Question

For each transaction, what are the amounts in nature of recognize game or loss?

What is Lorenzo's 2019 adjusted gross income?

Lorenzo is the sole proprietor of a trampoline shop. During 2019, the following transactions occurred. 1. Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation proceeds were $15,000. The land, acquired in 1986, had an allocable basis of $40,000. Lorenzo has additional parking across the street and plans to use the condemnation proceeds to build his inventory. 2. A truck used to deliver trampolines was sold on January 2 for $3,500. The truck was purchased on January 2, 2014, for $6,000. On the date of sale, the adjusted basis was zero. 3. Lorenzo sold an antique rowing machine at an auction. Net proceeds were $4,900. The rowing machine was purchased as used equipment 17 years ago for $5,200 and is fully depreciated. 4. Lorenzo sold an apartment building for $300,000 on September 1. The rental property was purchased on September 1, 2015, for $150,000 and was being depreciated over a 27.5-year MACRS life using the straight-line method. At the date of sale, the adjusted basis was $124,783.

Answer 1

Solution

Amount and nature of recognized Gain/ Loss for each transaction are as follows;

Gain / Loss 1231 loss = $40000 - $ 15000 = $25000 Gain = $ 3500 -0 = $3500 As the machine is fully depreciated, adjusted basis on the date of sale is zero. Gain = $4900 -0 = $4900 Transaction 1. Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation proceeds were $ 15000. The land, acquired in 1986, had an allo cable basis of $ 40000. 2. A truck used to deliver trampolines was sold on January 2, 2014, for $6000. On the date of sale, the adjusted basis was zero. 3. Lorenzo sold an antique rowing machine at an auction. Net proceeds were $4900. The rowing machine was purchased as used equipment 17 years ago for $5200 and is fully depreciated. 4. Lorenzo sold an apartment building for $300000 on Septembet 1. The rental property was purchase on September 1, 2015, for $ 150000 and was being depreciated over a 27.5 year MACRS ;ife using the straight -line method. At the date of sale, the adjusted basis was $124783 5. Lorenzo's personal yatch was stolen on September 5. The Yatch had been purchased in August at a cost of $25000. The fair market value immediately preceding the theft was $19600. Lorenzo was insured for 59% of the original cost, and he received $12500 on December 1. 6. Lorenzo sold a Buick on May 1 for $9600. The vehicle had been used exclusively for personal purpose. It was purchased on September 1, 2014, for $20800 7. Lorenzo' s trampoline stretching machine (owned two years) was stolen on May 5., but the business's insurance company will not pay any of the machine value because Larry failed to pay the insurance premium. The machine had a fair market value of $8000 and an adjusted basis of $6000 at the time of theft. 8. Lorenzo had AGI of $102000 from sources other than those described above. Overall gain= $300000-$124783 = $175217 Un captured Section 1250 gain = Purchase price - Adjusted Basis = $150000 - $124783 = $25217 Regular long term capital gain = overall gain - un captured section 1250 Gain = $175217 - $25217 = $150000 Tax loss = fair market value - Amount received from Insurance = $19600 - $12500 = $7100 (There is a tax loss of $7100, that is deducted as personal casualty loss.) Loss = $20800 - $9600 = $11200 This loss of $11200 is treated as non-deductible personal loss. Tax loss = Adjusted basis of fair market value whichever is lower = $6000 (there is a tax loss of $6000 which is treated as business casualty loss) 1231 loss of $25000 can be setoff from uncapured gain of $25217 Adjusted Gross Income for 2019 = $10200+$3500+$4900+$150000-$6000 = $254400 9. Lorenzo has no non-recaptured 1231 look back losses. Personal casualty loss is not allowed as deduction in 2019 unless it occurs due to federal disaster. Uncaptured gain $217($25217 - $25000) is taxed separately at a maximum tax rate of 25%. Also, personal loss is not deductible.