ACC 570
Chapter 14 Solutions
45.
a.
Loan: $3,700 nonbusiness bad debt debt, treated as a short-term capital loss, no matter
how long Sue held the loan.
Bond: Deemed to have become worthless on the last day of 2010—the year in which it
became worthless. Sue’s holding period for the bond is long-term because the time
period from November 10, 2008, through December 31, 2010, is more than one year.
The $12,000 loss on the bond is a long-term capital loss.
§1244 stock: $30,000 ordinary loss, deducted for adjusted gross income.
b.
AGI =$32,000 [$65,000 – $3,000 (capital loss deduction) – $30,000 (§ 1244 ordinary
loss deduction)].
c.
$700 ($3,700 – $3,000) STCL carryforward & $12,000 LTCL carryforward.
STCL are used first to make up the capital loss deduction
46.
Brown Corporation bonds were OID bonds, the discount amortization is treated as
interest income by Albert and added to his basis for the bonds.
Basis is $321,000 ($320,000 cost + $1,000 discount amortization)
$62,000 LTCG ($383,000 sale price – $321,000 basis).
55.
$11,000 LTCG ($36,000 amount realized – $25,000 adjusted basis)
Roger’s basis = $25,000 FMV of the Purple stock at the time of Emily’s death.
Automatic long-term holding period because the stock was inherited property.
63.
STCG
STCL
28% LTCG
28% LTCL
25% LTCG
15% LTCL
75,000
(23,000)
45,000
(53,000)
18,000
(34,000)
Step1
52,000
Step2
52,000
(8,000)*
-0-
18,000
(34,000)*
-0(24,000)
Step3
28,000 STCG
* if offsetting 1 LTCL against 2 LTCGs, offset highest rate 1st. If offsetting 2 LTCLs against 1
LTCG, order does not matter. Any excess 1st offsets STCG & any remaining LTCL
carries over as a 28% LTCL, regardless of its original rate.
65.
66.
67.
Tax on $76,000 ordinary taxable income ($97,000 TI – $18,000
0%/15% gain – $3,000 qualified dividend) from married, filing
jointly tax rate schedule
15% tax on $18,000 0%/15% gain and $3,000 qualified dividend
Total tax using the alternative tax calculation
Tax on $24,800 ordinary taxable income ($36,000 TI – $3,000
25% gain – $8,200 0%/15% gain) from head of household
tax rate schedule
15% tax on $3,000 25% gain (regular tax rate is used since it is
lower than the alternative tax rate)
0% tax on $8,200 0%/15% gain (alternative tax rate of 0% is
lower than the regular tax rate of 15%)
Total tax liability using the alternative tax calculation
$11,363
3,150
$14,513
$3,123
450
–0–
$3,573
Asok’s taxable income is $123,700 ($133,050 AGI – $5,700 standard deduction –
$3,650 personal exemption)
Tax on $65,700 ordinary taxable income ($123,700 TI – $45,000
25% gain – $13,000 0%/15% gain) from single tax rate
schedule
25% tax on $16,700 of 25% gain (regular tax rate is the same as
the alternative tax rate until taxable income exceeds $82,400)
25% tax on $28,300 of remaining 25% gain (alternative tax rate
of 25% is lower than the regular tax rate of 28%)
15% tax on $13,000 0%/15% gain (alternative tax rate of 15% is
lower than regular tax rate of 28%)
Total tax liability using the alternative tax calculation
$12,606
4,175
7,075
1,950
$25,806