Question

Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp. at fair market value. The fair market value of the building was determined to be $502,500; Luke built the building several years ago at a cost of $375,000. Luke had claimed $56,500 of depreciation expense on the building. The fair market value of the land was determined to be $254,000 at the time of the sale; Luke purchased the land many years ago for $147,750.a. What is the amount and character of Luke’s recognized gain or loss on the building?b. What is the amount and character of Luke’s recognized gain or loss on the land?---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $16,250 §1231 loss on the sale. The second is land that will generate a $7,300 §1231 gain on the sale. Aruna’s ordinary marginal tax rate is 30 percent. (Input all amounts as positive values.)a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna’s tax liability?b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on Aruna’s tax liability for each year?

Answer 1

1. The amount is $184,000 and the nature is capital gain.

2. Increase in tax liability (7300 x 30%) = 2190

How to solve for the values

The amount is $184,000 and the nature is capital gain.

502500 - 375000 - 56500

= 318500

Long term capital gain (502500 - 318500)

= 184000

The amount is $184,000 and the nature is capital gain.

b, The Market value of land 254000 - 147750

= 106250

The amount is $106,250 and the nature is appreciation in value of asset.

c.

7300 - 16250

Net capital loss = -8950

Tax rate 30%

Reduction in tax liability (8950 x 30%)

= 2685

Year 1

Loss on sale of Machinery

= 16250

Tax rate = 30%

Reduction in tax liability (16250 x 30%)

= 4875

Year 2

Gain on sale of land = 7300

Tax rate = 30%

Increase in tax liability (7300 x 30%)

= 2190

Answer 2

Answer and Explanation:

Answer and explanation attached