1. Able and Baker own 100% of Management Co., a partnership, which provides management services to car dealerships located in different states.
All of the car dealerships serviced by Management Co. are owned by Able.
Management Co. bought an airplane for business travel to and from the car dealerships it services.
** Using the MACRES tables in your book, how many years is it appropriate to depreciate the airplane?
** Please prepare an appropriate depreciation schedule for the airplane, which was purchased in 2009 for $3 million
2. Henry and Wilma Taxpayers, married filing joint, purchased a three acre tract of land for $600,000 in a desirable location in 2002 intending to build their "dream castle". They hired an architect who produced several sets of drawing and building plans for $37,250. In order to help fund the building project they hired a surveyor and lawyer to subdivide the property into three separate lots (assume the lots have an equal fmv) at a cost of $14, 500. They sold the first lot for $251,900 in five months after they bought the property and the second lot for $264,300 fifteen months after the bought the property. In 2004 they constructed their "dream castle" on the lot they kept for $1.3 million.
** What is their adjusted basis in their "dream castle"?
*** How much gain do they have upon the sale of the home?
*** How much gain would they have if Henry and Wilma were over age 55 and have continuously live in the "dream castle" since it was build in 2004?
** How can they escape paying the tax on the gain?
** What are the tax consequences if they trade their "dream castle" for an old warehouse that has been converted into a residential loft that has a FMV of $2.49 million?
** What would be the tax consequences if they trade it for a beach bungalow that has a FMV of $489,000?