CONCEPTS IN FED.TAX.,2020-W/ACCESS
20th Edition
ISBN: 9780357110362
Author: Murphy
Publisher: CENGAGE L
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Chapter 5, Problem 80IIP
To determine
Ascertain the tax consequences for the situation given whether Person C is allowed to deduct the interest on loan.
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Lorissa owes Waterbury State Bank $200,000. During the current year, she isunable to make the required payments on the loan and negotiates the followingterms to extinguish the debt. Lorissa transfers to Waterbury ownership ofinvestment property with a value of $90,000 and a basis of $55,000, and commonstock with a value of $50,000 and a basis of $70,000. Lorissa also pays Waterbury$5,000 cash, and Waterbury forgives the remaining amount of debt. Before theagreement, Lorissa's assets are $290,000, and her liabilities are $440,000.Determine how much gross income Lorissa has from the extinguishment of the debt.
Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $20,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $2,400 this year if the interest rate on the loan had been set at the prevailing federal interest rate.
Required:
Wally used the funds as a down payment on a speedboat and repaid the $20,000 loan (including $200 of interest) at year-end.
a-1. Does this loan result in any income to either party?
a-2. Indicate the amount below.
Assume instead that Pay More forgave the loan and interest on December 31. What amount of gross income does Wally recognize this year?
Richie is an unmarried law student at State University Law School, a qualified educational institution. This year Richie borrowed $24,000 from County Bank and paid interest of $1,440. Richie used the loan proceeds to pay his law school tuition. Calculate the amounts Richie can deduct for higher education expenses and interest on higher education loans under the following circumstances:
Richie’s AGI before deducting interest on higher education loans is $50,000.
Chapter 5 Solutions
CONCEPTS IN FED.TAX.,2020-W/ACCESS
Ch. 5 - Prob. 1DQCh. 5 - Why does the computation of adjusted gross income...Ch. 5 - Prob. 3DQCh. 5 - Prob. 4DQCh. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 8DQCh. 5 - Prob. 9DQCh. 5 - What is the difference between a trade or business...
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