03 Chapter

03 Chapter - Property: Dispositions Chapter 3 Property: Dispositions SOLUTIONS MANUAL Discussion Questions: 1. [LO 1] examine and contrast different ways in which a taxpayer triggers a realization effect by disposing of an asset. A realization event for tax purposes is created in many ways. Virtually any government activity will result in a sale or other disposition. These include a sale, trade, gift to charity, disposal to the landfill, or destruction in a natural disaster. In a sale or trade ( replacement), the taxpayer receives something of value in bring back for the asset. In contrast, a charitable contribution, disposal, or destruction from a natural disaster generally results in a spill of any remaining basis in the asset without earnings (unless reimbursed by insurance). 2. [LO 1] Potomac Corporation wants to sell a warehouse that it has employ in its business for 10 years. Potomac is asking $450,000 for the holding. The warehouse is qualified to a mortgage of $125,000. If Potomac accepts Wyden Inc.s impinge oner to give Potomac $325,000 in exchange and assume full responsibility for the mortgage on the property, what bar does Potomac realize on the sale? When the property disposed of is issuing to a liability and the buyer assumes the liability, the relief of debt increases the tote up realized.



Thus, Potomacs amount realized consists of $450,000, which is cash of $325,000 plus $125,000 relief of debt. This assumes that the buyer hypothetically transfers cash to the seller in order to pay off the mortgage. 3. [LO 1] Montana Max sells a 2,500-acre ranch for $1,000,000 in cash, a note receivable of $1,000,000, and debt relief of $2,400,000. He also pays selling commissions of $60,000. In addition, Max agrees to build a new barn on the property (cost $250,000) and spend $100,000 upgrading the fence on the property before the sale. What is Maxs amount realized on the sale? Anything received by the seller during a sale or exchange is included in the amount realized. Most dispositions...If you want to prepare a full essay, order it on our website: Orderessay



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