Question

31. Assume the following facts about a Nevada property and calculate the total taxable income (after computing depreciation) and tax in each of the following circumstances, including, as applicable, federal entity level and dividend tax, net investment income and passthrough deduction: (use separate excel or worksheets if necessary) Industrial building which has the following attributes: Rental income $ 35,000 Property expenses $ 10,000 Interest expense $ 9,000 Land Basis $ 30,000 Building Basis $ 170,000 Debt $ 120,000 Equity $ 80,000

31a) Determine the taxable income and tax expense for an individual investor assuming that a real estate election is made (40 year depreciable life of the building and fully deductible interest). ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

31b) Determine the taxable income and tax expense for a corporate investor assuming that a real estate election is made (40 year depreciable life of the building and fully deductible interest). ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

31c) What is the taxable income and tax expense for a private pension plan (e.g. GE Pension) that is considered a qualified nonprofit organization who receives 50% of the taxable income from an LLC which is taxed as a partnership (provide the answer assuming the LLC is fractions rule compliant and if it violates the fractions rule)? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Answer 1

31(a) Fair Market Value of Rental Income = $35000

Gross Annual Value = $35000

Less: Municipal Tax = $10000

Net Annual Value u/s23(1) $25000

Less: Deduction u/s 24

a) Standard Deduction  

.30 *$25000 $7500

b) Interest Expense $9000

Income u/h House Property u/s22 $8500

Loss u/h PGBP

Depreciation: $170000*10% + $30000*0% as per Income Tax Act

= $17000

Net Taxable Income : ($8500) - $120000(Deduction u/s 80C)Principal Repayment of House loan

= ($128500)

Calculation of Tax Liability

Nil as income is less than $250000

31(b) Taxable Income are same for company as computed above for individual

Tax Liability are also nil as 30% of that income is computed as negative figure so nil

31(c) Taxable Income is less than maximum limit is not chargeable to income tax