Click here to get an A+ paper at a Discount
Mary, a single taxpayer, purchased 10,000 shares of § 1244 stock several years ago at a cost of $20 per share. In November of the current year, Mary received an offer to sell the stock for $12 per share. She has the option of either selling all of the stock now or selling half of the stock now and half of the stock in January of next year. Mary will receive a salary of $80,000 for the current year and $90,000 next year. Mary will have long-term capital gains of $8,000 for the current year and $10,000 next year. If Mary’s goal is to minimize her AGI for the two years, determine whether she should sell all of her stock this year or half of her stock this year and half next year.
33. LO.4 During 2013, someone broke into Jacob’s personal residence and took the following items:
Asset
Adjusted
Basis FMV before FMV after
Insurance
Recovery
Business computer $12,000 $10,000 $–0– $ 7,000
Bearer bonds 30,000 25,000 –0– –0–
Silverware 7,000 20,000 –0– 18,000
Cash 8,000 8,000 –0– –0–
Jacob is an employee and used the computer 100% of the time in his employment.
Although his homeowner’s insurance policy paid Jacob $7,000 for the stolen computer,
Jacob’s employer did not reimburse Jacob for any of the remainder of his loss. Jacob’s
AGI for the year, before considering any of the above items, is $50,000. Determine the total deduction for the stolen items on Jacob’s 2013 tax return.
34. LO.3, 4, 8 Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows:
Item
Adjusted
Basis FMV before FMV after
Insurance
Proceeds
Home $350,000 $500,000 $100,000 $280,000
Auto 60,000 40,000 10,000 20,000
Because of the extensive damage caused by the tornado, the President designated the area a disaster area.
Olaf and his wife, Anna, always file a joint return. Their return for last year shows
AGI of $180,000 and taxable income of $140,000. For the current year, their return shows AGI of $300,000 and taxable income (exclusive of the casualty loss deduction) of $215,000.
Determine the amount of Olaf and Anna’s loss and the year in which they should take the loss.
35. LO.3, 4 Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2013, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000.
These assets were also totally destroyed. If Heather’s AGI is $100,000 before considering the effects of the fire, determine her itemized deduction as a result of the fire. Also determine Heather’s AGI.
36. LO.3, 4 On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000. The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident.
Sam has taken $20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sam’s history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement.
Sam’s current marginal tax rate is 35%.
Write a letter to Sam that contains your advice with respect to the tax and cash-flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car. Also prepare a memo for the tax files. Sam’s address is 450 Colonel’s
Way, Warrensburg, MO 64093.
