Question

For the past 20 years, Ginny has operated her tailoring and alterations business out of a 700-square-foot, commercial office building, at 4000 Central. Last year, Ginny signed a five-year lease with Kelly Real Estate Management, the owner of the building. This year, Kelly decided to convert the building into lofts and is negotiating with all its tenants to surrender their leasehold rights and vacate their space in the building. Kelly has offered Ginny a $60,000 cash payment and the use of a 1,000-square-foot office and workshop in a new location. If Ginny accepts Kelly’s offer, she can use the new office and work-shop rent free for 36 months. The fair rental value of this new location is $1,000 per month.

Required:

Write a short tax research memo describing the tax consequences to Ginny if she accepts Kelly’ offer and moves her business location. Be sure to cite your primary sources properly. When drafting your memo be sure to address the following:

1. Calculate the amount that Ginny will realize based on the facts given.

2. Describe the tax consequences of this asset disposition. Identify the type of asset and provide an overview.

3. Identify the character of any income/gain.

4. Based on the character of income, discuss the various taxes that may apply.

5. Differentiate between ordinary income and preferential rates and the significance of each.

Answer 1

Answer :