ACCT 43031

Chapter 14s HW
South-Western Federal Taxation 2016 edition
Problems 10: Charlie had bought the tractors for personal use and it doesnt say that they were for
investment. So the tax status would be they are capital assets. Furthermore, the 28% rate applies.
Page 14-22 of the textbook says that capital assets that meet the collectible definition are eligible
only for the 28% tax rate. Here, the tractors meet the definition of collectibles because they are
antiques.
Problem 13: The issues Steve is facing are how to use any unused loss and get the 2015 gain taxed
as a long-term capital gain. Section 1231 assets are assets that are used in a taxpayers trade and
business. Section 1231s look-back rule enables a taxpayer to recognize a net section 1231 loss in
prior years and if the loss is not previously captured in a subsequent year, then the taxpayer must
characterize the current year net section 1231 gain as ordinary income. Here, Steven has recognized
a non-recaptured section 1231 loss from the tax years of 2013 and 2014. Under section 1231s lookback rule, the amount of net 1231 gain from 2015 is treated as ordinary income.
Problem 38: Antique vase = $5,000 ($42,000 - $37,000) long-term capital gain because it was held
for over one year. Blue Growth Fund stock = $38,000 ($38,000 - $22,000) long-term capital gain.
Orange bonds = $7,250 long-term capital gain. Green stock = $2,000 short-term capital gain
because held for one year or less.
Problem 44: 44a:
Selling price: ($30,000 X 5)
Less: Selling expense: ($500 X 5)
Amount realized:
Basis: ($15,000 X 5)
Realized and recognized gain

$150,000
($2,500)
$147,500
($75,000)
$72,500

44b: The entire $72,500 is long-term capital gain from the sale of the first five lots. Contiguous or
adjacent lots sold to a single purchaser are considered to be a single lot thats been solde. So here
there were five lots sold (4 separate lots + 1 continguous lot).
44c: Yes this would change things. If the two lots sold to the fifth purchaser were not contiguous, the
total lots sold would be six. Since Maria has now sold six or more lots, 5% of the total selling price of
all the lots sold are treated as ordinary income. This ordinary income is offset by any selling
expenses associated with selling the lots.
Selling price: ($30,000 X 6)
$180,000
Less: Selling expense: ($500 X 6) ($3,000)
Amount realized:
Basis: ($15,000 X 6)
Realized and recognized gain
Classification of recognized gain:
Ordinary income
Five percent of selling price (5% X $180,000)
Less: Selling price
Ordinary Gain
Capital Gain
$81,000

$177,000
($90,000)
$87,000
$9,000
($3,000)
$6,000

Problem 73: 73a: Rack = ordinary income of $47,000. Forklift = section 1231 loss of $7,000. Bin =
ordinary income of $7,000.
73b: $0.
Problem 79: 79a: Selling price of $96,000 less $38,000 adjusted basis = $58,000 recognized section
1231 gain.
79b:
Stephanie Bridges
2345 Westridge Street #23
Edna, KS 67342
June 20, 2016
Stephanie Bridges,
This memo will discuss for you how the recapture rules differ for tangible personal property and for
residential rental real estate acquired in 1987 and thereafter. Tangible personal property depreciation
subjects any gain on a propertys disposition to taxation as ordinary income. This is true up to the
extent of any depreciation taken. Generally, there is no depreciation recapture (i.e., reclassifying
gains as ordinary income) for residential rental real estate acquired in 1987 and later years.
Thank you for your time,
Elliott Alloway, CPA