Four acres of the farm are condemned by the state to widen

Reference no: EM13571604

Betty, whose tax rate is 33%, is in the business of breeding and racing horses. Except for the transactions below, she has no other sales or exchanges and she has no unrecaptured net Sec. 1231 losses. Consider the following transactions that occur during the year:

· A building with an adjusted basis of $300,000 is destroyed by fire. Insurance proceeds of $500,000 are received, but Betty does not plan to replace the building. The building was built 12 years ago at a cost of $430,000 and used to provide lodging for her employees. Straight-line depreciation has been used.

· Four acres of the farm are condemned by the state to widen the highway and Betty receives $50,000. The land was inherited from her mother 15 years ago when its FMV was $15,000. Her mother purchased the land for $10,300. Betty does not plan to purchase additional land.

· A racehorse purchased four years ago for $200,000 was sold for $550,000. Total depreciation allowed using the straight-line method amounts to $160,000.

· Equipment purchased three years ago for $200,000 is exchanged for $100,000 of IBM common stock. The adjusted basis of the equipment is $120,000. If straight-line depreciation had been used, the adjusted basis would be $152,000.

· An uninsured pony with an adjusted basis of $20,000 and FMV of $35,000, which her daughter uses only for personal use, is injured while attempting a jump. Because of the injury, the uninsured pony has to be destroyed by a veterinarian.

Task(s):

a. What amount of Sec. 1245 ordinary income must be recognized?

b. What amount of Sec. 1250 ordinary income must be recognized?

c. Will the loss resulting from the destruction of her daughter's pony be used to determine net Sec. 1231 gains or losses?

d. What is the amount of the net Sec. 1231 gain or loss?

e. After all of the netting of gains or losses is completed, will the gain resulting from the involuntary conversion of the building be treated as LTCG?

f. What is the amount of her unrecaptured Sec. 1250 gain?

Reference no: EM13571604

Questions Cloud

Usually special orders are a result of having excess : usually special orders are a result of having excess capacity. so how does capacity affect special order pricing?what

On january 1 tellier corporation had 64400 shares of no-par : on january 1 tellier corporation had 64400 shares of no-par common stock issued and outstanding. the stock has a stated

Whitten corporation was organized on january 1 2012 it is : whitten corporation was organized on january 1 2012. it is authorized to issue 21200 shares of 5 50 par value preferred

Today the yield to maturity on this bond is 576 percent how : one year ago you purchased a 6 percent annual coupon bond for aclean price of 975. the bond now has five years

Four acres of the farm are condemned by the state to widen : betty whose tax rate is 33 is in the business of breeding and racing horses. except for the transactions below she has

At the beginning of 2011 robotics inc acquired a : at the beginning of 2011 robotics inc. acquired a manufacturing facility for 12 million. 9 million of the purchase

The graham corporation has annual sales of 90 million the : the graham corporation has annual sales of 90 million. the average collection period is 70 days. what is grahams

A business issued a 120-day 6 note for 10000 to a creditor : a business issued a 120-day 6 note for 10000 to a creditor on account. the company uses a 360-day year for interest

Fancial statements are based on generally accepted : financial statements are based on generally accepted accounting principles gaap and audited by cpa firm so do

User Account

All Pages