Mark's father, Michael, loaned Mark $300,000interest free for five years to invest insecurities that yield a 10 percent annualreturn. At the end of the five years, Mark sellsthe securities to repay his father.Unfortunately, the market declined and Markwas able to sell the securities for only$280,000. Michael accepted the $280,000 aspayment in full on the loan. How do you thinkthis transaction will be treated for taxpurposes?

If an asset is sold after holding it for more than one year then, the capital gain or loss is…

Unfortunately, the market declined and Mark was able to sell the securities for only $280,000. Michael accepted the $280,000 as payment in full on the loan. How do you think this transaction will be treated for tax purposes?

Unfortunately, the market declined and Mark was able to sell the securities for only $280,000. Michael accepted the $280,000 as payment in full on the loan. How do you think this transaction will be treated for tax purposes?

Income Tax Fundamentals 2020

38th Edition

ISBN:9780357391129

Author:WHITTENBURG

Publisher:WHITTENBURG

Chapter3: Business Income And Expenses

Section: Chapter Questions

Problem 18P

See similar textbooks

Related questions

Q: Jack and Jill decided to pool their money and start a water delivery business. Since they trust each…

A: A partnership is a business setup by two or more partners who agree to share profits and losses in a…

Q: This year William provided $4,200 of services to a large client on credit. Unfortunately, this…

A: Bad debt expenses are the amount of debtors which are not expected to be recovered. It is considered…

Q: Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a…

A: In accordance with imputed interest rules, No interest shall be imputed on outstanding gift loan…

Q: Liz left the following bank deposits upon his death A bank - 1000000 B bank - 2000000 c bank…

A: Final Withholding tax: Final Withholding Tax is a kind of withholding tax on certain income payments…

Q: The Liu Trust is short of cash. It is required to distribute $100,000 to Yang every year, and that…

A: A few things must first be understood in order to approach this problem: DNI or distributable net…

Q: Sherri is a tax accountant. She prepared a large corporate tax return 2 years ago and billed $5,000…

A: A bad debt in a business is a loss which is completely or totally worthless. Business Bad debts are…

Q: In 2021, Rudy won his defamation case and was awarded $500,000. The attorn will collect from Rudy…

A: Concept : The compensation against Defamation is fully taxable . The amount paid to attorney on a…

Q: Your client has made previous lifetime gifts that have fully exhausted his applicable credit amount.…

A: The estate's tax is taxation applied by the government when the estate's value exceeds a certain…

Q: (a) What are the tax consequences to Adams and Newco? Assume Adams had paid only $30,000 of the…

A: Introduction: Mortgage: Mortgage is defined as debt security in which the loan is backed by an asset…

Q: Micheal finds himself ia panic with a tax deadline coming up. Along with his wife they have a income…

A: Given that the combined income is $60000, interest earned is $1200, investment amount in the tax…

Q: Luma, who works for Microsoft Corp and owns 10,000 shares of American Airlines borrowed the…

A: IRS has a concept of imputed interest. Imputed interest is calculated when the loan is lent at no…

Q: Jones is seriously ill and has $6 million of property that he wants to leave to his four children.…

Q: terry owns real estate with an adjusted basis of 600000 and a fair market value of 1100000. the…

A: Given information: Adjusted basis of real estate = 600,000 Fair market value = 1,100,000 Nonrecourse…

Q: How could Samuel have received better tax consequences?

A: IRA stands for individual retirement account used by the financial bodies in the USA. The main…

Q: John purchased a house for $300,000. It is now worth $800,000 4 years later. Johns fiancee lived…

A: Profits from home sales are deemed capital gains and will be taxed at federal rates of 0%, 15%, or…

Q: Tom sold mutual shares he had owned 3 years so that he could use the proceeds to return to college.…

A: The capital gains will be treated long-term capital gains as they are held for more than 3 years.…

Q: Leona sold California real estate for $632,000 and she does not meet any of the exceptions for…

A: Withholding rate is 3 1/3 % of total sale price. So the withholding tax = 632000* 0.03333% = $ 21046

Q: Hai, a single taxpayer, invested $75,000 in the stock of Penguin Corporation, which recently…

A: Explanation: 1. As per section 1244, ordinary loss for a single taxpayer can be claimed Up to…

Q: Amir purchased a stamp collection with the value of $3,000 on 31 March 1988. On the same day, he…

A: Adjusted basis of the stamp collection must be ascertained. It includes the cost of acquisition and…

