Q1. On 28th June, 2011 a corporation sold an apartment building for $150,000 (exclusive of the land). The building originally cost $100,000 (exclusive of the land), and since that time, the corporation has claimed $65,000 in accelerated depreciation under ACRS. The recapture principles applicable to trusts and estates require that $9,000 of the gain be listed as ordinary income. How much of the profit must the corporation include in ordinary income as depreciation recapture?
Q2. During 2011 Paxton Inc., a calendar year taxpayer, placed the following properties into service on the dates noted (ignore the Section 179 deduction and bonus depreciation)
3/15/11 7 year property costing $295,000
12/1/11 5 year property costing $205,000
a) If no additional properties were placed in service in 2011, determine Paxton's 2011 and 2012 depreciation deductions under MACRS.
b) If both properties had been placed in service on March 15, determine Paxton's 2011 and 2012 depreciation deductions under MACRS.
Q3. On November 28, 2011 a taxpayer purchased for $2,000,000 a rental building with commercial stores on the first floor (Total Monthly Rent $10,000) and apartments on the upper two floors (Total Monthly Rent $4,000). Compute the taxpayer's depreciation for 2011 and 2012, assuming the building is sold by the taxpayer on March 2, 2012.
Q4. Mr. Green and Mr. Brown form a corporation to carry on a new business. In exchange for $175,000 worth of the new corporation's stock, Green transferred to the corporation $25,000 in cash and Properties A and B. Property A had a value of $75,000 and a basis of $50,000; Property B had a value of $100,000 and a basis of $75,000 and was subject to a $25,000 mortgage. In exchange for $50,000 worth of the new corporation's stock, Mr. Brown transferred to the corporation $25,000 in cash and Property C. Property C had a value of $175,000, a basis of $100,000 and was subject to a $150,000 mortgage.
a) Is gain or loss recognized on any of the transfers?
b) Evaluate the basis of each shareholder's stock in the new corporation.
c) Determine the basis of each property in the hands of the corporation.