Question

Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets: Accumulated Asset sales Price Cost Depreciation Building Sparkle Corporation stock $704,000 $693,000 136,000 187,000 $40,000 n/a Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $854,000 What are Shimmer's taxable income and tax liability for the year? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.) Taxable income: Tax liability

Answer 1

Ans-

	Sale Price	Adjusted Basis	Character
Building	$704,000	$653,000 ($693,000-$40,000)	$51,000	Gain
			Ordinary gain u/s 291= $8,000 ($40,000*20%)	(i.e. 20% of accumulated depreciation)
			Capital Gain= $43,000 ($51,000-$8,000)
Sparkle Corporation Stock	$136,000	$187,000	-$51,000	Capital Loss

The $43,000 u/s 1231 is treated as long term capital gain on building. The excess loss of ($43,000-$51,000) $8,000 will be carried back for 3 years or carried forward for 5 years.

Taxable Income before the transactions	$854,000
Ordinary income from sales	$8,000
Taxable income after the transactions	$862,000
Tax Liability ($862,000*21%)	$181,020

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