Q: Carrie loaned her friend $4500 to buy a used car. She had her friend sign a note with repayment…

A: A non-business debt means the debt which relates to either debts given personally or for investment…

Q: Bradley goes into bankruptcy owing $25,000 as wages to his four employees. There is enough in his…

A: As per the bankruptcy Act, secured creditors and employees are paid first. Secured creditors are the…

Q: erry has given you the following information on his capital gains and losses for the current income…

A: Capital gains arise when capital assets are sold at a higher price than the price at which it was…

Q: James has just been audited by the IRS and, as a result, has been assessed a substantial deficiency…

A: The issue of notice of deficiency is made if the the tax determined by tax authorities is different…

Q: Your good friend, Mickey, has a difficult time managing his money and often lives paycheck to…

Q: If a taxpayer chooses to have his dividends automatically reinvested in the corporation's stock,…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: You are Melina’s CPA, she to whom Walter “Buck” Swords left $50,000 and a used car in his will. What…

A: Inheritance in simple words can be defined as an act of passing on the property, cash, estates or…

Q: Mr. Ramos, a non-resident citizen, sold shares of stocks of a domestic corporation directly to a…

A: Capital gains refer to profit earned on the sale of capital assets. Ordinary income and capital…

Q: Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2020,…

A: The shareholder loan is a debt like financing facility provided by the shareholders to the…

Q: Is Scott’s donation of a substantive number of the company’s shares to Jenny valid? Why or why not?

A: No, it isn't right. Scott's activity is sketchy in this situation one should diminish the assessment…

Q: This year William provided $4,200 of services to a large client on credit. Unfortunately, this…

A: Here in this question, we are required to answer what amount of deduction for bad debt can be…

Q: what would you advise Rose to do with regard to the transactions?

A: Recognized gain or loss can be defined as the excess or deficit amount recovered over the sale of…

Q: What are the tax implications of the sale?

A: Solution:- Given, Chad takes a distribution of the CRP stock several years Stock value = $500,000…

Q: What is correct?

A: Given information is: Auntie sold some stock she purchased several years ago for $10,000 to Niece…

Q: 2. Six years ago, Alvin loaned his prospective brother-in-law, Bruno, $20,000. The money was used to…

A: Tax refers to a form of liability or debt imposed upon an individual or an entity for a desired…

Q: Explain why the loss resulting from the sale of a computer in the following three situations is…

Q: Allen, 32 years old, withdraws $25,000 from his traditional IRA account which he plans to deposit…

A: Taxable income: It is the portion of the income that is subject to tax paid to state authorities…

Q: Lena is the sole shareholder and president of Gold Corporation, which is a C Corporation. She feels…

Q: Which of the following would constitute tax evasion? a. Henry salary sacrifices future income…

A: Tax evasion means when the individual does not show their actual income or does not show any income…

Q: Scott requested Jenny to work with the Bureau of Internal Revenue (BIR) in further reducing the tax…

A: Tax means the charge which is levy by the government on the net income of individual or an…

Q: Michelle had a $200,000 long-term capital gain when she sold part of her Bitcoin in 2021, increasing…

A: When a capital asset is sold, the phrase capital gain refers to the rise in its value. Simply put, a…

Q: Your employer asks you to consult on the better approach to a decision. What should the corporation…

A: Present Value(PV) of an amount shows value in current time. It is calculated by discounting amount…

Q: John is filing taxes individually, his salary is $102,000, he also received $5,000 on interest from…

A: Hi, since you have asked a question with multiple subparts, we are solving the 1st 3 subparts for…

Q: Assume that Sean does not expect to have any investment income in the foreseeable future. Should…

A: If sean treated as qualified dividend: Current year tax = Dividend * Preferential tax rate current…

Q: During 2020, Jackie sent her brother Junnie $2,500 via a telegraphic transfer through El Banco…

A: Solution Given in the question During 2020, Jackie sent her brother Junnie $2,500 via a telegraphic…

Question

Mark's father, Michael, loaned Mark $300,000
interest free for five years to invest in
securities that yield a 10 percent annual
return. At the end of the five years, Mark sells
the securities to repay his father.
Unfortunately, the market declined and Mark
was able to sell the securities for only
$280,000. Michael accepted the $280,000 as
payment in full on the loan. How do you think
this transaction will be treated for tax
purposes?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Capital Gain or Capital Loss: - Capital gain or loss is recorded as per prevailing tax laws.

