Income Tax Practice Problem
Please submit your answers to D2L>Quizzes>Property Transactions Tax Return
Dean and Ellen Price are ma
ied and have a manufacturing business.
They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019
They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for $25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate the MACRS depreciation on the truck for 2018 and 2019.
On 10/26/2019 Dean sold his old storage building used for his business for $220,000. They purchased the building in 2001 for $100,000. Total depreciation (accumulated depreciation) taken on the building is $20,000.
His 2019 Business income and expenditures (Schedule -C):
Sales $ 657,500
Cost of goods sold $ 315,000
Other business expenses (incl. deprecation taken on the storage building) $ 140,000
In 2019 Dean also sold various assets. The information about the selling price and depreciation of the property is listed below.
Placed in Service / Purchased on
Sold on
Initial Cost
2019 Depr. Amount
Accumulated
Depreciation. (Depr. Allowed)
Tax Basis= Initial Cost – Depr. Allowed
(1)
(2)
(3)
(4)
(5)
(6) = (3) –(5)
Office tables
4/4/2018
10/16/2019
For $2,900
$3,000
$375
$825
Office chairs
3/1/2015
11/8/2019
For $4,000
$8,000
$1,000
$2,200
Marketable securities
2/1/2019
12/1/2019
For $20,000
$12,000
$0
$0
Land held for investment
7/1/2018
11/29/2019
For $48,000
$45,000
$0
$0
In 2019 Dean sold his wine collection for $9,000, which is bought two years ago for $8,000.
· They also has a short-term capital loss ca
yover of $10,000 from 2009.
Property Transactions Return XXXXXXXXXXName: ___________ XXXXXXXXXXClass time:
1
Part I: MACRS Depreciations and Adjusted Basis
2018 (Year 1) :
Date Acquired
(1)
Date Disposed
(2)
MACRS Rate
XXXXXXXXXX)
Initial Cost
(4)
2018 MACRS Depreciation Deduction
(5) = (3)*(4)
Business
Equipment
(7-year)
N/A
Pick-up Truck
(5-year)
2019 Depreciation (Year 2)
Date Acquired
Date Disposed
MACRS Rate
Initial Cost
2019 MACRS Depreciation Deduction
Business Equipment
N/A
Pick-up Truck
(Sold during the year)
2019 Tax Basis
Date Acquired
(1)
Date Disposed
(2)
Initial Cost
(3)
Accumulated Depreciation
XXXXXXXXXX)
Tax Basis at year end
(5) = (3)-(4).
Business Equipment
N/A
Pick-up Truck
2019 Net Schedule-C Business income
_184, 880 ________________________________________
Part II. Summary Sheet for the Sales of Business Property (Form 4797)
Step 1) Sales or Exchanges of Property Used in a Trade or Business (Held for More Than 1 Year)
Description of property (1)
Date acquired (2)
Date Sold (3)
Gross Sales Price (4)
Accumulated
Depreciation (5)
Tax Basis (6)
Gain or (loss) (4-6)
A)
B)
C)
D)
Step 2) Ordinary Gains and Losses (incl. property held 1 year or less). Enter zero if not applicable.
Description of property
Date acquired
Date Sold
Gross Sales Price
Accumulated
Depreciation
Adj. Basis
Gain or (loss)
Step 3). Descriptions of Section 1245 property:
1) Description of property
2)
Date acquired
3)
Date Sold
4)
Gain
5)
Accumulated
Depreciation
6)
Amount of Gain reported as Ordinary
(Lesser of 4 or 5)
7) Remaining Gain =
XXXXXXXXXX)
3 (a) Net the gains/loss in A,B,C,D ____________
3 (b) Total Amount reported on (6) above: ______________________
3 (c) = 3(a) – 3(b) _________ (Remaining Section 1231 Gain)
(Part II. continued) Summary Sheet for the Sales of Business Property
Step 4. Description of Section 1250 property
1) Description of property
2)
Date acquired
3)
Date Sold
4)
Gain
5)
Depreciation allowed (Accumulated Depreciation)
6)
Unrecaptured §1250 Gain.
