Reference no: EM13214772
1) Aqua Inc., a calendar year corporation, has the following gross receipts and taxable income for 2010-2013:
Year Gross Receipts Taxable Income
2010 6,000,000 1,400,000
2011 7,000,000 1,312,000
2012 7,500,000 985,000
2013 7,200,000 1,002,000
Aqua's first year of operations was 2010.
A) When is Aqua first exempt from the AMT as a small corporation?
B) Is Aqua subject to the AMT for 2013? Explain.
2) The tax credit for rehabilitation expenditures is available to help offset the costs related to substantially rehabilitating certain buildings. The credit is calculated on the rehabilitation expenditures incurred and not on the acquisition cost of the building itself.
You are a developer who buys, sells, and does construction work on real estate in the inner city of your metropolitan area. A potential customer approaches you about acquiring one of your buildings that easily could qualify for the 20% rehabilitation credit on historic structures. The stated sales price of the structure is $100,000 (based on appraisals ranging from $80,000 to $120,000), and the rehabilitation expenditures, if the job is done correctly, would be about $150,000.
Your business has been slow recently due to the sluggish real estate market in your area, and the potential customer makes the following proposal: if you reduce the sales price of the building to $75,000, he will pay you $175,000 to perform the rehabilitation work. Although the buyer's total expenditures would be the same, he would benefit from this approach by obtaining a larger tax credit ($25,000 increased rehabilitation costs X 20% = $5,000).
It has been a long time since you have sold any of your real estate. How will you respond?
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