Al purchased & put in service a new widget (7 year item for MACRS
rules) on 12/28/06. It was the only item placed in service in ’06. Cost
was .5 MIL. ’06 was a bad yr for Al & he had an operating loss
before considering MACRS. The widget was used for business purposes
only. In ’08 the widget was damaged in a tornado & Al collects
5K from his insurance company. He repaired the widget himself using
duct tape & plastic sheets passed out by FEMA. It took him a week
to repair it. He calculated that his time is worth per hr, ,000
per wk.

A. 2/28/11 Al sold the widget for 1.2 million. Compute gain or
loss, is it capital or ordinary, active or passive & current or
deferred?

B. 6/28/11 Al traded the widget for a new one. He gave the dealer
the old widget & K. Computer gain or loss & basis in the new
widget.

C. In ’12 Al gifted the widget to his son TJ who sold it 2 weeks
later for ,975,000. Compute gain or loss for both Alvin &TJ. Is
it long or short term? Capitol or ordinary?

D. 1/15/11 Al died & the widget was left by will to his son
TJ. 1/15/13 the fair market value of the widget was .6 MIL. 2/28/13
TJ sold the widget for ,625,000. Is there any tax treatment of the
1/15/13 inheritance? How would the 2/28/13 sale be treated for tax
purposes? Is any gain or loss, long or short term, capitol or ordinary
& deferred or recognized now?

Show computation and explain conclusion.

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