Question

More Poblem Set Module 1 Problem Set Instructions Unless otherwise indicated, assume all taxpayers are calendar year, cash-method taxpayers. Question 1 0.1 pts Mr. James purchased a vacation house in Los Angeles on July 1, 2017. The purchase price was $1,000,000, and Mr. James spent $10,000 on capital additions. As of January 1, 2019, the house was worth $1,200,000. Mr. James was not entitled to depreciate the house as it was a personal use asset. Assume Mr. James still owned the house as of December 31, 2019. On December 31, 2019, the house was valued at $1,300,000. For tax purposes, how much income did Mr. James realize in 2019? Question 2 0.1 pts Mr. James purchased a vacation house in Los Angeles on July 1, 2017. The purchase price was $1,000,000, and Mr. James spent $10,000 on capital additions. As of January 1, 2019, the house was worth $1,200,000. Mr. James was not entitled to depreciate the house as it was a personal use asset. For the purposes of this question, assume that Mr. James sold the house on December 31, 2019 for $1,300,000. For tax purposes, how much income did Mr. James realize in 2019?

Answer 1

Solution:

Question:1

The Income to be realize in 2019 is $ 0

Reason:

1) Cost of vacation house is $ 1,010,000 ( Purchase price + Capital Additions )

2) On Dec 31, 2019 the value of vacation house is $1,300,000.

3) But we recognize zero income for tax purpose because Mr. James still holding the house and there is no sale of house. We will recognize income or loss after sale only but not before that.