Reference no: EM132473344

Problem 1: Provide a justification if each cases' proposed tax treatment is correct?

Case A

• Larry purchased a beach house in 2015 for $300,000, with the land being worth $60,000 and the beach house being worth $265,000. He barely used the beach house, since he preferred to live in his Victoria condo. In 2017, the beach house's current value is $850,000 and the land is $60,000. In 2017, he decided to convert the beach house into a rental property. Larry has told everyone that, in 2017, he will report all of his rental income, but he does not intend to recognize a gain or loss on the change of the property, since no disposition has occurred.

Case B

• Cole Connors sold a property that was originally bought for $155,000 for $270,000. He provided a warranty on the property that approximately costs him about $11,000 to service. Therefore, he calculated his capital gain to be $104,000.

Case C

• Ms. Jones has owned a triplex for ten years and, throughout this period, all three of the units were rented. In determining her income from this property, she deducted maximum CCA in each year. During the current year, Ms. Jones moved into one of the properties and, as a result, will be reporting reduced rental revenue on her income tax return. As Ms. Jones still owns all three properties, she will not report any capital gains or losses for the current year.

Case D

• Mia sold a chair to her landlord for $1,600 and a painting to her son for $900. These selling prices equaled their estimated fair market value. Several years ago, Mia purchased the chair for $2,000 and the painting for $750. She did not report any capital gain or loss on her 2018 individual income tax return.