Question

Tax Assignment Three Chapter 06: Deductions and Losses: In General This assignment consists of three questions listed below. Answer the questions and submit your assignment to the drop box on the designated date. Your paper should be double spaced and at minimum two pages long. You may use any format for the answer, however, the Conclusion, Rule, Application, Conclusion format is preferable for clarity and better understanding.

- The stock of Eagle, Inc. is owned as follows: Tom 23%
Tom’s uncle 22%
Tom’s daughter 7%
Tom’s sister 15%
Tom’s spouse 15%
Tom’s nephew 8%
Tom’s CPA, unrelated 10%
Tom sells land and a building to Eagle, Inc. for $212,000. His adjusted basis for these assets is $225,000. Calculate Tom’s realized and recognized loss associated with the sale.

-Tracy invested in the following stocks and bonds during 2018. Blue, Inc. $25,000 City of Falcon bonds 75,000 To finance the investments, she borrowed $100,000 from Swan Bank. Interest expense paid on the loan during 2018 was $5,000. During 2018, Tracy received $1,250 of dividend income from Blue, Inc. and $3,000 of interest income on the municipal bonds. Determine the amount of Tracy’s gross income. Determine the maximum amount of Tracy’s deductible interest expense.

-Are all personal expenses disallowed as deductions in 2018?

Answer 1

• Tom’s realized loss is $13,000 = Amount realized $212,000 - Adjusted basis of $ (225,000) = Realized loss of ($13,000)
• However, his recognized loss is $0 because the loss is disallowed as a § 267 related party transaction
• Tracy can deduct the interest paid of $1,250 ($5,000 ´ 1/4) on the portion of the loan that relates to the Blue, Inc. stock. The interest paid of $3,750 on the portion of the loan that relates to the municipal bonds is disallowed because the interest income from the bonds is tax-exempt.