LO.2, 3, 7, 11 Kristin Graf (123 Baskerville Mill Road, Jamison, PA 18929) is trying to decide how to invest a $10,000 inheritance. One option is to make an additional investment in Rocky Road Excursions in which she has an at-risk basis of $0, suspended losses under the at-risk rules of $7,000, and suspended passive activity losses of $1,000. If Kristin makes this investment, her share of the expected profits this year will be $8,000. If her investment stays the same, her share of profits from Rocky Road Excursions will be $1,000. Another option is to invest $10,000 as a limited partner in the Ragged Mountain Winery; this investment will produce passive activity income of $9,000. Write a letter to Kristin to review the tax consequences of each alternative. Kristin is in the 24% tax bracket.
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Chapter 11 Solutions
CengageNOWv2, 1 term Printed Access Card for Hoffman/Young/Raabe/Maloney/Nellen's South-Western Federal Taxation 2018: Individual Income Taxes, 41st
- The Jeffersons want to establish a trust to provide for their children in case of their premature deaths. Which of the following is most appropriate for the Jeffersons' overall situation and objectives (objectives are Capital accumulation is a primary concern in this stage of their lives. The protection of principal, income production, and reduction of taxes are of minor importance)? They have a net worth of $725,000 Provide a rationale for your answer. Choose one of the following an irrevocable life insurance trust granting Crummey powers to the children a grantor retained income trust (GRIT) with their children, Ashanti and Blake named as beneficiaries a revocable living trust naming a third party as successor trustee, with Avery and Jaylen as the primary beneficiaries while living and the children listed as remainder beneficiaries an irrevocable living trust naming the children as beneficiaries and Jaylen and Avery as the trusteesarrow_forward3. Caitlyn is considering making a large charitable deduction this year. Her filing status is MFJ and their AGI is $60,000. She is deciding between these options. o Donating cash to her local church of $40,000. o Donating painting to her church. FMV of the painting is 40,000 and her basis in the painting is $100. She purchased it three years ago. The church will sell the painting. o Donating painting to the community art museum. FMV of the painting is $40,000 and her basis in the painting is $100. She purchased it three years ago. The art museum will display the painting. Evaluate all three of the options. What is the charitable contribution amount for each item? Which item would you recommend Caitlyn contribute and why?arrow_forwardDoris, 55, has $100,000 in liquid assets that she would like to transfer to her nephew, Matt, 22, for his comfort and welfare. Doris would like Matt to receive the income produced by these assets annually until he is 35. At that time, she would like to give the assets to him outright. Which one of the following is the most appropriate lifetime transfer technique for Doris to use to achieve her objectives? A) A gift of the assets under the provisions of the Uniform Gifts to Minors Act B) An Internal Revenue Code Section 2503(c) trust C) A 13-year reversionary trust D) An Internal Revenue Code Section 2503(b) trustarrow_forward
- 3) Bob and Kelly are business partners at the firm of Dewey Cheatham and Howe. They purchased a fishing cabin together on the St. Lawrence river. Each contributed $150,000 . Toward the price of $300,000 After they owned the property for ten years Bob passed away . The cabin was valued at 500,000 on the date of bobs death . What is included in Bob's estate? What if they are father and daughter and Bob makes 3x the money that Kelly makes ?arrow_forwardBob died in 2020. He left an estate worth $20,000,000, a surviving spouse, and a two trust will which creates a marital trust and a credit shelter trust, how much property should go into each trust to minimize the estate taxes at Bob's death and at the death of the surviving spouse? $10,000,000 into each trust. $20,000,000 into the marital trust and nothing into the credit shelter trust. Approximately $11,500,000 into the marital trust and approximately $4,500,000 into the credit shelter trust. Approximately $11,500,000 into the credit shelter trust and the balance of the estate into the marital trust.arrow_forwardThe will of Josh O’Brien has the following stipulations:Antique collection goes to Ilsa Lunn.All money in the First Savings Bank goes to Richard Blaine.Cash of $9,000 goes to Nelson Tucker.All remaining assets are put into a trust fund with the income going to Lucy Van Jones. At her death, the principal is to be conveyed to Howard Amadeus.Identify the following:a. Remaindermanb. Trustorc. Demonstrative legacyd. General legacye. Specific legacyf. Life tenantg. Testatorarrow_forward
- Your client has a real estate asset used in his business. He exchanges it for a like-kind real estate asset owned by Ava. The basis of your client's asset is $50,000 and he gives Ava $25,000 cash plus the asset in exchange for Ava's asset, which is worth $40,000. Ava's basis in her original asset is $9,000. What is Ava's gain or loss? A. $25,000 gain recognized. $31,000 gain realized and recognized. C. $0 gain recognized. D. $0 loss recognized.arrow_forwardTaryn sold a sculpture for $6,000 on 1 January 2020, she bought it on December 1994 for $1,500.use both Indexation and Discount Capital Gain. Later on you need to advise which one will give you a better result.arrow_forwardDonna Stober’s estate has the following assets (all figures approximate fair value): The house, cash, and other assets are left to the decedent’s spouse. The investment land is contributed to a charitable organization. The automobiles are to be given to the decedent’s brother. The investments in stocks and bonds are to be put into a trust fund. The income generated by this trust will go to the decedent’s spouse annually until all of the couple’s children have reached the age of 25. At that time, the trust will be divided evenly among the children. The following amounts are paid prior to distribution and settlement of the estate: funeral expenses of $20,000 and estate administration expenses of $10,000. What value is to be reported as the taxable estate for federal estate tax purposes?arrow_forward
- Jennifer Thompson is the grantor of the Jennifer Thompson Trust, a revocable grantor trust. Ten years ago, Jennifer acquired a piece of real estate for $200,000. A year later, she spent $14,000 in improvements on the property. This year, when the value of the property was $300,000, she transferred it to the trust. What is the trust's basis in the property? A. $200,000 B. $214,000 C. $300,000 D. $314,000arrow_forwardI. Pielago is in need of funds for the next 3 months. She badly needed P30,000,000 in cash because of an emergency. Pielago looked for the list of her family’s property and found a land which costs P50,000,000 and has a fair market value of P65,000,000. What do you think is the best money market security that suits Pielago’s case? II. If Pielago on the other hand is not a user of the fund but a surplus unit, what do you think is the most suitable money market security she must invest in, considering the fact that she has P55 Trillion excess funds.arrow_forwardOlivia wishes to purchase some undeveloped land for investment purposes. She is unable to pay the whole purchasing price. Instead, Olivia pays the landowner $51,900 in exchange for the right to purchase the land for $1,038,000 at any time over the following four years. Olivia sells the option for $64,875, 14 months after obtaining it. What is the size and nature of Olivia's gain or loss? She has a $ lengthy capital gain.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTPfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning