $7,000 $17,000 $13,000 $3,000 $10,000 Cost $2,000 $1,000 $20,400 Accum Depr $160,000 $50,000 $20,000 $12,000 $15,000 $20,000 $4,500 $5,000 $4,500

Answer rating: 100% (QA)

Solution To calculate the tax impact of the sales and transactions mentioned we need to consider the different tax rules and rates applicable to each type of property and transaction Lets go through e... View the full answer