Reference no: EM132956

Question :

Dan turned age 65 and retired this year. He owned and operated a tugboat in the local harbor before his retirement. The boat cost $100,000 when he gets it two years ago. A tugboat is 10-year property. Dan deducted $10,000 of reduction on the boat the year he purchased it and he deducted $18,000 of depreciation last year. He did not choose Section 179 expensing or bonus depreciation. He sold the tugboat in November of this year for $90,000 collecting an $18,000 down payment. The buyer agreed to pay 8% interest annually on the unpaid balance and to pay $18,000 yearly for four years toward the principal. The four $18,000 principal payments and related interest payments start next year. Dan received $72,000 of business income and incurred other business expenses of $30,000 this year before he retired. He received Social Security benefits of $2,000 and withdrew $10,000 from a regular IRA account. He contributed $4,000 to his church, paid actual property taxes of $2,000, and home mortgage interest of $6,500. Dan paid $200 of state income taxes when he filed last year's return earlier this year and $220 after year end. In addition, Dan made federal evaluated payments of $8,000. Dan is a single cash basis taxpayer. Ignore self-imployment taxes.

a. Evaluate the depreciation for the existing year on the tugboat.

b. Evaluate the amount of profit to be reported presently on the sale of the tugboat. Suppose that Dan wants to use the installment method if it can be used. The accumulated depreciation on the tugboat is subject to Sec.1245 depreciation recapture and has to be reported currently.

c. How much interest, if any, must Dan report this year?

d. Determine the income from the business, excluding the profit on the sale of the tugboat?

e.What is Dan's AGI?

f. What is the amount of Dan's itemized deductions?

g. Determine Dan's taxable income?