VIEW

Computation for Capital Loss

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Selly sold his car to Buyie for 120,000 payable in 12 equal installments of 10,000 each month. As a security Buyie executed a chattel mortgage on the car. What is the remedy if he defaulted to pay one installment?a. Exact fulfillmentb. Cancel the salec. Foreclose the chatteld. All of the abovee. None of the Above
Joan bought a bond several years ago for $23,000, Today, the value has declined to $18,000. If Joan gifts the bond to her brother today, all the following statements are true except? A. If he sells the bond for $18,000 or less, his basis will be $18,000 and his holding period will be short-term. B. If he holds the bond for 6 months, the price recovers and he sells it for more than $23,000, his basis will be $23,000 and his holding period will be short-term. C. If he sells the bond for more than $18,000 but less than $23,000 there will be no gain whatsoever and the holding period won't matter. D. If he sells the bond in 10 months for $23,000 exactly, there will be no gain but the holding period will be long-term.
Five years ago, alex loaned his son Liam $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of 10 years. Liam always made the interest payments until last year. During the current year, Liam notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is: a.$3,000 deduction. b.$20,000 deduction. c.No deduction. d.$21,800 deduction.
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following: Roy borrows from the bank with Hal's guarantee to the bank. Hal cashes in the CD (with no penalty) and lends Roy the funds at 2% interest. Hal is in the 32% marginal tax bracket. Roy, whose only source of income is his salary, is in the 12% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him.
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following: Roy borrows from the bank with Hal's guarantee to the bank. Hal cashes in the CD (with no penalty) and lends Roy the funds at 2% interest. Hal is in the 32% marginal tax bracket. Roy, whose only source of income is his salary, is in the 12% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him. Considering only the tax consequences, answer the following. a. The loan guarantee:Hal's interest income from the CDs would be $ before taxes and $ after taxes. Roy's interest expense from the bank loan would be $ before taxes and $ after taxes. This arrangement would produce an overall cash flow after taxes to the family of $. b. The loan from Hal to Roy:Hal's tax…
Mrs. S borrowed P20,000.00 from PG. She and her 19-year-old son, Mario, signed the promissory note for the loan, which note did not say anything about the capacity of the signers. Mrs. S made partial payments little by little. After several years, she died leaving a balance of P10,000.00 on the note. PG demanded payment from Mario who refused to pay. When sued for the amount, Mario raised the defense that when he signed the note he was still a minor. Should the defense be sustained? Why?
1.Three years ago, Morris loaned Alma $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Alma filed for bankruptcy, and Morris learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Morris received $300. Assuming the loan is a nonbusiness bad debt, how should Morris account for the loan? a. $4,700 ordinary loss in the current year. b. $3,000 ordinary loss last year and $1,700 ordinary loss in the current year c. $4,700 short-term capital loss in the current year. d. $3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.
Ten years ago Jim took a mortgage loan of $200,000 to be repaid in 20 equal annual installments of $30,197.34. The bank has told him that they would accept $145,000 today as payment in full for the remainder of the loan. What is the balance on this loan? If we assume that Jim has the money, what interest rate must he earn on alternative investments in order not to accept the bank offer?
Zebulon wants to borrow money. He writes a note that guarantees that 360 days from now he will give an amount of $1818.00 to whoever brings back the note to him. Yolanda wants to invest. She ourchases the note from Zebulon. She pays $1800. After 30 days, Yolanda sells the notes to Walter for $1679.45. Walter keeps the note until maturity. (a) What is the simple interest rate earned by Yolanda? Note that negative rates may occur. When this happens it means that Yolanda lost money :( (b) What is the simple interest rate earned by Walter? (c) What is the simple interest rate at which Zebulon borrowed?
Rocky and Adrien are selling their house. Offer #1 puts $8000 down and pays the lump sum $145703 in 4 months. Offer #2 puts $8000 down and pays the lump sum $150513 in 12 months. At what rate of interest would Adrien and Rocky be indifferent to the two offers (use today as a focal date)?
Joe buys a piece of land on January 3rd of the current year. He pays $10,000 in cash. 1) Suppose instead the land is subject to a mortgage of $3,000 and Joe receives$12,000 in cash and the buyer assumes Joe’s mortgage on the land. Does Joe realize a gain or loss and if so how much is it? 2) Suppose Joe instead received a piece of jewelry worth $12,000 and the buyer assumes Joe’s mortgage on the land. Does Joe realize a gain or loss and if so, how much is it? note: if you can't answer both, please answer question number 2