7) Remaining Gain =
XXXXXXXXXX)
4(a) = Remaining Section 1231 Gain from 3(c): ________
4(b): Total Unrecaptured §1250 Gain on 6) above ________
4(c) = 4(a) – 4(b) ________
Part III. Summary Sheet on the Sales of Capital Assets (Form 8949)
1). Short-term
Description of property
Date acquired
Date Sold
Gross Sales Price
Depreciation allowed
Cost Basis
Gain or (loss)
2) Long-term
Description of property
Date acquired
Date Sold
Gross Sales Price
Depreciation allowed
Cost Basis
Gain or (loss)
Summary for Capital Gains and Losses:
1.Net Short-term totals
2. Net Long-term totals
Part IV: Netting Process
Short-term Capital Gains and Loss Ca
y-overs
Long-term Capital Gain (LTCG)
Collectibles
Unrecaptured § 1250 Gain
Net Sec. 1231 Gain
Other Long-term capital gain
Net the Short-term Capital Gain or Losses above =
_______
Amount from Part II, 4(b)
__________
Amount from Part II, 4(c)
________
Part III, Net LTCG, excluding Collectibles
_____
Use the above amount to net against Collectibles, Unrecaptured Sec. 1250 Gain, LTCG, etc. on the right
Net Capital Gain:
Part V. Self-Employment Tax Computation
2019 Net Schedule-C income (from page 2): ____________
1) Social security tax = (The lesser of Net Sch-C income or $132,900)*12.4%, round up to nearest dollar: _____________
2) Medicare tax = (Net Schedule-C business income)*92.35%*2.9%, round up to nearest dollar: ________________
Total Self-Employment Tax = V1+V2 = ___________
Part VI. Income Tax Computation
A. Net Capital Gains (NCG from page 6) ____________________
B. Other Gains (the amount for Part II 3(b) on page 3)
XXXXXXXXXX________
C. Taxpayer's AGI (Net Schedule-C income, NCG, Other Gains, minus one-half of Self-employment tax in Part V)
XXXXXXXXXXAGI __________
D. Taxable Income before Qualified Business Income Deduction (AGI – 2019 Standard Deduction for Ma
ied Filing Jointly):
_______________
E. Qualified Business Income Deduction (see page 9): __________
F: Taxable income: ________ (F=D-E)
G. Tax Computation
1) Tax based on tax rate schedule Y-1 ( use Taxable income – Net Capital Gain)
__________
What is the tax
acket (marginal rate) for them on Y-1? ____%
2) Tax on Capital Gains:
a) 28% x __________ (if any) = Tax on collectibles
) For Unrecaptured Section 1250 gain, the applicable tax rate is the lesser of 25% or the marginal rate in step G(1) above.
Tax rate on Unrecaptured Section 1250 Gain ______* Amount of Unrecaptured Section 1250 Gain (see page 6) ____________ =________
c) Gains subject to the 15% tax rate on page 6 ___________ * 15% = ________
G(2) = Total Tax from G(2)(a)+G(2)(b)+G(2)(c) = ___________
G XXXXXXXXXXTotal Self-Employment Tax from Part V _______
Add G(1), G(2) and G(3), this is their total tax $ ____________
Q: How is the deduction for Qualified Business Income (QBI) computed?
A: The SSTB (Specified Trade or Business) limitation does not apply if a taxpayer’s taxable income is below $321,400 for a ma
ied couple filing a joint return and $160,700 for all other taxpayers in 2019; the deduction is the lesser of:
      A) 20 percent of the taxpayer’s QBI (Net Schedule-C income), plus 20 percent of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income
    B) 20%*(excess of taxpayer’s taxable income before QBI deduction over net capital gains)
If the taxpayer’s taxable income is above the thresholds, the deduction may be limited based on whether the business is an SSTB, the W-2 wages paid by the business and the unadjusted basis of certain property used by the business.
Microsoft Word - Property Tax Ret annoted (3-3)
Property Transactions Return XXXXXXXXXXName: ___________ XXXXXXXXXXClass time:
1
Please submit your answers to D2L>Quizzes>Property Transactions Tax Return
Dean and Ellen Price are ma
ied and have a manufacturing business.
They bought a piece of business equipment (7-year personal property) on 4/1/2018 for $50,000. Use
half-year convention to calculate the MACRS depreciation deduction on the equipment for 2018 and 2019
They also has a pick-up truck used for business (5-year recovery period) acquired on 8/23/2018 for
$25,000. On 11/15/2019, he sold the pick-up truck for $24,000. Use the half-year convention to calculate
the MACRS depreciation on the truck for 2018 and 2019.
On 10/26/2019 Dean sold his old storage building used for his business for $220,000. They purchased
the building in 2001 for $100,000. Total depreciation (accumulated depreciation) taken on the building is
$20,000.
His 2019 Business income and expenditures (Schedule -C):
Sales