Reference no: EM13991978

1. Barney is a farmer who has the following transactions during 2010:

a. A barn that cost $36,000 in 2002 with an adjusted basis of $16,000 is destroyed by a tornado. Barney's insurance pays him $26,000 for the casualty.

b. Barney's prize bull, for which he paid $22,000 and which has an adjusted basis of $14,000, is in the barn when the tornado hits. Although the bull is not killed, he is injured severely enough that he can no longer breed. The bull is worth only $2,000 after the casualty (at stud, he was valued at more than $30,000), but he is such a favorite of Barney's that Barney keeps him and puts him out to pasture. Barney's insurance company refuses to pay anything for the bull's injuries.

c. Breeding cattle that cost $19,500 in 2007 with an adjusted basis of $7,200 are sold for $21,000.

d. A tractor that cost $20,000 and has an adjusted basis of $12,000 is sold for $7,000.

e. Stock in Old Mill Company that Barney purchased on November 13, 2009, for $20,000 becomes worthless when Old Mill goes out of business on April 1, 2010.

f. A horse Barney purchased in February for $8,000 as a gift for his daughter comes up lame and has to be sold for $2,000.

g. Barney sells 80 acres of farmland for $42,000. He had received the land as a gift from his uncle when he first went into farming. Barney's uncle paid $8,000 for the land, which was worth $30,000 at the time of the gift.

What is the effect of these transactions on Barney's taxable income for 2010? In solving this problem, first determine the amount and character of gain or loss on each of the transactions. Then, perform the appropriate netting procedures. Your answer should summarize the gains and losses as they would appear on Barney's tax return. Write a letter to Barney explaining the tax results of his transactions.